Mortgage Terms Glossary

A non-QM mortgage designed for independent contractors, freelancers, gig workers, and other borrowers who receive 1099 income. Qualification is based on 1099 earnings and alternative income documentation rather than traditional W-2 employment records.

A federal requirement that lenders make a reasonable determination that a borrower can repay the mortgage based on verified financial information.

A schedule on how the loan will be repaid, which typically includes amount borrowed, interest rate paid and term.

Written estimate of property’s current market value based on sales for comparable properties. 

Annual percentage rate; annual cost of loan that reflects interest, points paid, fees and mortgage insurance.

Adjustable rate mortgage; a mortgage with a fixed rate of interest for a short period of time, then adjusts based on an index.

A mortgage that allows eligible borrowers to qualify using their liquid assets, retirement accounts, investment portfolios, and other verifiable reserves instead of traditional employment income. Income is calculated by dividing eligible assets by a period specified by the lender.

A qualification method where eligible assets such as savings, investments, or retirement accounts are converted into qualifying income for mortgage approval. This approach is commonly used with asset depletion mortgages.

A non-QM mortgage designed for self-employed borrowers who may not demonstrate sufficient income on tax returns. Qualification is based primarily on deposits shown in personal or business bank statements rather than W-2s or traditional income documentation.

A short-term financing solution that helps borrowers purchase a new property before selling their current home. Bridge loans provide temporary access to equity that can be repaid once the existing property is sold.

Income earned through ownership of a business, which may require alternative documentation methods for mortgage qualification.

A review of business, rental property, or personal income streams used to determine a borrower's ability to repay a mortgage when traditional income documentation is unavailable.

Refinance of mortgage to get money from home’s equity.

Title free of liens and disputes.

Money needed to close the mortgage. These could include real estate, escrow or recording fees, transfer taxes or title insurance.

Positive borrower characteristics, such as substantial assets, large down payments, strong reserves, or excellent credit, that help offset other areas of risk during underwriting.

A mortgage designed for borrowers who have experienced significant financial events such as bankruptcy, foreclosure, divorce, or other life challenges. Eligibility is determined by evaluating the borrower's overall financial profile rather than focusing solely on the past credit event.

A calculation used to determine whether an investment property's rental income is sufficient to cover its mortgage payment and other debt obligations. DSCR loans often rely on the property's cash flow rather than the borrower's personal income.

The percentage of a borrower's gross monthly income that goes toward monthly debt obligations. Lenders use DTI to evaluate repayment capacity. Some Non-QM programs offer more flexibility with DTI requirements than conventional loans.

A commercial real estate metric that measures a property's net operating income relative to the loan amount. Although more common in commercial lending, some sophisticated real estate investors recognize the term.

Debt Service Coverage Ratio (DSCR) Loan: a mortgage commonly used for investment properties where qualification is based primarily on the property's rental income compared to its debt obligations rather than the borrower's personal income.

Money that lets buyer know you’re serious about the purchase; goes into escrow account and is credited toward purchase.

An account borrowers are generally required to create for setting aside a percentage of the yearly taxes at loan closing. The lender manages the account, and it also contains additional money collected monthly, which is used to pay tax bills regularly.

A percentage used by lenders to estimate business expenses when analyzing bank statement deposits for qualifying income.

Federal Housing Administration; agency that is a part of the U.S. Department of Housing and Urban development providing insurance on FHA mortgage loans.

A mortgage where the term of the loan and interest rate are negotiated and fixed for the duration of the loan. 

A mortgage used to purchase or refinance real estate that is not the borrower's primary residence. These loans are commonly used by real estate investors to acquire rental properties or expand their investment portfolio.

A measurement that compares the total balance of all loans secured by a property against its value. CLTV is commonly used when borrowers have both a first mortgage and a second mortgage or home equity loan.

Assets remaining after closing that can be used to make future mortgage payments. Lenders often require reserves for investment property and Non-QM loans.

A mortgage that does not meet the underwriting guidelines established by Fannie Mae or Freddie Mac. Many non-conforming loans fall within the broader category of Non-Qualified Mortgages (Non-QM), which use alternative methods to evaluate borrower income, assets, or property cash flow. Examples include bank statement loans, DSCR loans, 1099 loans, jumbo loans, and asset depletion mortgages.

A loan that does not meet all Qualified Mortgage standards but still requires lenders to verify a borrower's ability to repay through alternative methods. Non-QM loans can include bank statement, DSCR, 1099, jumbo, asset depletion, and portfolio loan programs. 

A loan that is secured by collateral, usually real estate property or equipment. Can be used by a self-directed IRA to purchase real estate property.

A condominium that does not meet Fannie Mae or Freddie Mac eligibility requirements for conventional financing. Examples may include projects with high investor ownership, pending litigation, or other factors that fall outside agency guidelines. Non-warrantable condo loans provide financing options for these properties.

Cost of processing, underwriting and funding a mortgage loan.

Private mortgage insurance; is required for conventional loans with less than 20% down payment.

A mortgage that is originated and retained by the lender rather than being sold on the secondary market. Because the lender keeps the loan in its portfolio, qualification guidelines may be more flexible than conventional mortgage programs.

A lending strategy in which a financial institution retains mortgage loans rather than selling them on the secondary market. Portfolio lenders may have greater flexibility in underwriting guidelines.

A mortgage that allows self-employed borrowers to qualify using a profit and loss statement, typically prepared by a CPA or tax professional, instead of extensive bank statement documentation. The loan focuses on business profitability as a measure of repayment ability. 

Money paid upfront on a home loan to lower interest rate. Each point equals 1% of mortgage.

A financial statement that summarizes business income and expenses over a specified period. Some lenders allow qualified self-employed borrowers to use a CPA-prepared P&L for mortgage qualification.

The amount borrowed from a lender for a home purchase.

A mortgage that meets standards established by federal regulations regarding borrower debt levels, loan features, and underwriting requirements.

Income generated from properties rented on a short-term basis through platforms such as Airbnb or Vrbo. Some Non-QM programs allow this income to be considered when qualifying borrowers.

Insurance obtained by the borrower to ensure that the property is clear of any liens.

The review process done by a lender to determine if the amount of risk under certain parameters is acceptable when offering a mortgage loan to a borrower.