The Mortgage Glossary. Every Term, In Plain English.

A mortgage with an interest rate that changes during the life of the loan based on a market index. ARMs usually start with a fixed period (for example, 5 or 7 years) and then adjust on a set schedule. Caps limit how much the rate can rise at each adjustment and over the life of the loan.

The gradual repayment of your loan through regular payments that cover both principal and interest. Early in the loan, more of each payment goes to interest. Over time, more goes to principal.

The total yearly cost of your loan expressed as a percentage. Unlike the note rate, APR includes interest plus certain fees such as mortgage insurance and origination charges, which makes it useful for comparing offers from different lenders. Do not confuse APR with your actual interest rate.

A professional, independent estimate of a property's value, required by the lender to confirm the home is worth what you are borrowing against it. If the appraisal comes in below the contract price, that gap has to be resolved before closing.

Assets are what you own: bank accounts, retirement accounts, investments. Reserves are the months of mortgage payments you have left in the bank after closing. Some loan programs, especially jumbo and investment loans, require a specific number of months in reserves.

Closing (also called settlement) is the meeting where you sign the final documents and the property changes hands. Closing costs are the expenses involved: lender fees, title insurance, appraisal, recording charges, prepaid taxes and insurance, and in Maryland, recordation and transfer taxes. Budget roughly 2 to 4% of the purchase price in Maryland.

The final, itemized statement of your loan terms and closing costs, delivered at least three business days before closing. Ken reviews every number on it with you before you sign so there are no surprises at the table.

A conventional loan is any mortgage not insured by a government agency. A conforming loan is a conventional loan that fits within the limits set by Fannie Mae and Freddie Mac. Loans above the limit are jumbo loans. Limits are higher in high-cost areas like the Washington, DC metro, which includes much of Ken's Maryland and Virginia market.

The percentage of your gross monthly income that goes to debt payments, including the new mortgage. Lenders use it to judge how comfortably you can afford the payment. Conventional loans typically allow up to roughly 45 to 50%.

An investor metric: the property's monthly rent divided by its full monthly payment (principal, interest, taxes, insurance, and HOA). A DSCR of 1.0 means the rent exactly covers the payment. DSCR loans qualify you on this number instead of your personal income, which is why investors and the self-employed love them.

The part of the purchase price you pay in cash rather than finance. It ranges from $0 (VA, USDA) to 3 to 5% (conventional) to 20% or more (to avoid PMI or for investment properties). Down payment assistance programs can cover some or all of it for eligible buyers.

Short for non-qualified mortgage: any loan that documents income outside the standard W-2 and tax return box. Bank statement loans, profit and loss loans, and DSCR loans all fall in this category. They exist because tax returns often understate what business owners and investors actually earn.

The lender's charge for processing and creating your loan, shown on your Loan Estimate and Closing Disclosure. It is part of your closing costs and one of the numbers Ken walks through line by line before you commit.

Principal, Interest, Taxes, Insurance, and Association dues: the full monthly cost of owning the home, not just the loan payment. This is the number that matters for your budget and for DSCR math on investment properties.

Pre-qualification is an informal estimate based on unverified information. Pre-approval is a documented review of your credit, income, and assets, and it is what sellers and listing agents take seriously. Fairway's Advantage Pre-Approval goes further still: an underwriter reviews your file before you shop.

The amount you actually borrowed, separate from interest. Extra payments toward principal shrink the balance faster and cut the total interest you pay over the life of the loan.

A lender's commitment to hold your interest rate for a set period, usually 30 to 60 days, while your loan closes. Once locked, your rate does not change regardless of market movement. Ken advises on lock timing based on your closing date and current conditions.

Maryland-specific closing costs charged when the deed and mortgage are recorded. Rates vary by county. Charles County's current rates are explained in detail on the FAQ page. First-time Maryland buyers get an exemption from the state transfer tax on their share.

Money the seller agrees to contribute toward your closing costs as part of the deal. Program limits apply, but in a balanced market concessions can meaningfully reduce your cash to close.

Title is the legal ownership of the property. Title insurance protects you and the lender against defects in that ownership history, such as unknown liens or claims. The lender's policy is required; the owner's policy is optional but strongly recommended.

Underwriting is the lender's formal review of your entire file: income, credit, assets, and the appraisal. Conditions are the items the underwriter asks for before final approval. Clear to close means every condition is satisfied and the closing can be scheduled. Fairway underwrites most files in house, which keeps this stage moving.