Glossary

Ability-to-repay rule

The ability-to-repay rule requires a mortgage lender to make a reasonable, good-faith determination, based on verified records, that you can repay the loan. The lender must consider eight factors, including income or assets, employment, the new payment, other debts, debt-to-income ratio or residual income, and credit history. It applies to QM and Non-QM loans alike.

Source: 12 CFR 1026.43(c); Dodd-Frank Act section 1411

Non-QM Loans in Orange County: Qualify Without Tax Returns

Adjustable-rate mortgage (ARM)

An adjustable-rate mortgage keeps one rate for an initial period, such as 5, 7 or 10 years, then adjusts at set intervals to a published index plus a fixed margin, within caps.

ARM Loans: 3/6, 5/6, 7/6, 10/6 and the 5/5 ARM

Amortization

Amortization is the schedule that splits each fixed mortgage payment between interest and principal. Early payments go mostly to interest and later payments mostly to principal, so the balance reaches zero at the end of the term.

Source: CFPB, 'What is amortization and how could it affect my loan?'

Fixed-Rate Mortgage in Orange County: From 3% Down

Annual percentage rate (APR)

The annual percentage rate is the yearly cost of a mortgage expressed as a percentage. It combines the interest rate with certain finance charges such as discount points and some lender fees, so it is usually higher than the note rate. Lenders must disclose it under the Truth in Lending Act so borrowers can compare offers.

Source: 12 CFR 1026.18 and 1026.22 (Regulation Z); www.consumerfinance.gov

Purchase Calculator: 2026 County Loan Limits and Payment

Appraisal

A home appraisal is a licensed or certified appraiser's independent opinion of a property's market value, ordered by the lender. Federal rules bar anyone in the transaction from pressuring the appraiser, and the lender must give you a copy of the appraisal promptly, and no later than three business days before closing.

Source: 12 CFR 1026.42 (appraiser independence); 12 CFR 1002.14 (ECOA Regulation B, copy of appraisal)

Buy a Home in Orange County and LA: Pre-Approval That Wins

Appraisal gap

An appraisal gap is the difference when a home appraises for less than the contract price. The lender bases the loan-to-value ratio on the lower appraised value, so the buyer covers the gap in cash, renegotiates the price, or uses the appraisal contingency if the contract has one.

Source: Fannie Mae Selling Guide B2-1.2-01 (LTV based on lower of price or appraised value)

Buy a Home in Orange County and LA: Pre-Approval That Wins

Assumable mortgage

An assumable mortgage lets a buyer take over the seller's existing loan, including its interest rate, remaining balance and term. FHA, VA and USDA loans are generally assumable if the buyer qualifies with the lender; most conventional loans have a due-on-sale clause that prevents it. The buyer pays the seller's equity in cash or with a second loan.

Source: HUD Handbook 4000.1 (assumptions); 38 U.S.C. 3714 (VA assumptions)

Loan Assumption Calculator: VA and FHA, With the Equity Gap

Bank statement loan

A bank statement loan is a Non-QM mortgage that calculates qualifying income from 12 or 24 months of personal or business bank deposits instead of tax returns. It is used mainly by self-employed borrowers whose tax returns show reduced income after business deductions.

Bank Statement Loans in Orange County: No Tax Returns

Cash to close

Cash to close is the total you bring to closing: the down payment plus closing costs and prepaid items, minus your earnest money deposit and any credits.

Closing Costs for Orange County Homebuyers: What to Review

Cash-out refinance

A cash-out refinance replaces your current mortgage with a larger one and pays you the difference in cash. On a primary residence, conventional and FHA cash-out loans are generally capped at 80% of the home's value, and VA allows higher for eligible veterans.

Source: Fannie Mae Eligibility Matrix; HUD Handbook 4000.1 (cash-out refinance, 80% LTV)

Refinance in Orange County and LA: Honest Break-Even Math

Closing Disclosure

A Closing Disclosure is the five-page form that lists the final terms and costs of your mortgage. You must receive it at least three business days before closing so you can compare it with your Loan Estimate and ask about any changes.

Source: 12 CFR 1026.19(f) and 1026.38; www.consumerfinance.gov

Closing Costs for Orange County Homebuyers: What to Review

Community Mortgage

The Community Mortgage program is a Non-QM mortgage program where income and employment are not stated on the application at all.

No Income Verification Mortgage: Community CDFI Loan

Conforming loan limit

The conforming loan limit is the largest loan amount Fannie Mae and Freddie Mac will buy, set each year by the FHFA for every U.S. county. For 2026 the one-unit limit is $832,750 in most counties and $1,249,125 in high-cost counties, including Orange and Los Angeles. A loan above the county limit is a jumbo loan.

2026 California Loan Limits by County

Conventional loan

A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as FHA, VA or USDA. Most conventional loans follow Fannie Mae or Freddie Mac guidelines and stay within the conforming loan limit; loans above that limit are jumbo loans.

Source: Fannie Mae Selling Guide; Freddie Mac Single-Family Seller/Servicer Guide

FHA vs. Conventional Loans for California Homebuyers

Debt-to-income ratio (DTI)

Debt-to-income ratio is your total monthly debt payments, including the new housing payment, divided by your gross monthly income. Lenders use it to judge how much payment you can carry.

Affordability Calculator: How Much House, What Limits You

Deed of trust

In California most home loans are secured by a deed of trust instead of a mortgage. It involves three parties: the borrower (trustor), the lender (beneficiary) and a neutral trustee who holds a power of sale, which allows a nonjudicial foreclosure if the loan goes into default.

Source: California Civil Code section 2924 et seq.

Home Loan Programs in Orange County: Jumbo, Non-QM, FHA, VA

Discount points

Discount points are an upfront fee paid at closing to lower the interest rate for the life of the loan. One point equals 1% of the loan amount.

2-1 Buydown vs. Permanent Buydown for Orange County Buyers

Down payment assistance (DPA)

Down payment assistance is a grant, forgivable loan or deferred second loan that helps a buyer cover the down payment or closing costs. In California the main public programs include CalHFA's MyHome Assistance Program, a deferred-payment junior loan for first-time buyers, and the GSFA Platinum program.

Source: CalHFA MyHome Assistance Program Handbook; www.calhfa.ca.gov

CalHFA MyHome: Up to 3.5% Down Payment Assistance

DSCR loan

A DSCR loan is an investment-property mortgage that qualifies on the property's rental income instead of the borrower's personal income. The debt service coverage ratio is gross monthly rent divided by the monthly payment (principal, interest, taxes, insurance and HOA dues); many lenders look for a ratio of 1.0 or higher.

DSCR Loans in Orange County: Qualify on Rental Cash Flow

Earnest money deposit

An earnest money deposit is the good-faith money a buyer puts into escrow after an offer is accepted. It is credited toward the down payment or closing costs at closing. In California, if the contract has a liquidated damages clause, the amount a seller can keep from a buyer of a one- to four-unit home the buyer intended to live in is generally limited to 3% of the price.

Source: California Civil Code section 1675

Closing Costs for Orange County Homebuyers: What to Review

FHA loan

An FHA loan is a mortgage insured by the Federal Housing Administration, part of HUD. Borrowers with a credit score of 580 or higher can put down as little as 3.5%; scores from 500 to 579 need 10% down. FHA loans carry upfront and annual mortgage insurance premiums and must stay within county FHA loan limits.

Source: HUD Handbook 4000.1, II.A.2.a (Minimum Required Investment)

FHA Loans in Orange County: 3.5% Down, Flexible Credit

FHA mortgage insurance (MIP)

FHA mortgage insurance premium (MIP) is the insurance every FHA borrower pays to the Federal Housing Administration. It has two parts: an upfront premium of 1.75% of the base loan amount, usually financed into the loan, and an annual premium paid monthly, which for most 30-year loans is 0.55% of the balance. On loans with less than 10% down, annual MIP lasts for the life of the loan.

FHA Loans in Orange County: 3.5% Down, Flexible Credit

Fixed-rate mortgage

A fixed-rate mortgage keeps the same interest rate for the whole loan, so the principal and interest payment never changes. The most common terms are 30 and 15 years. Taxes, insurance and mortgage insurance in the total payment can still change.

Source: CFPB consumer guide to loan options

Fixed-Rate Mortgage in Orange County: From 3% Down

HELOC

A home equity line of credit (HELOC) is a revolving credit line secured by your home. You draw funds as needed during a draw period, often 10 years, usually at a variable rate tied to the prime rate, then repay principal and interest during a repayment period. It sits behind your first mortgage, so you keep your existing rate.

HELOC in Orange County: Tap Your Equity, Keep Your Rate

Home equity loan (HELOAN)

A home equity loan (HELOAN) is a second mortgage that pays out a lump sum at closing, usually at a fixed rate, with equal monthly payments over a set term. Like a HELOC it sits behind your first mortgage, so your existing first-mortgage rate is unchanged.

Home Equity Loan (HELOAN) in Orange County: Fixed Rate

Impound account (escrow account)

An impound account, called an escrow account outside California, is an account your loan servicer uses to collect part of your property taxes and homeowners insurance with each monthly payment and pay those bills when due. Federal rules limit the extra cushion a servicer may hold to one-sixth of the year's estimated payments.

Source: 12 CFR 1024.17 (Regulation X)

Purchase Calculator: 2026 County Loan Limits and Payment

Jumbo loan

A jumbo loan is a mortgage larger than the conforming loan limit for the property's county, so Fannie Mae and Freddie Mac cannot buy it. In Orange and Los Angeles counties that means a one-unit loan above $1,249,125 in 2026. Jumbo loans typically ask for higher credit scores, larger down payments and more cash reserves.

Jumbo Loans in Orange County and LA: Financing to $25M

Loan Estimate

A Loan Estimate is the standard three-page form a lender must give you within three business days of receiving your mortgage application. It shows the estimated interest rate, monthly payment, closing costs and loan features in the same format at every lender, so offers can be compared line by line.

Source: 12 CFR 1026.19(e) and 1026.37 (TILA-RESPA Integrated Disclosure rule); www.consumerfinance.gov

Closing Costs for Orange County Homebuyers: What to Review

Loan-to-value ratio (LTV)

Loan-to-value ratio is the loan amount divided by the home's value. On a purchase, the value is the lower of the price and the appraisal, so 20% down means an 80% LTV.

Home Loan Programs in Orange County: Jumbo, Non-QM, FHA, VA

Mello-Roos special tax

Mello-Roos is a special tax charged by a Community Facilities District created under California's Mello-Roos Community Facilities Act of 1982 to pay for roads, schools and other infrastructure, common in newer master-planned Orange County communities. It appears on the property tax bill, must be disclosed to buyers, and lenders count it in the monthly housing payment.

Source: California Government Code section 53311 et seq.; California Civil Code section 1102.6b (disclosure)

Closing Costs for Orange County Homebuyers: What to Review

Non-QM loan

A Non-QM loan is a mortgage that does not meet the Qualified Mortgage definition in the CFPB's Regulation Z, often because income is documented with bank statements, a profit and loss statement, assets or rental income instead of tax returns. The lender must still verify that the borrower can repay under the federal ability-to-repay rule.

Non-QM Loans in Orange County: Qualify Without Tax Returns

Non-warrantable condo

A non-warrantable condo is a unit in a condominium project that does not meet Fannie Mae or Freddie Mac project standards, for example because one owner holds too many units, there is significant commercial space, the HOA is in litigation, or too many owners are behind on dues. Buyers usually need portfolio or Non-QM financing.

Source: Fannie Mae Selling Guide B4-2.1-03 (Ineligible Projects)

Condo Mortgage Approval in Orange County: HOA Review

PITI

PITI stands for principal, interest, taxes and insurance, the four parts of a typical monthly mortgage payment. Lenders add mortgage insurance and HOA dues, when they apply, to get the housing payment used in your debt-to-income ratio.

Source: Fannie Mae Selling Guide B3-6-02 (debt-to-income ratios)

Purchase Calculator: 2026 County Loan Limits and Payment

Pre-approval

A pre-approval is a lender's review of your credit, income and assets that shows how much you are likely to qualify for before you make an offer. Final approval still depends on the property and underwriting.

Mortgage Preapproval vs. Prequalification in Orange County

Private mortgage insurance (PMI)

Private mortgage insurance (PMI) protects the lender on a conventional loan with less than 20% down. Under the Homeowners Protection Act you can ask to cancel it once the balance reaches 80% of the home's original value, and it ends automatically at 78% if payments are current.

When Does PMI Come Off? Mortgage Insurance Removal Math

Proposition 13

Proposition 13, passed in 1978, limits California's general property tax rate to 1% of assessed value, plus voter-approved bonds and assessments. A home is assessed at its purchase price, and the assessed value can rise by no more than 2% a year until the property changes ownership or is newly built on.

Source: California Constitution, Article XIII A

Closing Costs for Orange County Homebuyers: What to Review

Proposition 19

Proposition 19, passed in 2020, lets homeowners who are 55 or older, severely disabled, or whose home was destroyed by wildfire or natural disaster move their Proposition 13 taxable value to a replacement home anywhere in California, up to three times. It also narrowed the parent-to-child exclusion for inherited homes.

Source: California Constitution, Article XIII A, sections 2.1 and 2.2; www.boe.ca.gov

Reverse Mortgage Pros and Cons: An Honest Look for California Homeowners

Qualified Mortgage (QM)

A Qualified Mortgage is a home loan that meets the CFPB's Regulation Z standards, which gives the lender legal protection under the ability-to-repay rule. A QM generally cannot have negative amortization, interest-only payments or a term over 30 years, and its points and fees are capped. Loans outside these rules are Non-QM loans.

Source: 12 CFR 1026.43(e); www.consumerfinance.gov

Non-QM Loans in Orange County: Qualify Without Tax Returns

Rate lock

A rate lock is a lender's commitment to hold a specific interest rate and points for a set period, often 30 to 60 days, while your loan is processed. If closing slips past the lock expiration, you may pay an extension fee or take the current market rate.

Source: www.consumerfinance.gov

TW Rate Report: Weekly Mortgage Rates and Market Snapshot

Reverse mortgage (HECM)

For homeowners 62+, a reverse mortgage converts home equity into cash as a lump sum, monthly payments, or a growing line of credit. Loan advances are generally not taxable income, and no monthly mortgage payment is required as long as you keep paying property taxes, homeowners insurance and any HOA dues, and maintain the home.

Reverse Mortgage in Orange County: HECM for Homeowners 62+

Seller concessions

Seller concessions, called interested party contributions by Fannie Mae, are costs the seller pays on the buyer's behalf, such as closing costs or a rate buydown. Each program caps them: for a conventional primary home, 3% of the price with less than 10% down, 6% with 10% to just under 25% down, and 9% with 25% or more down; FHA caps them at 6%.

Source: Fannie Mae Selling Guide B3-4.1-02 (Interested Party Contributions); HUD Handbook 4000.1 (interested party contributions, 6%)

Temporary Buy-down in Orange County: Lower Your Rate

Supplemental property tax bill

In California a change of ownership or new construction triggers a reassessment, and the county mails a supplemental tax bill for the difference between the old and new assessed value for the rest of the fiscal year. It usually goes to the owner directly instead of being paid from the impound account, so new buyers should set money aside for it. Building new? A construction loan funds the build in stages before it rolls into a permanent mortgage.

Source: California Revenue and Taxation Code section 75 et seq.; www.boe.ca.gov

Closing Costs for Orange County Homebuyers: What to Review

Temporary buydown (2-1)

A temporary buy-down uses funds paid at closing, often a seller credit, to lower your mortgage interest rate for the first one to three years, commonly structured as a 2-1 or 1-0 temporary buydown. The rate then returns to the note rate; a permanent reduction comes from paying discount points.

2-1 Buydown vs. Permanent Buydown for Orange County Buyers

Title insurance

Title insurance protects against losses from problems with a property's ownership history, such as an unknown lien, a forged signature or a recording error. A lender's policy protects the lender and is required on most loans. An owner's policy protects the buyer and is a one-time premium paid at closing.

Source: California Insurance Code sections 12340-12420 (title insurance); www.consumerfinance.gov

Closing Costs for Orange County Homebuyers: What to Review

Underwriting

Underwriting is the lender's review of a loan file to decide whether it meets the program's rules: income, assets, credit, debts, and the property's value and condition. It ends in an approval, a conditional approval with items still needed, a suspension or a denial.

Source: Fannie Mae Selling Guide Part B

Mortgage Preapproval vs. Prequalification in Orange County

USDA loan

A USDA loan is a mortgage guaranteed by the U.S. Department of Agriculture's Rural Development program for homes in eligible rural and suburban areas. It allows no down payment, but household income must be at or below 115% of the area median income. It carries an upfront guarantee fee and an annual fee.

Source: USDA Rural Development Handbook HB-1-3555; eligibility.sc.egov.usda.gov

USDA Loans in Southern California: 0% Down Rural Program

VA funding fee

The VA funding fee is a one-time charge paid to the Department of Veterans Affairs on most VA loans. It is a percentage of the loan amount that depends on the loan type, the down payment and whether you have used the benefit before, and it can be financed into the loan. Veterans who receive VA disability compensation are exempt.

Source: 38 U.S.C. 3729; www.va.gov

VA Loan Calculator: Entitlement, Funding Fee, 2026 Limits

VA loan

A VA loan is a mortgage partly guaranteed by the U.S. Department of Veterans Affairs for eligible veterans, service members and some surviving spouses. Borrowers with full entitlement can buy with no down payment, and there is no monthly mortgage insurance. Most borrowers pay a one-time VA funding fee.

Source: 38 U.S.C. Chapter 37; www.va.gov

VA Loans in Orange County: 0% Down for Veterans

Nothing on this website constitutes a commitment to lend.