Loan Glossary

Principal, Interest, Taxes, and Insurance — the four components of a monthly mortgage payment. Lenders use PITI to calculate housing expense ratios for loan qualification.

Insurance required on conventional loans when the LTV exceeds 80%. PMI protects the lender if the borrower defaults. It can be removed when equity reaches 20%.

Prepaid interest paid at closing to reduce the mortgage interest rate. Each point costs 1% of the loan amount and typically reduces the rate by 0.25%. Also called "buying down the rate."

A lender's conditional commitment to lend a specific amount, based on verified income, assets, and credit. Pre-approval (stronger than pre-qualification) shows sellers the buyer is creditworthy.

An informal estimate of how much a borrower may be able to borrow, based on self-reported information without full verification. Less reliable than pre-approval.