Glossary
Mortgage glossary: key loan & underwriting terms for loan officers
This mortgage glossary breaks down the loan types, ratios and underwriting terms loan officers search for most — from non-QM to DTI to investor overlays.
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Loan types
What is a non-QM loan?
A non-QM (non-qualified mortgage) loan is a mortgage that doesn’t meet the CFPB’s standard Qualified Mortgage requirements, often used for self-employed borrowers or those with non-traditional income. Guidelines vary by investor, which is why checking overlays matters.
What is a DSCR loan?
A DSCR (debt service coverage ratio) loan qualifies a borrower based on a property’s rental income rather than personal income, commonly used for investment properties. The DSCR compares monthly rental income to the property’s debt obligations.
What is an ITIN loan?
An ITIN loan allows borrowers without a Social Security number to qualify for a mortgage using an Individual Taxpayer Identification Number instead. Eligibility requirements and documentation vary significantly by lender.
What is a jumbo loan?
A jumbo loan exceeds the conforming loan limit set annually by the FHFA, meaning it isn’t eligible for purchase by Fannie Mae or Freddie Mac. Jumbo loans typically carry stricter credit and reserve requirements.
What is a conforming loan?
A conforming loan meets the size and underwriting guidelines set by Fannie Mae and Freddie Mac, making it eligible for sale on the secondary market. Conforming loan limits are updated annually.
What is a non-conforming loan?
A non-conforming loan doesn’t meet Fannie Mae or Freddie Mac’s purchase requirements, whether due to loan size, borrower profile, or property type. Jumbo and non-QM loans both fall into this category.
Underwriting & overlays
What is an overlay in mortgage lending?
An overlay is an additional requirement an investor or lender places on top of standard agency guidelines, often tightening credit score, DTI, or reserve requirements. Overlays are why two lenders can give different answers for the same borrower.
What is an agency guideline?
An agency guideline is a rule set by Fannie Mae, Freddie Mac, FHA, VA, or USDA that defines eligibility, documentation, and underwriting standards for loans they purchase or insure.
What is manual underwriting?
Manual underwriting is the process of a human underwriter evaluating a loan file directly, rather than relying solely on an automated underwriting system. It’s often used when a borrower doesn’t fit standard AUS parameters.
What is an AUS (automated underwriting system)?
An AUS is software—like Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Product Advisor—that evaluates a loan file against agency guidelines and returns an automated eligibility decision.
What are compensating factors?
Compensating factors are strengths in a borrower’s file—like significant reserves or a low DTI—that can offset a weaker area, such as a lower credit score, when an underwriter evaluates overall risk.
Qualification & ratios
What is DTI ratio?
DTI (debt-to-income) ratio compares a borrower’s total monthly debt payments to their gross monthly income. Agencies and investors set maximum DTI thresholds, often with room for compensating factors.
What is LTV ratio?
LTV (loan-to-value) ratio compares the loan amount to the property’s appraised value. A lower LTV generally means less risk to the lender and can open up more loan program options.
What are reserves in mortgage lending?
Reserves are the liquid assets a borrower has left after closing, usually measured in months of mortgage payments. Reserve requirements vary by loan program, property type, and borrower risk profile.
What is qualifying income?
Qualifying income is the portion of a borrower’s income that can be used to calculate DTI and loan eligibility, based on documentation type and agency guidelines for stability and continuance.
What documentation is required for self-employed borrower income?
Self-employed borrowers typically need two years of tax returns, a profit and loss statement, and sometimes bank statements to document income, with specific requirements varying by agency and investor.
Documentation & process
What is a selling guide?
A selling guide is the official rulebook published by an agency like Fannie Mae or Freddie Mac, outlining eligibility, underwriting, and documentation requirements for loans sold to them.
What is a rate lock?
A rate lock guarantees a borrower’s interest rate for a set period while their loan is processed, protecting them from market rate changes before closing.
What is condo/HOA approval in mortgage lending?
Condo and HOA approval confirms that a property meets an agency’s project eligibility requirements—covering owner-occupancy ratios, HOA financials, and insurance—before a unit can be financed.
What are seller concessions?
Seller concessions are costs a seller agrees to pay on behalf of the buyer, such as closing costs, subject to maximum limits set by the loan program and LTV.
What is a compliance guideline in mortgage lending?
A compliance guideline is a regulatory requirement—federal, state, or agency-specific—that a loan must meet in order to be legally originated and sold, separate from credit or income requirements.
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