Reference

Michigan mortgage glossary

45 mortgage terms defined in plain English, with the Michigan angle where it matters — MSHDA, transfer tax, the homestead exemption, and land contracts alongside the national basics. Tap any term for the full explanation.

Loan types

ARM (Adjustable-Rate Mortgage): A mortgage with a rate fixed for an initial period that then adjusts periodically based on an index plus a margin, within set caps — often starting below a comparable fixed rate.
Conforming loan limit: The maximum loan amount Fannie Mae and Freddie Mac will buy, set annually. Loans above it are jumbo. Michigan has no high-cost counties, so the statewide limit is the national baseline.
Construction loan: A loan that funds a home build in stages (draws), often converting to a permanent mortgage at completion in a single closing.
Conventional loan: A mortgage not insured by a government agency (FHA, VA, or USDA), following Fannie Mae and Freddie Mac guidelines — usually needing a 620+ score and 3–20% down.
DSCR loan: An investment-property mortgage that qualifies on the property's rental cash flow — its debt-service coverage ratio — rather than the borrower's personal income or tax returns.
FHA loan: A mortgage insured by the Federal Housing Administration that lets buyers put 3.5% down with a 580 credit score, in exchange for upfront and ongoing mortgage insurance.
Fixed-rate mortgage: A mortgage whose interest rate — and therefore principal-and-interest payment — never changes for the life of the loan, most commonly over a 30- or 15-year term.
Jumbo loan: A mortgage larger than the conforming loan limit, so it can't be sold to Fannie Mae or Freddie Mac — requiring stronger credit, a larger down payment, and cash reserves.
USDA loan: A zero-down mortgage backed by the U.S. Department of Agriculture for homes in eligible rural areas, aimed at moderate-income buyers under roughly 115% of area median income.
VA loan: A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans and service members, offering zero down payment and no monthly mortgage insurance.

Rates & interest

Amortization: The process of paying off a loan through level payments that cover the interest due first and reduce the principal with the rest. Early payments are mostly interest; later ones mostly principal.
APR (Annual Percentage Rate): The yearly cost of a mortgage as a percentage, folding in the interest rate plus certain lender fees and points. APR is usually higher than the note rate and is the best single figure for comparing offers.
Discount points: Upfront fees paid to the lender at closing to lower your interest rate, where one point equals 1% of the loan amount and typically cuts the rate by about a quarter percent.
Interest rate: The percentage a lender charges to borrow the principal, expressed annually. It sets your principal-and-interest payment but excludes fees, which is why APR runs higher.
Rate lock: A lender's guarantee to hold a quoted interest rate for a set period — often 30 to 60 days — while your loan closes, protecting you from rate increases in the meantime.

Costs & insurance

Closing costs: The one-time fees due when a mortgage closes — origination, appraisal, title, recording, and prepaid escrow items — typically 2–4% of the purchase price for a Michigan buyer.
Escrow: An account your lender uses to collect and pay your property taxes and homeowners insurance on your behalf, spreading those bills across your monthly payment.
Homeowners insurance: A policy covering damage to your home and belongings and liability on your property. Lenders require it, and it's collected through escrow as part of your monthly payment.
MIP (Mortgage Insurance Premium): The mortgage insurance charged on FHA loans — an upfront premium of 1.75% plus an annual premium that, at minimum down payment, lasts the life of the loan.
Origination fee: The lender's charge for processing and underwriting your mortgage, usually 0.5–1% of the loan amount, disclosed on your Loan Estimate.
PMI (Private Mortgage Insurance): Insurance a conventional lender requires when you put less than 20% down, protecting the lender if you default. It cancels automatically at 78% loan-to-value.
Property tax: An annual tax levied by local governments based on a home's taxable value. Michigan's effective rates range from under 1% to over 2% depending on the county and local millages.
Title insurance: A one-time policy that protects against defects in a property's ownership history — liens, errors, or competing claims — issued in a lender's and an owner's version.
Transfer tax: A tax on the transfer of real estate, paid in Michigan at $8.60 per $1,000 of the sale price — $7.50 to the state and $1.10 to the county — and by custom paid by the seller.

Qualifying

Credit score: A number, typically 300–850, summarizing your credit risk. It sets which loan programs you qualify for and heavily influences your interest rate.
Debt-to-income ratio (DTI): The share of your gross monthly income that goes to debt payments. Lenders use it to gauge how much mortgage you can handle, generally capping total DTI around 43%.
Down payment: The cash you pay upfront toward a home's price, with the mortgage covering the rest. It ranges from 0% on VA and USDA loans to 3.5% on FHA and 20% to avoid PMI.
Loan-to-value (LTV): The ratio of your loan amount to the home's value, expressed as a percentage. A lower LTV means more equity, better pricing, and — below 80% — no PMI.
Pre-approval: A lender's conditional commitment to lend up to a stated amount after reviewing your credit, income, and assets — stronger than a pre-qualification and expected with a Michigan offer.
Pre-qualification: A quick, informal estimate of how much you might borrow, based on figures you provide without verification. It's a starting point, weaker than a pre-approval.
Underwriting: The lender's process of verifying your income, assets, credit, and the property to decide whether to approve your loan and on what terms.

Process

Appraisal: An independent professional estimate of a home's market value, ordered by the lender to confirm the property is worth enough to secure the loan.
Contingency: A condition in a purchase agreement that must be met for the sale to proceed — commonly financing, inspection, and appraisal — protecting the buyer's earnest money.
Earnest money: A good-faith deposit a buyer puts down when making an offer, held in escrow and applied to the purchase at closing — showing the seller you're serious.
PITI: The four parts of a full mortgage payment: Principal, Interest, Taxes, and Insurance — the number that actually leaves your account each month.
Principal: The amount of money you borrow, or the portion of your balance still owed — separate from the interest charged on it.
Refinance: Replacing your existing mortgage with a new one — to lower the rate, change the term, or pull out cash — which restarts the loan and carries its own closing costs.

Home equity

Cash-out refinance: A refinance for more than you owe, taking the difference in cash from your home's equity — replacing your entire first mortgage in the process.
Equity: The share of your home you actually own — its market value minus everything you owe against it. Equity grows as you pay down principal and as the home appreciates.
HELOC (Home Equity Line of Credit): A revolving, variable-rate line of credit secured by your home's equity, with an interest-only draw period followed by a repayment period when the balance amortizes.
Home equity loan: A fixed-rate second mortgage that gives you a lump sum against your home's equity, repaid in equal monthly payments over a set term.
Reverse mortgage: A loan for homeowners 62 and older that converts home equity into cash with no monthly payment, repaid when the borrower sells, moves out, or passes away.

Michigan programs

Homestead exemption: A Michigan property-tax reduction (the Principal Residence Exemption) that exempts your primary home from the local school operating millage, lowering the annual tax bill.
Land contract: A seller-financed purchase, common in Michigan, where the seller holds legal title until the buyer finishes paying — an alternative when bank financing is hard to get.
MSHDA: The Michigan State Housing Development Authority, which offers the MI Home Loan and up to $10,000 in down payment assistance (MI 10K DPA) to eligible buyers statewide.

Ready to run numbers? Try the payment calculator, compare loan types, or check Michigan buyer programs.