Amortization
The repayment of a loan over time by installments, with a portion of the payment applied toward principal and a portion toward interest.
Annual percentage rate (APR)
The actual interest rate you pay on your mortgage, including fees, points and other costs associated with the loan.
Appraisal
A comprehensive report that determines the value of a property.
Closing
The last step in the loan process, during which documents are signed.
Closing Costs
These are fees associated with finalizing the purchase of the property that are not included in the original purchase price. These typically include origination fees, discount points, appraisal fees, title insurance fees, legal fees, real estate fees, prepayment of taxes and insurance and real estate transfer taxes.
Construction Loan
A short-term loan is used to finance the construction of a new residence a business or an investment property. This loan is typically converted into a conventional loan after completion of construction.
Conventional Loan
A mortgage that is not guaranteed or insured by a government entity such as the Federal Housing Agency (FHA) or Veterans Affairs (VA).
Credit Report
A detailed report that includes vital information about you and your credit history, compiled through credit reporting agencies.
Debt-to-Income Ratio
The ratio of your liabilities (monthly bills and living expenses) to your gross monthly income.
Deed
An official public document that establishes property ownership.
Down Payment
A portion of the money paid at the beginning of a loan to demonstrate a commitment to the purchase.
Earnest Money
Money paid to the seller by the buyer as a pledge to complete a real estate transaction.
Escrow
A fund administered by a third party and used to pay taxes and insurance for a mortgage transaction.
Equity
The value of a property, minus any money owed against it.
Fixed-Rate Mortgage
A mortgage with a fixed interest rate that will not adjust at any point during the life of the loan.
Interest
The money paid by the borrower for the use of the money lent.
Home Inspection
A limited examination of the condition of the home that is completed by a third party prior to a sale.
Lien
A legal claim or hold on a piece of property.
Market Value
The price a seller can expect to receive for the sale of a property.
Origination Fee
A fee charged for the processing of the application and documentation of the loan.
Points
Also known as “discount points,” these are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments. A point is equal to 1 percent of your mortgage amount (or $1,000 for every $100,000).
Prequalification
The process through which a lender evaluates the credit of a potential borrower and determines the maximum amount that the lender would be willing to lend.
Principal
The unpaid balance on your mortgage loan.
Private Mortgage Insurance (PMI)
Extra insurance that a lender requires when a buyer obtains a loan for more than 80 percent of the home’s value. This insurance can be removed at the request of the borrower once your loan balance reaches 80 percent of the home’s value.
Refinance
The act of replacing the existing loan on your property with a new one.
Title
The legal way of saying you own a right to something. For real estate purposes, the title refers to ownership of the property, meaning that you have the rights to use that property.
Title Insurance
Insurance taken out to protect both the borrower and the lender in case of a title dispute.
Title Search
Research conducted on a property before the sale that shows any existing liens against the subject property that need to be paid off during the closing.
Underwriting
The process a lender uses to determine a borrower’s eligibility for a loan.
Warranty Deed
The legal document that transfers title from one person to another.