[Skip to Content]

Glossary

glossary definition poster

If you’re new to the home buying process, you may feel like your lender or real estate agent is speaking a different language. Here’s a glossary to get you up to speed with commonly used terms and definitions from the mortgage world.

Amortization
The repayment of a loan over time by installments, dealing with how much of your payment goes toward interest and how much is paid toward principal

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 where documents are signed at a title company or attorney’s office

Closing Costs
The fees associated with purchasing a property that are not included in the purchase price, typically origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate fees, prepayment of taxes and insurance and real estate transfer taxes

Construction Loan
A short-term loan to finance the construction of a new residence, business or investment property, typically converted to a conventional loan after 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) divided by your gross monthly income

Deed
An official public document that establishes property ownership

Down Payment
A portion of money paid at the beginning of a loan to demonstrate 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

Foreclosure
The process by which a bank or lender sells a property after a borrower fails to meet the repayment terms of the loan

Home Equity Line of Credit
A loan that allows you to borrow money from the equity in your home, based on a certain maximum draw amount

Interest
The fee paid by the borrower for the use of the borrowed money

Home Inspection
A limited, non-invasive examination of the condition of the home that is completed by a third party prior to selling

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 percentage of the mortgage loan charged by the lender for completing the loan process

Points
You pay for obtaining a mortgage; one point equals 1% of the loan value

Pre-Approval
The process through which a lender evaluates the credit of a potential borrower and determines the maximum amount they 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% of the home’s value. This insurance can be removed once your loan balance reaches 78 or 80% of the home’s value, depending on the loan product that you choose.

Refinance
The act of replacing the existing loan on your property with a new one

Title
The official document that states who owns a piece of real estate 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 prior to the sale to show any existing liens against subject property that need to be paid off during closing

Underwriting
The process a lender uses to determine a borrower’s eligibility for a loan

Warranty Deed
Indicates that there are no past liens or disputes against the property and the holder has the right to sell