Home buying glossary
48 terms every first-time buyer runs into, explained in plain English. Each term links to the lesson where it matters most.
A
- Adjustable-Rate Mortgage(ARM)
- A mortgage whose interest rate can change over time based on a benchmark index, usually after an initial fixed period. Payments can rise or fall when the rate adjusts.
- Amortization
- The schedule that shows how each mortgage payment is split between interest and principal over the life of the loan. Early payments go mostly toward interest.
- Annual Percentage Rate(APR)
- A yearly cost figure that combines the interest rate with certain lender fees, so it is often higher than the interest rate alone. It is meant to help compare loan offers.
- Appraisal
- A licensed appraiser's independent opinion of a home's market value, ordered by the lender to confirm the home supports the loan amount.
- Area median income(AMI)
- The midpoint household income for a metropolitan area or county, published annually and used to set income limits for assistance programs.
C
- Closing
- The final step of a purchase, where documents are signed, funds are transferred and ownership moves to the buyer. Some areas call it settlement or escrow closing.
- Closing Costs
- The lender, third-party and prepaid costs due at closing, separate from the down payment. What they include and who pays varies by loan, lender and location.
- Closing Disclosure(CD)
- A standardized form that lists the final loan terms, costs and cash needed to close. Buyers generally receive it at least three business days before closing.
- Comparable Sale(comp)
- A recently sold home that is similar to the one being valued in location, size, condition and features. Comps help estimate market value.
- Conventional Loan
- A mortgage that is not insured or guaranteed by a government program such as FHA, VA or USDA. Requirements are set by the lender and by the investors who buy the loan.
- Credit Report
- A record of your borrowing history kept by consumer reporting agencies, including accounts, balances and payment history. Lenders review it when you apply.
- Credit Score
- A number calculated from information in your credit report that lenders use to help assess credit risk. Different scoring models can produce different numbers.
D
- Debt-to-Income Ratio(DTI)
- The share of your gross monthly income that goes toward recurring monthly debt payments. Lenders use it to help evaluate affordability, and acceptable limits vary.
- Deferred-payment loan
- A loan with no monthly payment where the balance comes due later, usually when you sell, refinance, transfer the home or pay off the first mortgage.
- Down Payment
- The part of the purchase price you pay yourself rather than borrowing. Minimums depend on the loan program, the lender and your circumstances.
- Down-payment assistance(DPA)
- Help with the cash needed at closing, offered by state, county, city or community organizations as a grant, forgivable loan, deferred loan or second mortgage.
E
- Earnest Money
- A deposit a buyer provides with an offer to show the commitment is serious. It is typically held by a neutral third party and usually applied to your costs at closing.
- Equity
- The difference between what your home is worth and what you still owe on loans secured by it. Equity can grow through payments or rising value, and can shrink if values fall.
- Escrow
- An arrangement where a neutral third party holds money or documents. It also describes the account a servicer may use to collect and pay property taxes and insurance.
F
- FHA Loan(FHA)
- A mortgage insured by the Federal Housing Administration, offered through approved lenders. It has its own credit, down payment and mortgage insurance rules.
- Fixed-Rate Mortgage
- A mortgage whose interest rate stays the same for the entire loan term, so the principal-and-interest payment does not change.
- Forgivable loan
- Assistance recorded as a loan that is cancelled a little at a time, or all at once, if you keep meeting the program conditions for a set number of years.
H
- Home Inspection
- A buyer-arranged visual examination of a home's condition and major systems by an inspector. It is not a guarantee or an appraisal.
- Home-buyer education
- A course covering budgeting, credit, mortgages and the closing process, required by many assistance programs before closing.
- Homeowners Association(HOA)
- An organization that manages shared areas and enforces rules in some communities, typically funded by dues and governed by recorded documents.
- Homeowners Insurance
- A policy that helps cover damage to your home and certain liability risks. Lenders generally require coverage, and terms vary by insurer and location.
I
- Income limit
- The maximum household income allowed for a program, often stated per household size and per county rather than as one national number.
- Interest Rate
- The rate a lender charges for borrowing, used to calculate the interest portion of your payment. Rates vary by market conditions, loan type and borrower profile.
L
- Loan Estimate(LE)
- A standardized three-page form showing estimated loan terms, monthly payment and closing costs after you apply. It is designed for comparing offers.
- Loan-to-Value Ratio(LTV)
- The loan amount divided by the home's value, expressed as a percentage. A larger down payment lowers LTV, which can affect pricing and mortgage insurance.
M
- Mortgage
- A loan used to buy or refinance real estate, secured by the property itself. If payments stop, the lender may have the right to foreclose.
- Mortgage credit certificate(MCC)
- A certificate issued by a housing agency that lets eligible buyers claim a federal income-tax credit for part of the mortgage interest they pay each year.
- Mortgage Insurance
- Coverage that protects the lender, not the borrower, against loss if a loan is not repaid. It is often required when the down payment is small.
P
- Participating lender
- A lender approved by the program administrator to originate its loans and deliver its assistance.
- Points(discount points)
- Optional upfront fees paid to a lender, usually expressed as a percentage of the loan amount, in exchange for a lower interest rate.
- Preapproval
- A lender's more thorough review of your documented finances and credit, resulting in a conditional letter about the amount you may be able to borrow. It is not a final approval.
- Prequalification
- An early, informal estimate of what you might be able to borrow, often based on information you provide without full verification.
- Principal
- The amount you borrow, and the remaining loan balance you still owe. Principal payments reduce that balance.
- Private Mortgage Insurance(PMI)
- Mortgage insurance on many conventional loans, commonly required when the down payment is under 20 percent. It may be removable once certain conditions are met.
- Property Tax
- A tax assessed by local governments based on a property's assessed value. Rates, assessment rules and exemptions vary widely by location.
- Purchase-price limit
- The maximum price (sometimes called acquisition cost) allowed for a home bought with a particular assistance program.
R
- Rate Lock
- A lender's commitment to hold a quoted interest rate for a set period while your loan is processed, usually with conditions and an expiration date.
S
- Second mortgage
- A loan secured by your home that sits behind the first mortgage in priority, often used to deliver down-payment assistance.
- Seller Concession
- An agreement for the seller to pay certain buyer costs, such as some closing costs. Limits depend on the loan program and the contract.
T
- Title
- The legal ownership interest in a property. A title search and title insurance help identify and address ownership or lien problems.
U
- Underwriting
- The lender's review of your credit, income, assets and the property to decide whether the loan meets its guidelines, often with conditions to satisfy.
- USDA Loan(USDA)
- A mortgage guaranteed through a U.S. Department of Agriculture program for buyers in eligible rural and some suburban areas, subject to location and income rules.
V
- VA Loan(VA)
- A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible service members, veterans and certain surviving spouses, with its own eligibility rules.