First Home Mortgage Vocab Cheat Sheet

Adjustable Rate Mortgage (ARM)
A type of home loan that has a varying interest rate, also known as a variable-rate mortgage.

Annual Percentage Rate (APR)
The amount a loan costs over a period of one year, including transaction fees.

Appraisal
The estimated value of a property

Loan To Value (LTV)
A ratio based on the financed mortgage loan balance as a percentage of the overall value of the home (mortgage loan balance)/(home value).

Closing Costs
All the fees and expenses associated with closing on a home, usually around 6% of the cost of the home.

Down Payment
A percentage of the value of the house that you pay at closing towards your new home purchase.

Escrow
An account established by the mortgage company to pay property taxes and insurance during the term of the mortgage loan.

Earnest Money
A good faith deposit made by the buyer to the seller to secure an offer on a contract. At closing, the earnest money usually applies towards the buyer’s remaining costs.

Equity
The difference between the market value of your home and the amount that you still owe on your mortgage.

Fixed Rate Loan
A loan with a locked in interest rate for the life of the loan.

Good Faith Estimate
An estimated cost of all the fees you may have to pay at closing. These costs are not guaranteed.

Home Inspection
An examination of the property’s condition.

Home Owner’s Insurance
A packaged policy that includes property and liability insurance designed for residential property owners.

Market Value
The highest price a home will sell at within a reasonable period of time (30 – 90 days, in a normal or average real estate market).

Offer
A negotiable purchase agreement presented to the seller from the buyer. Once the seller agrees to the offer, this becomes the sales contract.

Pre-Approval Letter
A written statement from a lender stating you are qualified up to a certain amount of money at a specific rate. The pre-approval letter will accompany an offer.

Private Mortgage Insurance (PMI)
Protects lenders against loss if a borrower defaults on his mortgage. Most lenders and lending institutions require PMI if the loan is more than 80% of the purchase price.

Title
A bundle of rights that gives evidence of legal ownership in a piece of property.