You learn a lot of new information when you get ready to buy a home. Sometimes it seems like the process has a language all its own. These definitions should help you brush up on home-buying terms.

Amortization — Paying a loan by making scheduled payments on the amount you borrowed with interest

Annual Percentage Rate (APR)
— The cost of your credit expressed as a yearly percentage. It includes interest and other finance charges such as points, origination fees and mortgage insurance

Buydown
— Money you can pay your lender at the beginning of a loan to temporarily lower your interest rate and monthly payments

Buyer Broker
— A real estate professional who works for and represents you, the buyer. The broker operates much like a real estate agent, but on your behalf. He or she is paid a commission by someone who is designated upfront, either the buyer or the seller

Cap
— A feature of Adjustable Rate Mortgages that limits how high your interest rate can rise. This protects you from dramatic upward swings in the interest rate market

Closing
— The official settlement of your home purchase and mortgage loan

Down Payment
— The difference between the sales price of a home and the mortgage amount. The down payment is usually paid with a cashier’s check at closing

Equity
— The difference between a home’s market value and the balances on outstanding home loans. Your equity value is considered an asset

FHA Loan
— A loan insured by the Federal Housing Administration against loss to your lender. An FHA loan usually requires a lower down payment than a conventional mortgage

Float Down Option
— Lowers your interest rate if market rates drop after you lock in, or commit to, a certain rate

Gross Income
— Your income before any taxes or other obligations are deducted

Homeowner’s Insurance
— Insurance that protects your home and possessions from theft and damage

Interest
— A fee you pay for borrowing money

Listing Agent
— A real estate professional who is contracted by and works for the seller. He or she can do nothing to harm the seller’s position, but assists you with the purchase and shows the features of homes

Origination Fee
— HUD defines Origination Fee as the charge for originating a loan; it is usually calculated in the form of points and paid at closing

PITI
— “Principal-Interest-Taxes-Insurance,” the four elements of your monthly mortgage payment

Planned Unit Development (PUD)
— A subdivision having common areas maintained by its homeowners

Point
— A fee charged by your lender to maintain or lower the interest rate on a mortgage loan. A point is equal to one percent of the amount borrowed

Prepayment Penalty
— A fee charged by your lender if you pay off your loan before it is due

Principal
— Your loan amount, not including interest


Private Mortgage Insurance (PMI)
– Insurance that protects the lender if foreclosure on your home is unavoidable

Property Taxes
— Taxes homeowners pay for community services like public schools. These taxes may be included in your monthly mortgage payment if your lender offers an escrow option

Purchase Agreement
— A contract between you and the seller that defines the terms and conditions of your home purchase

Rate Lock
— Guarantees a certain interest rate and points for a specified period of time, from 30 to 60 days or longer. This protects you from fluctuating market conditions

Selling Agent (Real Estate Agent)
— A real estate professional who works for, and is usually paid by, sellers to show and actually sell homes. He or she can search for homes that meet your requirements and access resale records that provide insight into fair market values

Survey
— A measurement of land by a registered surveyor that shows dimensions, easements and improvements

Title
— Written evidence that proves you are the owner of your property

Underwriting
— The analysis of your overall credit and property value and the determination of a mortgage rate and term

VA Loan
— A loan guaranteed by the Department of Veterans Affairs against loss to your lender