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Buying a home can be one of the most exciting—and overwhelming—experiences, particularly for first-time buyers. The other players involved in the transaction, including real estate agents, mortgage brokers, loan officers, and attorneys, have likely been through this process numerous times. They know the vernacular and may tend to assume a purchaser does, too. While it’s always advisable to ask for clarification, the following is a list of some of the most common terms a buyer is going to encounter during the purchase process.

 

Adjustable Rate Mortgage (ARM)

A mortgage with a variable interest rate. ARM rates can adjust monthly, biannually, or annually, depending on the terms of the loan.

 

Closing

The final step in the home-buying process; the meeting where contracts are signed and money changes hands.

 

Closing Costs

The amount of money that is required to complete a loan, including fees and taxes.

 

Counteroffer

A response to an initial offer made as part of the sale negotiations.

 

Down Payment

The amount of money–ranging from 5-twenty percent of the agreed-upon purchase price–paid upfront by the purchaser. The balance of funds required to satisfy the purchase price will make up the mortgage amount.

 

Escrow

A neutral go-between who holds and allocates monies in a mortgage transaction. Taxes and insurance payments are often held in escrow by a lender.

 

Earnest Money

An initial deposit paid by the purchaser to demonstrate good faith that a transaction will proceed.

 

First Time Homebuyer

Anyone who has not owned property within the past three years of a purchase.

 

Fixed Rate Mortgage

A mortgage with an interest rate that will remain the same for the entire term (e.g., 15 years or 30 years).

 

Home Inspection

A detailed assessment, conducted by a licensed professional, to identify any issues with the house that may affect the conditions of the purchase transaction.

 

Mortgage Payment

The amount of money paid each month to satisfy the loan.

 

PITI

The four components—principal, interest, taxes, and insurance—that comprise the mortgage payment.

 

Points

A percentage point of the loan amount

 

Pre-Approval/Pre-Qualification  

Methods to determine the amount of money a purchaser is eligible to borrow, based on ability to repay it.

 

Title Insurance

Insurance that protects the lender against issues with the title on the property being mortgaged.