Financial Terms Glossary
Demystifying real estate and mortgage terminology
Amortization
The process of paying off a loan through regular payments over time. Each payment includes both principal and interest.
Appraisal
A professional assessment of a property's market value, required by lenders before approving a mortgage.
APR (Annual Percentage Rate)
The total yearly cost of a loan including interest and fees, expressed as a percentage.
Closing Costs
Fees and expenses paid at the closing of a real estate transaction, typically 2-5% of the purchase price.
Closing Disclosure
A document that outlines final loan terms, projected monthly payments, and closing costs. Must be received 3 days before closing.
Contingency
A condition that must be met for a real estate contract to become binding (e.g., inspection, financing, appraisal).
Conventional Loan
A mortgage not insured by a government agency. Typically requires 5-20% down payment and good credit.
Credit Score
A number representing your creditworthiness, ranging from 300-850. Higher scores qualify for better mortgage rates.
Debt-to-Income Ratio (DTI)
Monthly debt payments divided by gross monthly income. Lenders typically want DTI below 43%.
Down Payment
The upfront cash payment made when purchasing a home, expressed as a percentage of the purchase price.
Earnest Money
A deposit made to show the seller you're serious about buying. Typically 1-3% of the purchase price.
Equity
The difference between your home's market value and what you owe on your mortgage.
Escrow
A neutral third party that holds funds and documents during the transaction, or the account that holds taxes and insurance.
FHA Loan
A government-insured loan with lower down payment requirements (3.5%) and more flexible credit standards.
Fixed-Rate Mortgage
A loan with an interest rate that remains the same for the entire term of the loan.
HOA (Homeowners Association)
An organization that manages a community and collects fees for common area maintenance and amenities.
Home Inspection
A professional examination of a property's condition, typically conducted after an offer is accepted.
Interest Rate
The percentage charged by the lender for borrowing money, expressed annually.
Loan Estimate
A document provided by lenders within 3 days of application, outlining estimated loan terms and costs.
LTV (Loan-to-Value)
The ratio of the loan amount to the property's appraised value. Higher LTV may require PMI.
MLS (Multiple Listing Service)
A database of properties for sale, shared among real estate professionals.
Mortgage Insurance (PMI)
Insurance required on conventional loans with less than 20% down payment, protecting the lender.
Points
Fees paid to reduce your interest rate. One point equals 1% of the loan amount.
Pre-Approval
A lender's commitment to lend a specific amount based on verified financial information.
Principal
The amount borrowed or the remaining balance of a loan, excluding interest.
PITI
Principal, Interest, Taxes, and Insurance—the four components of a typical monthly mortgage payment.
Title Insurance
Insurance protecting against claims or disputes over property ownership.
Underwriting
The process by which a lender evaluates the risk of lending to a borrower.
VA Loan
A mortgage guaranteed by the Department of Veterans Affairs, offering favorable terms for eligible veterans.
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