Basic Terminology

Adjustable Rate (ARM)	The interest rate is tied to a financial index, and the monthly payment can go up or down over time.
APR	Annual percentage fee (interest and fees you’ll be charged).
Appraisal	A report made by a qualified person setting forth an opinion or estimate of property value.  (appraisal also refers to the process through which a conclusion on property value is derived.)
Balloon	A long-term mortgage that has a large payment due at maturity.
Closing	The final meeting, usually with your real estate agent, sellers and a closing agent or attorney (although the sellers may complete paperwork separately) where you sign the necessary paperwork, make the monetary transaction and take possession of the house immediately, or in a designated time period shortly thereafter.
Closing Costs	The fees associated with processing the paperwork necessary to complete the transaction.
Comparables	Homes with similar square footage that recently sold in the area
Contingencies	Conditions which must be met for the purchase contract to be executed.
Counteroffer	The counteroffer is the seller’s response to your offer.
Credit Report	A document completed by a credit-reporting agency providing information about the buyer’s credit cards, previous mortgage history, bank loans and public records dealing with financial matters.
Debt to Income Ratio	Compares the amount of monthly income to the amount the borrower will owe each month in house payment (PITI) plus other debts.  The other debts may include but are not limited to car payment, credit cards, alimony, child support, and personal loans.  This ratio is commonly used to see if the borrower has the capacity to repay the debt
Deed of Trust	A legal document that conveys title to real estate to a disinterested third party (trustee) who holds the title until the owner of the property has repaid the debt.  In states where it is used, a Deed of Trust accomplishes essentially the same purpose as a Mortgage.
Down Payment	A percentage of the cost of the home that is paid up front.
Earnest Money	The deposit you make on the home when you submit the offer.  This money is intended to show the seller that you are serious about wanting to purchase the property.  Earnest money goes into an escrow account, and if the offer is accepted, the earnest money amount will be applied to either the down payment or closing costs.  If the offer is not accepted, you will get the money back.
Escrow	An account where money is held, either for earnest money or by the lender for fees due for taxes or insurance
Equity	The difference in what you owe on the home and its fair market value.
FHA	Mortgages that are extended by private lenders, but insured by the Federal Housing Administration, often requiring a significantly lower down payment and lower incomes to qualify.
Fixed Rate	The interest rate stays the same for the mortgage term.
Foreclosure	The legal process by which an owner’s right to a property is terminated, usually due to default.  Typically involves a forced sale of the property at public auction, with the proceeds being applied to the mortgage debt.
Hybrid	A loan that starts with a fixed rate period and then converts to an adjustable rate.
HUD	U.S. Department of Housing and Urban Development
Interest	The payment you make to the lender for the money you borrow.
Interest-Only	A loan in which the borrower pays only the interest on the principal balance for a set period.
Mortgage	The written instrument used to pledge a title to real estate as security for repayment of a Promissory Note.
Mortgage Insurance	Insurance written in connection with a mortgage loan that indemnifies the lender in the event of borrower default.  In connection with conventional loan transactions, this insurance is commonly referred to as Private Mortgage Insurance (PMI)
Mortgage Note	A written promise to pay a sum of money at a stated interest rate during a specified term.  It is typically secured by a mortgage.
Net Income	The difference between effective gross income and expense including taxes and insurance.  The term is qualified as net income before depreciation and debt.
PMI	Private Mortgage Insurance – may be required for first-time buyers
Pre-Approval	A process in which a customer provides appropriate information on income, debts and assets that will be used to make a credit only loan decision.  The customer typically ha not identified a property to be purchased, however, a specific sales price and loan amount are used to make a loan decision. (The sales price and loan amount are based on customer assumptions.)
Pre-Qualification	A process designed to assist a customer in determining a maximum sales price, loan amount and PITI payment they are qualified for.  A pre-qualification is not considered a loan approval.  A customer would provide basic information (income, debts, assets) to be used to determine the maximum sales price, etc.
Principal	The amount of your loan that you actually borrow.
REO	Real estate owned properties
Short Sale	When the seller’s lender accepts less than the amount owed to release the mortgage.
Title	The evidence to the right to or ownership in property.  In the case of real estate, the documentary evidence of ownership is the title deed, which specifies in whom the legal state is vested and the history of ownership and transfers.  Title may be acquired through purchase, inheritance, devise, gift or through the foreclosure of a mortgage.
Underwriting	The process of evaluating a loan application to determine the risk involved for the lender.  It involves an analysis of the borrower’s creditworthiness and the quality of the property itself.
VA	Loans administered by the Department of Veteran Affairs for Americans who have served in the armed forces.