Closing – Meeting at which you actually close the deal
and become the owner of the home you are buying. Closing occurs
when you and the seller agree to the terms of a sales contract,
and the full price of the home is paid to the seller
Closing cost – Amounts charged to transfer ownership of
the home to you. Depending on the type of financing you choose,
these can include discount points and other loan fees, appraisal
cost, credit check fees, attorney fees, title expenses, and recording
Credit report – Document produced by an auditing firm that
shows how well you have paid off loans in the past. The credit
report helps a lender determine whether or not to lend you the
money you are asking to borrow.
Down payment – Amount you pay in cash toward the total
price of the home you’re buying.
Earnest money deposit – Term refers to good faith money
deposited by a buyer under the terms of a purchase agreement,
which becomes a part of your down payment at closing.
Equity – How much of your home that you actually own. When
you first buy a home, your home ownership equals your down payment;
your mortgage lender owns the rest. To determine your equity,
subtract the amount you own on your loan from you home’s
current market value.
Escrow account – Account administered by a neutral party
where you deposit money that will be used to pay for certain aspects
of your home loan, like earnest money deposit, closing costs,
taxes and insurance. Typically, the account is managed according
to the escrow agreement.
FHA – Federal Housing Administration, a federal agency
established in 1934 under the National Housing Act to encourage
and promote improvement in housing standards.
Homestead – Tract of land that is owned by a family and
is occupied as the family home or primary residence.
HUD – United States Department of Housing and Urban Development
is a federal cabinet department that oversees programs in urban
renewal, public housing, FHA-subsidy programs and rehabilitation
Interest – Amount of money a lender charges you to borrow
money to buy a home. The interest represents a percentage of your
total loan and is paid over time.
Loan application – Formal document you fill out when you
approach a lender to borrow money to buy a home
Mortgage – Legal document outlining your responsibilities
as a borrower, including the amount of the loan you’ve taken
and the details and schedule of your repayment
Mortgage insurance – Policy the homeowner must buy to insure
the lender in case the homeowner defaults on the loan. Mortgage
insurance is not required with loans where there is equity of
more than 20 percent in the property.
Pre-approval – This step means that you are approved by
the lender for a certain loan amount. You may want to consider
pre-approval before selecting your home, as this will make your
Prepaids – Many lenders require the buyer to prepay several
months’ worth of property taxes and insurance at closing.
Prequalification – Way to determine the likelihood that
you will qualify for a home loan worth a certain amount of money.
Pre-qualification precedes pre-approval.
Principal – Amount of your loan not including interest.