Glossary

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 fees.

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 loans.

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 closing faster.

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.