Buying a home can be intimidating if you are not familiar with the terms used during the process. To start you on your path with confidence, we have compiled a list of some of the most common terms used.

Annual Percentage Rate (APR)

This is a broader measure of your cost for borrowing money.

The APR includes the interest rate, points, broker fees and certain other credit charges a

borrower is required to pay. Because these costs are rolled in, the APR is usually higher than

your interest rate.

Appraisal

A professional analysis used to estimate the value of the property. This includes

examples of sales of similar properties. This is a necessary step in getting your financing secured

as it validates the home’s worth to you and your lender.

Closing Costs

The costs to complete the real estate transaction. These costs are in addition to

the price of the home and are paid at closing. They include points, taxes, title insurance,

financing costs, items that must be prepaid or escrowed and other costs. Ask your lender for a

complete list of closing cost items.

Condominium

A unit in a multiunit building. The owner of a condominium unit owns the unit

itself and has the right, along with other owners, to use the common areas but does not own

the common elements such as the exterior walls, floors and ceilings or the structural systems

outside of the unit; these are owned by the condominium association. There are usually

condominium association fees for building maintenance, property upkeep, taxes and insurance

on the common areas and reserves for improvements.

Contingency

A plan for something that may occur but is not likely. For example, your offer may

be contingent on the home passing a home inspection. It the home does not pass inspection,

you're protected.

Counter-offer

An offer made in response to a previous offer. For example, after the buyer

presents their first offer, the seller may make a counter-offer with a slightly higher sale price.

Credit Score

A number ranging from 350-800, that is based on an analysis of your credit

history. Your credit score plays a significant role when securing a mortgage as it helps lenders

determine the likelihood that you’ll repay future debts. The higher your score, the better, but

many buyers believe they need at least a 780 score to qualify when, in actuality, over 55% of

approved loans had a score below 750.

Debt - To - Income Ratio

The percentage of gross monthly income that goes toward paying for

your monthly housing expense, alimony, child support, car payments and other installment

debts, and payments on revolving or open-ended accounts such as credit cards.

Down Payment

This is a portion of the cost of your home that you pay upfront to secure the

purchase of the property. Down payments are typically 3 to 20% of the purchase price of the

home. There are zero-down programs available through VA loans for Veterans, as well as USDA

loans for rural areas of the country. Eighty percent of first-time buyers put less than 20% down

in 2017.

Earnest Money Deposit

The deposit to show that you're committed to buying the home. The

deposit will not be refunded to you after the seller accepts your offer, unless one of the sales

contract contingencies is not fulfilled.

Escrow

The holding of money or documents by a neutral third party before closing. It can also

be an account held by the lender (or servicer) into which a homeowner pays money for taxes

and insurance.

Executed Sales Contract

A contract that shows both you and the seller of the house have

agreed to your offer. This offer may include sales contingencies, such as obtaining a mortgage

of a certain type and rate, getting an acceptable inspection, making repairs, closing by a certain

date, etc.

Fixed-Rate Mortgages

A mortgage with an interest rate that does not change for the entire

term of the loan. Fixed-rate mortgages are typically 15 or 30 years.

Home Inspection

A professional inspection of a home to determine the condition of the

property. The inspection should include an evaluation of the plumbing, heating and cooling

systems, roof, wiring, foundation and pest infestation.

Mortgage

A loan using your home as collateral. In some states the term mortgage is also used

to describe the document you sign [to grant the lender a lien on your home]. It may also be

used to indicate the amount of money you borrow, with interest, to purchase your house. The

amount of your mortgage is usually the purchase price of the home minus your down payment.

Mortgage Broker

An independent finance professional who specializes in bringing together

borrowers and lenders to complete real estate mortgages.

Mortgage Insurance (MI or PMI)

Insurance needed for mortgages with low down payments

(usually less than 20% of the price of the home).

Mortgage Rate

The interest rate you pay to borrow money to buy your house. The lower the

rate, the better. Interest rates for a 30-year fixed rate mortgage have hovered between 4 and

4.50% for most of 2017.

Pre-Approval Letter

A letter from a mortgage lender indicating that you qualify for a

mortgage of a specific amount. It also shows a home seller that you're a serious buyer. Having a

pre-approval letter in hand while shopping for homes can help you move faster, and with

greater confidence, in competitive markets.

Pre-Qualification Letter

A letter from a mortgage lender that states that you're pre-qualified to

buy a home, but does not commit the lender to a specific mortgage amount.

Primary Mortgage Insurance (PMI)

If you make a down payment lower than 20% on your

conventional loan, your lender will require PMI, typically at a rate of .51%. PMI serves as an

added insurance policy that protects the lender if you are unable to pay your mortgage and can

be cancelled from your payment once you reach 20% equity in your home. For more

information on how PMI can impact your monthly housing cost, click here.

Real Estate Professionals

An individual who provides services in buying and selling homes.

Real estate professionals are there to help you through the confusing paperwork, to help you

find your dream home, to negotiate any of the details that come up, and to help make sure that

you know exactly what’s going on in the housing market. Real estate professionals can refer you

to local lenders or mortgage brokers along with other specialists that you will need throughout

the home-buying process.

Underwriting

The process a lender uses to determine loan approval. It involves evaluating the

property and the borrower's credit and ability to pay the mortgage.