Richard "Keith" Jones

NMLS # 1570367

936-676-6070

RJones@financeusa.us

Richard "Keith" Jones Mortgage Loan Officer

Mortgage Lingo 101

Mortgage Lingo 101

As a first-time home buyer, you will hear lots of words that you may not be familiar with. Just like every industry, the real estate market has its own lingo, and it can be confusing for newbies. Here is a list of the most common mortgage jargon to help you navigate the home loan process:

Adjustable Rate Mortgage (ARM) – loans that provide an extra-low interest rate for an initial period of 5,7, or 10 years, after which the rate is allowed to move up or down once a year based on market indexes.

Amortization – spreading the principal and interest into equal payments over the course of the loan. This means your mortgage payment will be mostly interest at the beginning and mostly principal at the end.

Annual Percentage Rate (APR) – the yearly amount you are charged to borrow money. It takes into account not only your interest rate but also the closing costs, points, and insurance.

Appraisal – an estimate of the fair market value of a property.

Closing – the finalization of your mortgage, when you sign all the documents, get the keys, and officially become responsible for the mortgage. 

Closing Costs – expenses due at closing, including appraisal fees, title insurance, underwriting, points, etc. They vary from lender to lender.

Deed – the legal document that assigns ownership of the property.

Down Payment – the money you contribute up front toward the mortgage principal. Depending on the loan, requirements can be anywhere from 0% to 20%.

Earnest Money – a deposit you pay when you sign the purchase agreement.

Equity – how much of the property you own. It is calculated by subtracting the remaining mortgage balance from the current market value of your home.

Escrow – a third-party account that collects money from you to pay for annual expenses like property taxes and homeowners’ insurance.

FHA Loan – a mortgage backed by the Federal Housing Administration. They allow for lower down payments than many other mortgages.

Fixed-rate Mortgage (FRM) – loans with interest rates that stay the same over the entire mortgage term.

Good Faith Estimate – A written estimate of the closing costs you’ll be expected to pay.

Interest Rate – How much your lender charges you to be able to borrow mortgage funds.

Points - upfront fees paid to your lender to lower your interest rate. Also called discount points, one point is usually equal to 1% of your loan total.

Principal – the amount you have left to pay on your mortgage, not counting interest.

Private Mortgage Insurance (PMI) – insurance you pay to protect your lender in case you default on the loan. It can be cancelled on most loans once you reach 20% equity in your home.

Rate Lock – a guarantee from your lender to give you the current mortgage rate at closing. This protects you against market rate increases.

Title Search - A search of city and county records by a third party to ensure there are no liens or other claims on the property.

Underwriting – the lender’s process of evaluating your credit-worthiness as a borrower and how much risk the company is assuming by lending to you.

Of course, this is not an exhaustive list of mortgage lingo, but understanding these basics will keep you from getting that deer-in-the-headlights look when you start talking to a lender.