Glossary for First Time Homebuyers

3 Min. Read

Buying your first home is exciting, but it might feel a lot like learning a new language. Between financial lingo, loan terms, and real estate jargon, it’s easy to feel overwhelmed. The good news? Understanding a few key terms can help you feel more confident, make more informed decisions, and avoid costly surprises along the way.

 

We’ve compiled a glossary that gives first-time buyers the confidence to navigate what might look like alphabet soup. If you’re wondering how to tell the difference between APR and ARM, this guide is for you.

 

Home Loan and Real Estate Terms to Know

Here are the most common terms every first-time homebuyer should know. Whether you’re just starting to explore your options or preparing to sign on the dotted line, this list will help you decode the language of homebuying.

 

Financial Terms

Amortization: A plan to pay off a loan over time through regular, equal payments that include both principal and interest. (See Loan & Mortgage Terms for explanations of principal and interest.)

 

APR (Annual Percentage Rate): The total cost of a loan over a year, including interest, fees, and other charges you’re required to pay.

 

Down Payment: The portion of the home’s price that you pay upfront (not borrowed).

 

PMI (Private Mortgage Insurance): An insurance policy that protects the lender if you default on a loan. PMI is typically required if your down payment is less than 20%.

 

Loan and Mortgage Terms

Adjustable-Rate Mortgage (ARM): A mortgage where the interest rate can fluctuate and change periodically, based on the market.

 

Application Fee: The fee that a lender charges you to apply for a mortgage to cover processing costs.

 

Debt-to-income ratio (DTI): The ratio of your debt payments to your income (or monthly debt payments divided by monthly income). DTI is used to determine your ability to afford a mortgage’s monthly payments.

 

Escrow: Escrow can refer to an account held by the lender or loan servicer into which you pay money for taxes and insurance.

 

FHA Loan: A mortgage insured by the Federal Housing Administration, which sometimes offers more flexible qualification requirements.

 

Fixed-Rate Mortgage: A mortgage with a set interest rate that does not change for the entire loan term. A fixed-rate mortgage keeps your principal and interest payments predictable (they won’t fluctuate up and down).

 

Interest: Money owed to the lender in addition to your loan amount. It’s the cost of borrowing money, typically expressed as a percentage of the total amount borrowed.

 

Loan Origination Fees: Fees paid to the lender for processing a mortgage application. These fees are usually in the form of points (one point equals 1% of the mortgage amount).

 

Principal: The amount borrowed to buy a home, or the amount of your loan that has not yet been repaid. Principal does not include the interest you will pay.

 

Transaction Terms

Appraisal: An evaluation of the property’s value to determine its fair market price.

 

Closing: A meeting where the home sale is completed, your down payment is made, documents are signed, and the property title is transferred to you.

 

Closing Costs: Various fees paid at closing that are separate from the down payment. Closing fees may include appraisal fees, title insurance, and recording fees.

 

Contingency: A condition in the purchase offer that must be met for the sale to go through, such as a satisfactory home inspection or appraisal.

 

Counter-offer: A response to an offer that modifies the price or terms, allowing negotiations over the sale of the home to continue.

 

Deed: A legal document transferring the property ownership or title to you.

 

Earnest Money: A deposit you pay to the seller when you make an offer on a home (to show you’re a serious buyer).

 

Home Inspection: An evaluation of the property’s condition to identify potential problems before closing.

 

Purchase and Sale Agreement (PSA): A legally binding contract between you and the buyer that outlines the terms of the sale.

 

Title: Documentation of your ownership of the property.

 

Title Insurance: Insurance that protects both lenders and homeowners against legal problems with the title.

 

Underwriting: The process a lender uses to determine your loan approval. This involves evaluating your credit and ability to repay the mortgage.

 

Marine Credit Union: Chart Your Course to Homeownership

Understanding these terms is the first step toward becoming a confident homeowner. For an even more comprehensive A to Z overview, refer to the Freddie Mac Homebuying & Homeowning Glossary of Terms.

 

Buying a home is a major milestone, and our mortgage experts are here to help. From helping you learn the lingo to walking you through the application process, we’re committed to matching you with the right mortgage. Learn more about how to get a home loan with Marine Credit Union.