17 Mortgage Terms Every Homebuyer Should Know

When you’re working on buying a house, it’s important to know about several of the different terms that come along with real estate. Here are the most important terms every homebuyer should understand.
17 Mortgage Terms Every Homebuyer Should Know

Just about any American is going to want to buy a house but it can be extremely difficult to do so.

When you’re working on buying a house, however, it’s important to know about several of the different terms that come along with real estate. By understanding these terms you’re going to be able to communicate with anyone you need to and you’re going to have a better chance of getting that home.

So, let’s take a look at the different terms.

Pre-Approval vs. Pre-Qualification

If you are pre-approved for a mortgage it means that your financial institution has already said how much they think you’re able to borrow based on things like your employment and your credit history as well as your financial documents. This means that you’re a little ahead of the game when it comes to homebuying because you are already qualified. It’s not a total commitment, but it’s actually a good start.

When it comes to pre-qualification, however, you only have a preliminary assessment related to your ability to borrow, according to the lender, at least.

Fixed-Rate vs. Adjustable Rate Mortgages

When it comes to conventional loans you’re likely to have either a fixed rate or an adjustable rate mortgage.

When it comes to a fixed-rate mortgage you get a specific interest rate that stays the same for the entirety of the mortgage. That means your payments stay pretty regular. With an adjustable rate mortgage, you’re going to have interest rates that continue to change and adjust over time. That means your monthly payment is going to adjust as well. In general, you’re going to have a low rate to start and then you’re going to have a variable rate.


If you want to pay off the mortgage that you get it means you have to pay the principal and the interest.

When it comes to amortization it means the schedule of payments that you’re making. In general, you’re going to pay more toward interest when you get started on the schedule and then you’re going to pay more toward the principal as you move on further.

When you go through re-amortization you’re going to be able to make larger payments, which actually lower the amount of your principal.


The title company, escrow company, attorney or a real estate broker could be in charge of escrow. What it means is that the deposit a buyer makes and financials from the purchase before, during and after the settlement is in an account together.

When there are any liens on the property following the settlement the escrow company is the one in charge of those, as well as recording those transactions as required.

But the escrow could also mean prepaid amounts that are paid in for homeowner’s insurance as well as property taxes. They’re paid in by your mortgage bill every month and the lender just holds onto the amounts until they have to make the payments.

Closing Costs

There are a number of expenses and even fees that go along with any real estate transaction and they’re paid at the closing. These could be things like escrow deposits, attorney’s fees, home inspection fees, appraisals, loan origination fees, title insurance and a whole lot more.

Home Inspection

A home inspection can be an extremely important step when you’re buying a house. If the house looks brand new and renovated it can be great, but an inspection will make sure that all of that work was done the right way, so you’re not stuck with big problems. Leaks, electrical problems and more can be found by a home inspection, saving you a lot of money.

By knowing all of this before you buy you’re going to know about major issues and you’ll be able to get concessions from the seller before you decide to buy.

Down Payment

Buying a home requires you to get a mortgage, but it also requires you to put some money down, in cash. Usually, this is somewhere between 5% and 20% of the actual buying price and then your mortgage will cover the rest.

Principal and Annual Percentage Rate

The APR is the amount that you’re actually going to pay for the loan and it’s going to be higher than the regular interest rate. That’s because it’s going to include additional things like fees and costs. By understanding all of this you can check out different mortgage loans for more information and comparison.

When it comes to the principal this is the amount that you actually borrowed from the bank or other financial institution in order to be able to make the purchase and this is the part you pay interest on.

Earnest Money

If you’re looking to secure your contract but you haven’t gotten to closing yet you may decide to give the seller a deposit that lets them know you’re definitely going to buy. This requires that you have a contract and you have to make the payment as soon as the attorney approves that contract.

Then it stays in escrow until closing is over, when it gets applied to either closing costs or the down payment that you’re making.

Title Insurance

You can get one of two different types of title insurance. These include owner’s title insurance and lender’s title insurance. The owner’s title insurance is responsible for protecting a buyer if there’s a problem with the title and it’s not found. It also protects your heirs for as long as either of you has an interest in that property.

When lenders give you a loan they’re generally going to require you to have a lender’s policy which protects their interests if there’s a problem later with the title. It doesn’t do anything to help the buyer however, but it’s going to slowly start to cost less and less until the loan is paid in full.


You’ll need to take a look at the state rules in your area, but in general, there are specific things that a seller must disclose to a potential buyer and they have to fill out a form to do so.

Pocket Listing

If you’re looking at a property with a signed listing agreement that hasn’t yet been listed it’s an exempt listing or a pocket listing. Sometimes sellers want to make sure that their privacy is protected or they even want to market their home before they decide to show.

FHA Loan

If you get a loan through the Federal Housing Administration you’re going to have fewer requirements related to credit and down payment. This can be great for those who aren’t going to qualify for the standards and those who still want to get home. It’s going to mean a pretty big premium as well as mortgage insurance.


Getting an evaluation of the home’s value before you purchase is important and an appraisal is an unbiased evaluation. For a lender, this is a crucial part of the process, so they can make sure they’re not giving you anymore money than what the property is actually worth.

After all, that property you’re buying is the collateral on the loan they’re giving you and if they can’t sell it to recoup their losses they lose money.

Private Mortgage Insurance

For some lenders, the requirement is to put 20% down on the house, but if you don’t have that you can pay PMI. This is a monthly fee that’s added on to the normal payments and it can only be canceled after you get to 20% total equity.


When you buy a house there are specific fees that can come into play with your lender or others related to the property. The total closing costs could be up to 5% of the total price that you pay for the home itself and points are going to be a part of that, along with title insurance and attorney and surveyor fees.


If there are specific conditions that would cause you to void out the contract that means you have a contingency. If this happens any deposit given will go immediately back to the buyer. Either party can set contingencies and they are going to be fully negotiable. Things like getting more time to have an inspection or to get financing are some things that can become a contingency.