While it’s an exciting milestone, purchasing your first home can also seem overwhelming. After all, it’s one of the biggest financial decisions you’ll ever make. Getting hit with a whole new language of unfamiliar terms just adds to the stress. We’ve compiled a list of the top vocabulary terms you’ll need to know to feel like a pro even if you’re a first time home buyer.
Adjustable Rate Mortgage (ARM): Interest rates are periodically updated to coincide with the current market interest rates.
Annual Percentage Rate (APR): The cost of a mortgage stated as a yearly rate, with all financial cost; including interest, mortgage insurance, and loan organization fees.
Back End Ratio: The ratio of all fixed debt, including housing expenses to gross income
Escrow: The mortgage company establishes an escrow account to pay property taxes and insurance during the term of the mortgage.
Fixed Rate Loan: A loan whose interest rate never changes during the life of a loan
Homeowner’s Insurance: Combined property and liability insurance designed for residential property owners.
Lien: A form of encumbrance that holds property as security for the payment of a debt.
Market Value: The amount for which something can be sold during the current market.
Pre-Approval: An evaluation by a lender that determines whether the borrower qualifies for a loan and the maximum amount they qualify for.
Private Mortgage Insurance (PMI): A down payment of less than 20% the lender requires PMI. This protects the lender from losing money if you end up in foreclosure.