Adjustable Rate Mortgage Loans (ARM): A mortgage that offers a low interest rate for 1, 3, or 5 years, after which the interest rate adjusts periodically based on a pre-determined index (i.e. Wall Street Journal prime rate).

Amortization: The gradual reduction of debt over the term of the loan. Amortization occurs through repayment of principal.

Annual Percentage Rate (APR): The yearly cost of a mortgage including interest and other expenses or charges such as private mortgage insurance and points expressed as a percentage.

Appraisal: A written estimate of a property’s current market value.

Closing: The conclusion of your real estate transaction where legal documents are signed and funds are disbursed.

Closing Costs: Expenses over and above the cost of the property and can include items such as title insurance, appraisal, processing, underwriting and surveying fees.

Conventional Loan: Loans that are not made under any government-housing program.

Credit Report: A report from an independent agency detailing credit history and previous and current debt to help determine creditworthiness.

Credit Score: A mathematical formula that predicts an applicant’s creditworthiness based on credit card history; outstanding debt; type of credit; bankruptcies, late payments; collection judgments; too little credit history and too many credit lines.

Deed: The legal document that transfers property from one owner to another.

Down Payment: The amount of your home’s purchase price you pay up front.

Earnest Money: Deposit made by a buyer toward the down payment to show good faith when the purchase agreement is signed.

Equity: The difference between the current market value of a property and the total debt obligations against the property. On a new mortgage, the down payment represents the equity in the property.

FHA Loans: Fixed- or adjustable-rate loans insured by the Federal Housing Administration. FHA loans are designed to make housing more affordable, particularly for first-time homebuyers.

Good Faith Estimate: Written estimate of the closing costs the borrower will likely have to pay to obtain the loan.

Interest Rate: The percentage rate that a lender charges to borrow money.

Lock or Lock-In: A lender’s guarantee of an interest rate for a set period of time. The lock-in protects you against rate increases during that time.

Points (or Discount Points): Points are up-front fees paid to the lender at closing. Typically, one point equals one percent of your total loan amount. Points and interest rates are inherently connected. The more points you pay, the lower your interest rate.

Principal: The balance – not counting interest – owed a loan.

Private Mortgage Insurance (PMI): Insurance to protect the lender in case the borrower defaults on the loan. With conventional loans, PMI is typically not required with a down payment of 20% or more of thehome’s purchase price.

Term: How many years you have to pay back the loan.

Title: Document that shows ownership of a property.

Title Search: Examination of municipal records to ensure that the seller is the legal owner of a property and that there are no liens or other claims against the property.

Underwriting: In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan.