Homebuying glossary
35 terms in plain English. Most link to the lesson that explains them in context.
- Amortization
- The gradual repayment of a loan through scheduled principal and interest payments. On a fully amortizing loan, the balance reaches zero at the end of the term if payments are made as agreed. Lesson: How mortgages and loan types work
- Annual percentage rate (APR)
- A yearly measure of borrowing cost that includes the interest rate and certain loan charges. It is broader than the interest rate, but does not include every cost of owning a home.
- Appraisal
- A professional opinion of property value for a stated purpose, commonly used by a lender when evaluating the home as collateral. Lesson: When the appraisal and price differ
- Appraisal gap
- A difference between the agreed purchase price and the appraised value. Its effect on required cash depends on the loan and contract. Lesson: When the appraisal and price differ
- Assessed value
- The property value used by the local assessor for property-tax purposes. It can differ from current market value. Lesson: California property taxes and Proposition 13
- Basis
- A tax measure generally starting with acquisition cost and adjusted for qualifying improvements and other items. It helps determine gain when property is sold. Lesson: Home sale taxes: gain is different from proceeds
- Cash to close
- The amount still needed to complete closing after accounting for the down payment, costs, deposit already paid, credits, and other adjustments. Lesson: Down payment, closing costs, and cash to close
- Closing costs
- Transaction and financing expenses paid in connection with completing a purchase or refinance. They are separate from the down payment. Lesson: Down payment, closing costs, and cash to close
- Closing Disclosure
- A standardized document showing final mortgage terms, payments, costs, and transaction details for most covered home loans. Lesson: Closing, recording, and getting the keys
- Contingency
- A condition written into a contract that can provide options if its requirements are not met. Its protection depends on the wording, deadlines, and required notices. Lesson: Contingencies protect a decision window
- Debt-to-income ratio (DTI)
- Counted monthly debt payments divided by qualifying gross monthly income. Lenders use it as part of their review; it is not a complete household budget.
- Deed
- A legal document used to transfer an ownership interest in real property. It is different from the loan’s promissory note. Lesson: Escrow and title: two different jobs
- Discount points
- Upfront charges generally paid in exchange for a lower mortgage interest rate. One point is 1% of the loan amount; the rate reduction varies.
- Down payment
- The portion of the purchase price the buyer contributes without the first mortgage, subject to any additional financing. It does not include all closing costs. Lesson: Down payment, closing costs, and cash to close
- Earnest money
- A purchase deposit delivered under the contract. It is generally credited at closing, while its release or return depends on the agreement and circumstances.
- Easement
- A right allowing someone to use another owner’s land for a particular purpose, such as access or utilities. Lesson: Escrow and title: two different jobs
- Equity
- The estimated value of a property minus debt secured by it, before selling expenses. It can increase or decrease. Lesson: Equity, HELOCs, and home equity loans
- Escrow
- A neutral arrangement for holding transaction funds and documents while written instructions are completed. Mortgage tax-and-insurance escrow is a different use of the same word. Lesson: Escrow and title: two different jobs
- Fixed-rate mortgage
- A mortgage with an interest rate that does not change during its term. Taxes, insurance, and other ownership expenses can still change. Lesson: How mortgages and loan types work
- Home equity line of credit (HELOC)
- A credit line secured by the home that allows borrowing within a limit during a draw period. Rates and payments may change. Lesson: Equity, HELOCs, and home equity loans
- Homeowners association (HOA)
- An organization that manages a common-interest community according to its governing documents, often collecting dues for shared responsibilities.
- Impound account
- An account the mortgage servicer uses to collect money for specified expenses, such as property taxes and insurance, and pay those bills when due. Lesson: What a home really costs each month
- Lien
- A legal claim against property, often securing payment of a debt. Liens can affect the transfer of clear ownership. Lesson: Escrow and title: two different jobs
- Loan Estimate
- A standardized estimate of mortgage terms, projected payments, and closing costs that helps borrowers compare loan offers.
- Mello-Roos
- A special tax associated with a California community facilities district. Property-specific charges can be added to the ordinary property tax bill. Lesson: California property taxes and Proposition 13
- Net proceeds
- The cash remaining from a sale after payoffs, selling costs, credits, and other applicable adjustments. It is not the same as taxable gain. Lesson: From sale price to seller net proceeds
- PITI
- Principal, interest, taxes, and insurance: four common parts of housing costs. Mortgage insurance, association dues, and maintenance can add more. Lesson: What a home really costs each month
- Preapproval
- A lender’s preliminary assessment of potential borrowing based on its review and assumptions. The process varies and does not guarantee final financing. Lesson: Preapproval and credit: what is actually checked?
- Principal
- The outstanding amount borrowed on a loan, excluding interest. Paying principal reduces the debt balance. Lesson: How mortgages and loan types work
- Private mortgage insurance (PMI)
- Insurance commonly required on conventional loans with smaller down payments. It protects the lender and has loan-specific cancellation conditions.
- Refinance
- A new loan that pays off and replaces an existing mortgage. The new loan can have different costs, rates, terms, and qualification requirements.
- Reserves
- Money set aside for future needs. A household repair reserve and an HOA’s reserve funds have different owners and purposes. Lesson: Build a maintenance plan and repair reserve
- Special assessment
- An additional charge for a particular purpose. An HOA assessment and a government property assessment are different obligations that should be reviewed separately.
- Supplemental property tax
- A separate California property-tax adjustment that can follow a reassessable change of ownership or completed new construction.
- Title insurance
- Coverage for specified ownership-related risks, subject to policy terms and exclusions. Lender and owner policies protect different insured interests. Lesson: Escrow and title: two different jobs