The Savvy Homeowner’s Glossary
45 Indispensable Words Every Homeowner Should Know and Understand
1. Adjustable Rate Mortgage (ARM): A mortgage interest rate that changes based on an index over time.
2. Agreement of Sale: A sale contract.
3. Amortization Schedule: A schedule showing how the monthly mortgage payment is applied to the principal, interest, and the current mortgage balance.
4. Appraisal: An evaluation of homes within the surrounding area to determine the market value of the property.
5. Appreciation: An increase in the value of property. 6. Borrower: The person or persons responsible for the loan, also
called the mortgagor.
7. Cash Reserve: The cash balance a borrower has left after closing, available for the first one or two mortgage payments.
8. Certificate of Occupancy: A certificate issued by a governing agency stating that the building has been approved for occupancy.
9. Closing: Finalizing the purchase and financing documents and the disbursement of funds to all parties.
10. Closing Costs: All the costs associated with the loan and the purchase, not including the actual cost of the property.
11. Commitment Letter: Formal notification from a lender stating the terms of the loan.
12. Contingency: A specific condition to an agreement or contract. 13. Credit Report: A report of credit history used to determine an
individual’s credit worthiness, usually provided by a credit bureau.
14. Debt-to-Income Ratio: The percentage of one’s earnings used to qualify for a mortgage.
15. Earnest Money: A deposit given to a seller by a prospective buyer.
16. Easement: A right-of-way given to others to access over and across the property.
17. Equity: The difference between the market value and the outstanding mortgage balance.
18. Fixed-Rate Mortgage: A mortgage in which the rate of interest is fixed for the entire term of the loan.
19. Flood Insurance: Insurance for properties in designated flood areas by the government.
20. Hazard Insurance: Homeowner’s insurance. 21. Homeowner’s Warranty: Insurance that covers repairs for the
home for a specified period of time.
22. Lien: A legal claim against a property that must be paid when the property is sold.
23. Loan-to-Value Ratio (LTV): The difference between the mortgage amount and the value of the property. Example: Home Value = $1,000,000; Mortgage amount = $900,000; LTV = 90%.
24. Lock-in Rate: A written guarantee by lender for a specific rate of interest.
25. Mortgage Broker: A company that matches borrowers with lenders for a fee.
26. Mortgage Insurance: Insurance that is provided by independent insurers that protects the lender in the event of a mortgage default.
27. Mortgagee: The lender.
28. Mortgagor: The borrower.
29. Origination Fee: The fee paid to a lender for processing a loan, also called points.
30. Owner Financing: When the seller of the property provides all or part of the financing.
31. Plot Plan: A map prepared by a licensed surveyor depicting the exact placement of a house on a lot.
32. Points: One-time charge by a lender. One point is one percent of the mortgage amount.
33. Prepayment Penalty: Fees charged to a borrower for paying off a loan prior to the maturity date.
34. Pre-Qualification: Pre-determining a buyer’s financial borrowing power prior to a purchase. Pre-qualifying does not guarantee loan approval.
35. Principal: The total loan amount borrowed or the total unpaid balance of the loan.
36. Radon: A radioactive gas which, if found in sufficient levels, can cause health problems.
37. Refinancing: Paying off an existing loan with a new loan on the same property.
38. Settlement Sheet: The costs payable at closing to determine the seller’s net proceeds from the sale and the buyer’s required net payment.
39. Survey: A drawing showing the legal boundaries of the property.
40. Title: A legal document establishing the right of ownership.
41. Title Company: A company that specializes in insuring the title to the property.
42. Title Insurance: Insurance that protects the buyer and the lender against losses arising from disputes over ownership of the property.
43. Title Search: A search of legal records to ensure that the seller is the legal owner of the property and that any liens or claims against the property are identified.
44. Transfer Tax: State or local taxes due when title to property transfers from one owner to the other.
45. Underwriting: The process of evaluating a loan application to determine whether or not it’s acceptable to the lender.