1. Down Payment

The initial payment you make when buying a home. It's a percentage of the home's purchase price that you pay upfront, while the mortgage covers the rest. Typically ranges from 3% to 20% of the home's price. A larger down payment often means a lower interest rate and no private mortgage insurance requirement.

2. Pre-Approval

A lender's conditional commitment to loan you a specific amount of money for a home purchase. It involves checking your credit, income, and assets to determine how much you can borrow. Having a pre-approval letter makes your offer stronger to sellers as it shows you're serious and financially qualified.

3. Fixed-Rate Mortgage

A home loan with an interest rate that remains the same throughout the entire term of the loan (typically 15 or 30 years). Your monthly principal and interest payments stay consistent, making budgeting easier and protecting you from interest rate increases.

4. Adjustable-Rate Mortgage (ARM)

A home loan with an interest rate that can change periodically based on market conditions. Usually starts with a lower fixed rate for an initial period (like 5, 7, or 10 years), then adjusts annually. Often written as "5/1 ARM" or "7/1 ARM" where the first number is years of fixed rate and the second is how often it adjusts afterward.

5. Private Mortgage Insurance (PMI)

Insurance that protects the lender if you stop making payments on your loan. Required for conventional loans when your down payment is less than 20%. Usually costs between 0.5% to 1% of your loan amount annually and is added to your monthly mortgage payment. Can be removed once you reach 20% equity in your home.

6. Closing Costs

Fees and expenses you pay when finalizing your mortgage and home purchase, beyond the down payment. Typically range from 2% to 5% of the loan amount and include lender fees, appraisal fees, title insurance, taxes, and prepaid items like homeowners insurance and property taxes.

7. Escrow Account

An account managed by your mortgage servicer that holds money for property taxes and insurance premiums. Part of your monthly mortgage payment goes into this account, and when these bills come due, they're paid automatically from the escrow account. Helps ensure these important expenses are paid on time.

8. Debt-to-Income Ratio (DTI)

The percentage of your gross monthly income that goes toward paying debts, including your potential mortgage payment. Lenders use this to determine if you can afford a mortgage. Generally, lenders prefer a DTI of 43% or less, including your new mortgage payment.

9. Annual Percentage Rate (APR)

The yearly cost of a loan expressed as a percentage, including interest and certain fees. Always higher than the interest rate alone because it reflects the total cost of borrowing. Required by law to be disclosed, making it easier to compare mortgage offers from different lenders.

10. Loan-to-Value Ratio (LTV)

The ratio between your loan amount and the appraised value of the home, expressed as a percentage. For example, if you borrow $180,000 for a $200,000 home, your LTV is 90%. Lower LTV ratios (from larger down payments) typically result in better interest rates and loan terms.