Sellers must disclose major defects, but those disclosures rarely tell the whole story. These six questions give you a clearer picture before you commit.
A
Adjustable-Rate Mortgage (ARM)
A mortgage whose interest rate changes periodically based on a specified index.
Adjustment Date
The date on which the interest rate changes for an ARM.
Amortization
Repayment of a mortgage loan by regular installments covering both principal and interest.
Annual Percentage Rate (APR)
The true yearly cost of a mortgage, including interest, mortgage insurance, and origination fees.
Appreciation
An increase in a property’s value due to market conditions or other causes. Opposite of depreciation.
Assumable Mortgage
A mortgage that can be transferred to and taken over by the buyer when a home is sold.
B
Balloon Mortgage
A mortgage with regular monthly payments that ends with one large lump-sum (balloon) payment at maturity.
Basis Point
1/100th of a percentage point. Example: 50 basis points = 0.50%.
Bridge Loan
A short-term loan using your current home as collateral to fund a new purchase before the old home sells.
Buydown Mortgage
A mortgage where an upfront payment reduces the interest rate — temporarily or for the full loan term.
C
Cap
A limit on how much an ARM’s interest rate or payment can change at each adjustment or over the loan’s life.
Cash-Out Refinance
A refinance where the new loan exceeds the old balance, giving the borrower extra cash.
Clear Title
A property title free of liens or ownership disputes.
Closing
The final meeting where the buyer signs documents, pays closing costs, and receives ownership. Also called settlement.
Closing Costs
Fees paid at closing beyond the property price — origination fees, attorney fees, title insurance, escrow, and taxes.
Collateral
An asset (like your home) that secures a loan. If you default, the lender may take it.
Conforming Loan
A mortgage at or below the conforming limit ($417,000), eligible for purchase by Fannie Mae or Freddie Mac.
Contingency
A condition that must be satisfied before a contract becomes binding — e.g., a satisfactory home inspection.
Conventional Mortgage
A mortgage not insured or guaranteed by the federal government.
D
Deed
The legal document that transfers property ownership from seller to buyer.
Default
Failure to make mortgage payments on time or meet other loan requirements.
Depreciation
A decline in property value. The opposite of appreciation.
E
Earnest Money Deposit
A good-faith deposit from the buyer showing serious intent to purchase.
Equity
Your ownership stake: the property’s market value minus what you still owe on the mortgage.
Escrow
Funds or documents held by a neutral third party and disbursed when contract conditions are met.
F
FHA Mortgage
A mortgage insured by the Federal Housing Administration — typically lower down payment requirements.
Fixed-Rate Mortgage (FRM)
A mortgage where the interest rate stays the same for the entire loan term.
Foreclosure
The legal process where a lender takes possession of a property due to the borrower’s default.
G
Good Faith Estimate
An estimate of the settlement charges a borrower will likely pay at closing.
H
Home Equity Line of Credit
A revolving credit line secured by your home — works like a credit card. Minimum payment is interest only.
Home Equity Loan
A fixed loan secured by your home, typically used for home improvements. Also called a second mortgage.
Housing Ratio
Monthly housing costs (PITI) divided by gross monthly income. Also called the front-end ratio.
I
Impound Account
An account where the lender holds part of your monthly payment to cover property taxes and insurance.
Interest-Only Loan
A loan where payments cover only interest for a set period — no principal is paid down during that time.
J
Jumbo Mortgage
A loan exceeding the conforming limit ($417,000), usually subject to higher interest rates.
L
Lien
A legal claim against a property for money owed — either voluntary (mortgage) or involuntary (unpaid taxes).
Loan-to-Value Ratio (LTV)
Mortgage balance divided by appraised value. Lower LTV = better loan terms.
Lock-In / Rate Lock
A lender’s written guarantee of a specific interest rate, provided the loan closes within a set period.
M
Margin
The percentage points a lender adds to an index to calculate your ARM’s rate at each adjustment.
Mortgage Insurance (MI)
Protects the lender if you default. Usually required when your LTV exceeds 80%.
N
Negative Amortization
When your payment is less than the interest owed, causing your loan balance to grow instead of shrink.
P
PITI
Principal + Interest + Taxes + Insurance — the four components of a monthly mortgage payment.
Points
Fees paid to a lender at closing. One point = 1% of the loan amount.
Prepayment Penalty
A fee charged if you pay off your mortgage ahead of schedule.
Private Mortgage Insurance (PMI)
Required when LTV exceeds 80%. Protects the lender — not you — if you default.
Q
Qualifying Ratios
Debt-to-income ratios lenders use to determine how much you can borrow.
R
Refinancing
Replacing your existing mortgage with a new loan — same property, new terms.
T
Title Insurance
Protects against financial loss from defects or disputes over the property’s title.
Title Search
A review of ownership history to verify the seller can transfer a clear title to you.
Total Debt Ratio
All monthly debts divided by gross monthly income. Also called the back-end ratio.
By Tanbir Sonia Marwah KW Northern Virginia Home Buyer’s Guide · For personal use only
