Homebuying glossary

Common terms you may hear when buying or selling property

Adjustable rate mortgage (ARM) - A loan with an interest rate that may fluctuate during the term of the loan.

Amortization - The method of retiring a standard auto loan, where a steady stream of constant payments pays down the loan principal and interest. The first payments are comprised almost entirely of interest; the last almost entirely of principal.

Annual percentage rate (APR) - The cost of the loan in percentage terms taking into account various loan charges which you may pay to obtain the loan. The is not necessarily the same as your "note rate" (the agreed rate of interest). The federal government requires lenders to quote an APR and the note rate to borrowers so you could more easily compare different lenders' quoted rates.

Appraisal - A very thorough report prepared by a licensed appraiser which estimates the property's value.

Balloon payment loan - A type of loan in which a consumer agrees to pay a large, pre-determined amount at the end of the term.

Closing costs - The total cost associated with getting a real estate loan. This may include appraisal fee, loan origination fee, and title insurance.

Closing disclosure - This document discloses actual terms and costs for your loan.

Conventional mortgage loan - real estate loans that are not government insured or guaranteed.

Credit life insurance - A type of life insurance that helps repay the loan if the consumer becomes disabled. It is optional coverage. The cost of the policy is sometimes rolled into the loan principal amount.

Credit report - A report that contains information about your borrowing habits and money-managing skills. Lenders use it to determine whether to approve a loan and to set the terms. A person with a good credit report is likely to get a better interest rate than someone with a poor credit report.

Deed of trust - a legal document in which real property is pledged by the borrower to the lender as collateral for the loan.

Default - The condition that occurs when a consumer fails to fulfill the obligations set out in the loan or lease.

Depreciation - An asset's decline in value over the course of its useful life. Automobiles depreciate steeply in their first few years. In an auto lease, a charge for depreciation is the chief part of a consumer's monthly payment.

Direct deposit - The process of having regular payments, such as paychecks and government benefits checks credited directly to your bank account. More

Down payment - The amount of money a buyer contributes toward the purchase price of the home.

Earnest money and purchase agreement - the written agreement to buy real estate. Among other things, this agreement specifies the purchase price and earnest money deposit amount. It is important that you understand all the conditions which are typically on the document. Ask your Realtor for clarification.

Fixed-rate mortgage - A loan with an interest rate that stays the same for the entire term of the loan.

Flood insurance - Insurance on the property covering it against flood damage. Your lender will advise you if it is necessary to get this coverage. It is not commonly included in the standard homeowners insurance package.

Hazard insurance - Insurance on the property covering it against damage. Most buyers purchase a homeowner's policy which provides additional coverage for liability and personal property.

Home equity - The part of a home's value that the mortgage borrower owns outright; the difference between the fair market value of the home and the principal balances of all mortgage loans.

Interest - The amount a borrower must pay in addition to paying back the amount originally borrowed.

Loan closing - All loan papers are prepared for the borrower to sign. The papers are typically signed at the office of a third party which was designated on the original purchase agreement.

Loan estimate - A document that is prepared by the lender, disclosing all expected costs associated with getting a loan. The STCU real estate loan staff are pleased to prepare this for you when you are shopping for your loan.

Loan processing - Collecting and verifying detailed information concerning both the borrower and the property. This involves obtaining a credit report, verifying the income the borrowers stated on their application, verifying the borrowers have sufficient money for the down payment and closing costs, and obtaining an appraisal on the property.

Loan servicing - All activities that occur from the time the loan is closed until it is paid off. This includes receiving payments, paying property taxes and insurance, and sending out regularly scheduled information to borrowers about their loan. It is not unusual to have your loan servicing transferred many times during the life of your loan.

Loan underwriting - The process of reviewing all verified information collected in loan processing to determine whether or not the loan is a good risk.  The loan is evaluated based on the lender's guidelines and practical experience.

Mortgage life insurance - Insurance you may privately obtain that will pay off the balance owed on the mortgage upon the death of the insured party.

Note rate - The agreed rate of interest to be charged on a real estate loan.

PITI -  The principal, interest, taxes, and insurance. A common term used to describe what is included with your monthly home payment. 

Private mortgage insurance (PMI) - Provides coverage to the lender in the event of default. Real estate lenders generally require PMI on all loans where the down payment is less than 20 percent.

Title insurance - Insures against loss due to undiscovered claims against the property purchased.