Homebuyer’s chapter
A plain-language mortgage glossary
Translate the terms before comparing the offers.
Price, principal and equity
Purchase price is what you agree to pay for the property. Principal is the loan amount outstanding. Equity is the property's value minus debt against it, not money freely available without a transaction. A down payment reduces initial borrowing but does not cover every buying cost.
Interest rate, APR and points
The interest rate applies to the loan balance under the loan terms. APR incorporates certain borrowing costs and can help compare loans, but only with attention to term and assumptions. Points are upfront charges associated with the rate. Ask how paying points changes your cash need and break-even period.
Escrow, PMI and HOA
Mortgage escrow is an account for specified expenses such as property taxes and insurance. PMI is private mortgage insurance that protects the lender, not home repair coverage. HOA dues support an association and may coexist with assessments or restrictions. Each needs its own review.
Contingencies and disclosures
A contingency is a contract condition that may create rights under stated circumstances and deadlines. A disclosure provides required information but is not a guarantee. A title review, appraisal, inspection and lender underwriting serve different purposes. Ask the appropriate professional which risk each process does and does not address.
Questions to take into the next conversation
- Mark unfamiliar terms in the actual loan and contract documents.
- Ask which amounts are upfront, recurring, conditional or refundable.
- Confirm who can explain the legal, lending or property issue behind each term.
Does understanding the vocabulary mean I understand the agreement?
No. A familiar term can operate differently in a particular loan or contract. Read definitions, conditions, exclusions and deadlines in the actual documents. Use the glossary to ask better questions, not as a substitute for a qualified explanation of the agreement you are considering.