Amortization: Gradual debt reduction. Normally, the reduction is made according to a predetermined schedule for installment payments.

Annual Percentage Rate (APR): Everything financed in your mortgage loan package (interest, loan fees, points or other charges) expressed as a percentage of the loan amount (usually slightly above the actual interest rate alone.)

Appraisal: A formal, written estimation of the current market value of a home. Market value is based on its condition and the selling prices of comparable homes recently sold in the area.

Assessed Valuation: The value that a taxing authority places upon personal property for the purposes of taxation.

Assumable Loan: A loan in which the lender transfers from the previous owner of the home to the new owner, sometimes at the same interest rate, sometimes at a new rate. An assumable loan can make your home more attractive to buyers when you want to sell.

Clear Title: A title that is free of liens or legal questions as to ownership of property.

Closing: The condition of a transaction. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes and disbursement of funds necessary to the sale or loan transaction.

Closing Agent: A closing agent or attorney assures that all documentation related to the sale of a house had been completed properly, including the title search and title insurance.

Closing Costs: Fees the buyer must pay at the time of closing in addition to the down payment including points, mortgage insurance premium, homeowners insurance, prepayments for property taxes, etc. Closing costs average 3%-4% of the loan amount.

Closing Statement: A financial disclosure giving an account of all funds received and expected at the closing, including escrow deposits for taxes, hazard insurance and mortgage insurance.

Conventional Mortgage (Loan): A type of mortgage not insured by either the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).

Credit Rating: A rating given to a person to establish willingness to pay obligations based upon one's past history or timely payment.

Credit Report: A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.

Down Payment: The part of the purchase price which the buyer pays in cash and does not finance with a mortgage.

Employment: Borrower's employment should show no gaps within last 24 months. If borrower has changed jobs, there should be stability or improvement in income.

Equity: The difference between the amount a property could be sold for and the claims held against it.

Escrow: A procedure in which documents or transfers of cash and property are put in the care of a third party, other than the buyer or seller.

FHLMC: Federal Home Loan Mortgage Corporation. A private corporation created by Congress to support the secondary mortgage market. Also known as Freddie Mac.

First Mortgage: A real estate loan that creates a primary lien against real property.

Fixed-rate Mortgage: A mortgage in which the interest rate does not change during the entire term of the loan.

Flood Insurance: Insurance that compensates for physical property damaged resulting from flooding.

Foreclosure: The legal process by which a mortgaged property may be sold when a mortgage is in default.

FNMA: Federal National Mortgage Association. A private corporation created by Congress to support the secondary mortgage market. Also known as Fannie Mae.

Interest Rate: Rate of interest charged for the use of money, usually expressed at an annual rate. The rate is derived by dividing the amount of interest by the amount of principal borrowed.

Interest Rate Caps: A provision of an ARM limiting how much interest rates may increase or decrease per adjustment period or over the life of the mortgage.

Lien: A legal claim against a property that must be paid off when the property is sold.

Loan-to-Value Ratio: The relationship between the amount of a home loan and the total value of the property.

Loan Origination Fee: A fee charged by the lender for evaluating, preparing, and submitting a proposed mortgage loan.

Loan Servicer: After the loan closes, the loan servicer collects your payments and manages late payments. Lenders often release servicing to another organization, which means you won't necessarily send your mortgage payments to the company that made your initial or original loan.

Lock-in: A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time.

London Interbank Offered Rate (LIBOR): The rate that most creditworthy banks dealing in Eurodollars charge each other for large loans. The LIBOR is commonly used as an index for adjustable rate mortgages.

Mortgage: A loan on real property given as security for the payment of an obligation.

Mortgage Insurance Premium (MIP): A charge paid by the borrower (usually as part of the closing costs) to obtain financing, especially when making a down payment of less than 20% of the purchase price.

Mortgage Investor: Any person or institution that invests in mortgages. By buying mortgage loans from lenders, the mortgage investor gives the lender funds that can be used for more lending.

Owner Financing: A property purchase transaction in which the property seller provides all or part of the financing.

Point: An amount equal to 1% of the principal amount being borrowed. The lender may charge the borrower several "points" in order to provide the loan.

Prepayment Penalty: A fee that may be charged to a borrower who pays off a loan before a specified time.

Pre-qualification: The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.

Principal: The original balance of money loaned, excluding interest. Also, the remaining balance of a loan, excluding interest.

Private Mortgage Insurance (PMI): Insurance provided by nongovernment insurers that protects lenders against loss if a borrower defaults.

Property Taxes: Taxes (based on the assessed value of the home) paid by the homeowner for community services such as schools, public works, and other costs of local government.

Purchase and Sale Agreement: A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Refinancing: The process of paying off one loan with the proceeds from a new loan using the same property as security.

Settlement Statement: The computation of costs payable at closing that determines the seller's net proceeds and the buyer's net payment.

Title Search: A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.