Dictionary of Home Buyer’s Terms

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The real estate world has its own language. Familiarize yourself with the home buying terms below!


Questions? Contact Marble Falls Realty Group today!

Adjustable-Rate Mortgage (ARM)

A mortgage for which the interest rate and the payments change during the life of the



Alternative Financing

Mortgage instruments for both new and existing homes allow the buyer to qualify at lower than market rates. Among these instruments are adjustable-rate mortgages, graduated-payment mortgages, and buydown mortgages.


Assumable Loan

A loan that can be picked up by a subsequent buyer for a small assumption fee. It saves thousands of dollars in closing costs and loan origination fees. Conventional loans that are assumable usually require a new application.



The final step in the sale and purchase of a property is when the title is transferred from the seller to the buyer; the buyer signs the mortgage pays settlement costs and any money due to the seller or buyer is handed over.


Closing Costs

Costs in addition to the price of the home, usually including the mortgage origination fee, title search and insurance, recording fees, and prepayable payments are collected in advance and held in an escrow account. Be sure your sales contract clearly states who will pay the cost – the buyer or the seller.


Conventional Mortgage

A mortgage loan not insured by FHA, HUD, or guaranteed by the VA. It is subject to the conditions established by the lending institution and state statutes.


Down Payment

A special percentage of a home’s value is paid at closing. Usually, a down payment is 5 to 25 percent of the house price. Private mortgage insurance is required at amounts less than 20 percent.


Earnest Money

Earnest money is the money deposited that is given to the seller by the potential buyer to show that he is serious about buying the house. If the deal goes through, the earnest money is usually applied to the down payment. If the deal does not go through, it may be forfeited.



A buyer’s initial and increasing ownership rights in a house as he pays off the mortgage. When the mortgage and all other debt against the property are paid in full, the buyer has 100% equity in the property.


Escrow Funds

Money or papers representing financial transactions that are given to a third party to hold until all conditions in a contract are fulfilled.


FHA Loans

The Federal Housing Administration insures the mortgage, allowing the buyer to obtain financing with as little as 3 percent down.


Graduated Payment Mortgage (GMP)

Most GMPs are buydowns in which the builder, seller, or buyer pays upfront to lower monthly payments for the first 3 to 5 years. While initial payments are lower than the market rate, and subsequent increases are known in advance, payments might end up higher than with a fixed-rate mortgage, due to negative amortization.


Lock-In Rate

A rate commitment made by lenders when making a mortgage to commit or to “lock-in” that rate, pending loan approval. Lock-in commitment periods vary: loans will specify 30-90 days, for example.


Loan-To-Value Ratio

The relationship between the amount of the home loan and the total value of the property. Lenders may limit their maximum loan to 80- 95 percent of value.


Negative Amortization

The principal balance of the loan actually grows due to payments that are not enough to cover all of the interest due. Often negative amortization accrues during the years of a variable rate or graduated-payment mortgage when the payments are less than the market rate.



Usually paid by the buyer, a point is one percent of the loan balance and is charged by the lender to issue a loan. Points can be negotiable items between buyer and seller and lender and usually range from 1 up to 7 or 8.


Rate Cap

The interest rate cap on an ARM loan; which restricts the upward movement of the loan’s interest rate at the time of adjustment.



Evidence of a person’s legal right to possession of a property, normally in the form of a deed.


Title Insurance Policy

Special insurance usually protects lenders from loss of interest in property due to unforeseen occurrences that might be traced to legal flaws in previous ownerships. An owner can protect his interest by purchasing separate coverage.


VA Loans


A mortgage program administered by the government to make affordable home loans to military veterans. No down payment is required and the loan is fully insured by the government.

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