Adjustable Rate Mortgage (ARM)
A loan with an interest rate that fluctuates according to the movements of a predetermined index. There are several types of ARMs, some change quicker than others, but all have a ceiling cap.

Amortization Loan
In the beginning, almost all of the payment is applied toward interest, with more of the payment going toward the principal in later years.

Annual Percentage Rate (APR)
The annual, effective rate of interest for a loan, including points and additional fees.

Appraisal
An opinion by a licensed real estate appraiser regarding the fair market value of a property.

Broker
A person who has a real estate broker's license, who may not only make real estate transactions for others in exchange for a fee, but also may operate a real estate business and employ salespeople and other brokers.

Closing Costs
Costs incurred on closing day in addition to the down payment that can include fees such as attorney, loan origination, appraisal, credit report, escrow, tax escrow and hazard insurance.

Conventional/Fixed Rate Mortgage
Payments and interest rates are fixed for 15, 20, 25, or 30 year loans with up to 95% financing, 5% down payment and quicker loan approval than with FHA or VA. These are usually not assumable.

Debt-to-Income Ratio
Formula used to qualify borrowers. Although formulas differ, the general rule is that on 80% loans, house payments cannot exceed about 30% of before-tax income, and total debt, including other outstanding loans, cannot exceed about 38%.

Down Payment
A specified percentage of a home's value paid at closing, usually between 5% - 25%. 

5/25 and 7/23
Loans in which rates are fixed for five or seven years at rates slightly lower than standard 30-year, fixed- rate loans. Amortized for 30 years, loans are due in five or seven years or can be converted to a fixed-rate at the current market rate.

Earnest Money
Good faith money provided to seller by the potential buyer to show he is serious about purchasing the home. This amount may be applied to the down payment, but if the deal does not go through it may be forfeited, although in some cases it's returned.

Equity
The difference between the fair market value of a home and the loan amount, and/or any liens against it.

FHA Mortgage
Guaranteed by the federal government, Federal Housing Administration loans require no private mortgage insurance. However, there is a mortgage insurance premium which can be financed as part of the loan or in monthly installments.

Fixed Rate Mortgage
Interest rate is constant for the entire term of the loan.

Index
The interest rate to which changes in an adjustable-rate mortgage are pegged.

Interest Rate
The percentage a borrower pays to borrow money. On adjustable-rate loans, index plus margin equals adjusted interest rate.

Lien
A monetary claim against a property, which usually needs to be settled before the buyer can take title.

Loan Application Fee
A lender's fee, usually ranging from $75 to $300, which the buyer must pay when applying for a mortgage.

Loan-to-Value Ratio
The percentage of a properties value lent to a borrower.

Loan Origination Fee
A fee charged by the lender for processing a mortgage.

Lock-In
A lender's promise to guarantee an interest rate or points for a set period during the qualifying process.

Margin
The amount added to an index to determine future interest rates on adjustable-rate mortgages.

Market Rate
The average rate charged by lenders for conventional, fixed-rate loans.

Mortgage Bankers
They provide funds for real estate loans.

Mortgage Brokers
While they usually do not have money of their own to lend, they act as loan-referral agents.

Multiple Listing Service (MLS)
A networking system, frequently on computer, in which a number of real estate firms share information about their client's homes that are for sale.

Negative Amortization
An increase in the outstanding balance of a loan created when the payment isn't large enough to cover the interest charged.

Offer to Purchase, Purchase Offer, Earnest Money Agreement, Contract of Purchase, Deposit Receipt
A document that lists the price, conditions, and terms under which the buyer is willing to purchase a property.

Offer to Purchase and Acceptance, Contract of Sale, Sales Contract
An offer of purchase that has been signed by both buyer and seller. A firm contract that outlines all details of the property transaction.

PITI
Principal, interest, taxes and hazard or homeowner's insurance.

Points
Fees charged by lenders. One point equals 1% of the mortgage amount.

Principal
The amount of money owed on a mortgage, excluding interest payments.

Private Mortgage Insurance (PMI)
This is NOT homeowners insurance. With conventional financing lenders require the borrower to purchase PMI protecting the lender against default on loans with less than 20% down payment.

Realtor
A collective membership mark that may be used only by real estate professionals who are members of the National Association of Realtors and subscribe to its strict code of ethics.

Secondary Market
Mortgage investors, including Fannie Mae and Freddie Mac, which set underwriting guidelines for most loans and buy many of them from the original lenders.

Title
A document showing the buyer has a clear ownership of property.

Title Insurance
Required by lender, paid by the borrower or seller insuring clear title against future claims.

Title Search
The process of checking all records relating to the title. It determines whether the seller can transfer the title free of liens.

Treasury Securities
Treasury securities and T-bills are common indexes for adjustable-rate loans.

Underwriting
The process of deciding whether to make a loan, based on a property appraisal, a well as a review of the borrower's credit history, income and ability and willingness to make timely payments.

VA Loan
The Veterans Administration guarantees a portion of a home loan, thus allowing veterans an opportunity to be granted a loan with little or no down payment required.