10 Key Terms Every Home Owner Should Know


    Buying a home is one of the most important decisions we make throughout our lifetime. Buying a home is right up there with choosing what college to attend, choosing who to marry, and choosing what career path you wish to take. Far too many people rush into buying a home without first understanding the task they are taking on or even learning the terminology bankers and realtors use. Understanding the real estate banter is paramount to not only understanding what type of deal you are getting, but understanding what direction your life will be headed for the next 30 years. If you are a first time home buyer looking for your starter home you MUST first understand some key terms with which you will be presented throughout the process. Here are 10 terms you should know before you buy a home:

    1. Adjustable Rate Mortgage (ARM Loan) – This loan has an initial interest rate that is often lower than a conventional fixed-rate mortgage. This rate is locked in for one or more years and the interest rate will increase specified amounts over predetermined intervals. The initial rate allows for a lower monthly payment, however, the monthly payments rise as the loan progresses.
    2. Annual Percentage Rate (APR) – APR for your home loan is a yearly calculation that includes the interest rate quoted by your mortgage company plus additional home loan costs (origination fees and points).
    3. Closing Costs – With each real estate transaction comes many expenses and agencies to pay. These fees are often shared by the buyer and the seller and can include loan origination fees, escrow payments, title insurance, and attorney fees.
    4. Escrow – This is a neutral third party that holds documents and money for safekeeping during the home loan process until the transaction is complete. This is also used to hold property tax and insurance money collected with each mortgage payment.
    5. Fixed-Rate Mortgage – Unlike the ARM loan the Fixed-Rate Mortgage insures your interest rate will stay the same for the life of the loan. This type of loan provides security in knowing exactly what your monthly house payment will be.
    6. Loan to Value Ratio (LVR) – This term refers to the amount of financing you are getting in relationship to your new home’s value.
    7. Lock-In – Home mortgage interest rates vary from day to day. Lock-in refers to choosing a particular interest rate with your lender so that you home loan will be processed at this rate.
    8. Points – Discount points are used to reduce the loan’s interest rate and origination points may be added to cover the expenses associated with processing a loan. One point equals one percent of the loan amount.
    9. Private Mortgage Insurance (PMI) – When you finance more than 80 percent of your new home’s value, your lender will require you to purchase PMI. This protects the lender against loss if you default on your home loan. PMI payment is added to the cost of your mortgage payment.
    10. Title Insurance – A home mortgage requirement that protects both the buyer and the seller against legal defects in a home’s title. This policy ensures that a property owner has the legal right to transfer a home’s title to the seller.


    Buying a new home can be exciting, frustrating, enlightening, and frightening. When you finally find and fall in love with your home you are going to want to be armed with the knowledge that will help you make a good deal financially. These terms are just the beginning but will guide you on your way to home ownership and make this weary journey a little less rough.

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