Alex Featured on Mortgage Vault Podcast

Unless you have a real estate or finance background, the jargon you will come across during your homebuying journey may be a bit foreign at first. The good news, you will quickly become confident with the vocabulary used in the mortgage industry.

Here’s a beginner’s guide to some common terms you will need to know before purchasing a new home.

Adjustable-Rate Mortgage (ARM)

With an adjustable-rate mortgage, the interest rate of your mortgage will change over time. The change is outlined in your mortgage paperwork with your lender.


When referring to mortgages, amortization happens every time you make a payment on your loan. The payment will cover the interest and principal – or the balance of the loan. Your loan will be set up on an amortization schedule – usually a payment you will make once a month.


An independent review and determination of the market value of the property you are purchasing. An appraisal assures that you aren’t borrowing more money than what your home is worth.


Closing on a home is the last step of the process where ownership is legally transferred from the seller to the buyer. You will pay the down payment and any closing costs associated with your loan. These items will have been negotiated between you and the seller before closing.

Debt-to-Income (DTI) Ratio

A percentage that’s calculated by adding up your monthly minimum debt payments (i.e., utilities, car payments) and dividing the total by your monthly gross income (i.e., salaries, wages before deductions, or taxes). Your debt-to-income ratio (DTI) is how mortgage lenders measure your ability to manage and pay back a mortgage.

Down Payment

The down payment is a percentage of the purchase price of a new home that you pay upfront.

Earnest Money

Earnest money is essentially a good-faith deposit you make on a home to show the seller that you are serious about buying. The deposit amount will vary and will be deposited after the seller accepts your offer. During the loan closing, it will be put towards the purchase.


An account that holds the portion of a borrower’s monthly mortgage payment that covers things such as property taxes and insurance. Escrow accounts are designed to make like easier for homebuyers and can help you manage the costs associated with homeownership such as property taxes and insurance.

Fixed-Rate Mortgage

The most common type of mortgage. A fixed-rate mortgage is one in which the rate doesn’t change through the duration of the loan – usually either 30 or 15 years. You will have the same payment for the principal and interest, even if the market rates for homes go up or down.


Probably the most important term that you will need to know when purchasing a home. A mortgage is a loan used to buy a home. You will repay the mortgage over a period, typically 15 or 30 years.


Often the first step in the homebuying process. During a pre-approval, the lender will do a quick assessment of your potential eligibility for a mortgage. You will submit information about your income and finances, and if all looks good, you will receive a letter stating how much money you have been pre-approved for your loan.


The principal balance is the amount that you take out in a loan. When you make mortgage payments, the payments will go toward the principal and your interest rate. The principal balance will shrink as you make payments on your loan over time.

There are several more mortgage terms you will encounter along the way. And an Axia Loan Originator will help you understand these terms so that you are on the right track and your home purchase is successful. Click HERE to get started.

*Pre-approval is not a commitment to lend.

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