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Mortgage Glossary: Terms Every Buyer Should Know
Buying a home is exciting — but the mortgage process? It can feel like learning a whole new language. Between acronyms, jargon, and financial lingo, it’s easy to get overwhelmed. That’s why Rapid Home Loan put together this simple mortgage glossary to help you feel confident and informed at every step.
Whether you’re a first-time buyer or just need a refresher, here are the essential mortgage terms you need to know:
🏡 Basic Mortgage Terms
1. Mortgage
A loan used to purchase real estate. You borrow money from a lender and agree to pay it back over time — with interest.
2. Principal
The amount of money you borrow (excluding interest). For example, if you get a $300,000 mortgage, that’s your principal.
3. Interest
The cost of borrowing money, expressed as a percentage. This is what the lender charges you for the loan.
💰 Costs & Payments
4. Down Payment
The upfront cash you pay toward the purchase of your home. Typically ranges from 3% to 20% of the home’s price.
5. Escrow
An account that holds funds for property taxes and homeowners insurance. It’s managed by your lender and included in your monthly payment.
6. Private Mortgage Insurance (PMI)
Insurance required when your down payment is less than 20%. It protects the lender if you default on your loan.
📊 Loan Types
7. Fixed-Rate Mortgage
A mortgage with a constant interest rate and monthly payment over the life of the loan. Great for budgeting long-term.
8. Adjustable-Rate Mortgage (ARM)
A mortgage with a variable interest rate that can change after an initial fixed period. It may start lower than a fixed-rate but carries more risk.
9. FHA Loan
A loan backed by the Federal Housing Administration, popular with first-time buyers due to low down payment requirements.
10. VA Loan
A loan available to veterans, active-duty service members, and their families, offering 0% down and no PMI.
📝 Mortgage Process Terms
11. Pre-Approval
A lender’s commitment to offer you a loan up to a certain amount based on your financials. It strengthens your offer when house hunting.
12. Appraisal
An unbiased estimate of your home’s value, required by lenders to ensure the loan amount is appropriate.
13. Closing Costs
Fees paid at the end of the transaction, usually 2%–5% of the loan amount. Includes loan origination, title insurance, taxes, and more.
14. Underwriting
The lender’s process of reviewing your financials to determine loan approval. Includes credit checks, employment verification, and income review.
15. Loan-to-Value Ratio (LTV)
The ratio of your loan amount to the home’s appraised value. A lower LTV often means better loan terms.
🔒 Rate Terms
16. Rate Lock
An agreement to “lock in” your interest rate for a period of time while your loan is processed — protecting you from rate increases.
17. Annual Percentage Rate (APR)
The true cost of borrowing, including interest and fees, expressed as an annual percentage. It gives a fuller picture than just the interest rate.
Why This Matters
Understanding these terms isn’t just about sounding smart — it’s about protecting your investment. At Rapid Home Loan, we believe education is empowerment, and we’re here to make the home financing process as smooth and stress-free as possible.
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