Home Buying Glossary

The part of a monthly mortgage payment that reduces the loan balance. Early in a loan term, a smaller share of the payment goes to principal; later, a larger share does.

In the calculator: Included inside the principal and interest line of the payment snapshot.

The cost a lender charges for borrowing, calculated on the remaining loan balance. It is the other half of the principal and interest payment.

The loan repayment portion of a housing payment, before property taxes, insurance, HOA dues, or mortgage insurance are added. Quoting only P&I is one of the most common reasons a real payment feels higher than expected.

What is included in a house payment? →

Shorthand for principal, interest, taxes, and insurance — the four items lenders most often bundle into one monthly payment. HOA dues and mortgage insurance may be added on top of PITI.

The schedule that spreads a loan across its full term so it reaches a zero balance at the end. It determines how each payment splits between principal and interest over time.

The number of years a loan is scheduled to be repaid over, commonly 30 or 15 years. A longer term usually lowers the monthly payment and raises total interest paid; a shorter term usually does the opposite.

In the calculator: The loan term in years field.

The percentage used to calculate interest on the loan balance. Actual rates depend on the lender, credit profile, loan type, down payment, term, discount points, market conditions, and whether the rate is locked.

In the calculator: An editable estimate. Nothing on this site is a live rate quote.

A broader rate figure that folds certain lender costs into the interest rate so different loan offers can be compared. APR is disclosed on a Loan Estimate and is usually higher than the note rate.

A loan whose interest rate stays the same for the whole term. The principal and interest portion of the payment does not change, though taxes and insurance still can.

A loan whose interest rate can change after an initial fixed period, according to an index and the terms in the note. Payments can rise or fall at each adjustment, within any caps the loan sets.

An account a mortgage servicer uses to collect a portion of property taxes and insurance each month and pay those bills when they come due. Because tax and insurance bills change, an escrow payment can change too.

What is escrow? →

A tax charged by local taxing units based on a property's assessed value and the local rate. Two homes with the same sale price can carry very different tax bills.

In the calculator: Entered as an annual rate and converted into a monthly estimate.

How property taxes affect your payment →

A policy covering the home and certain liabilities, usually required by a lender. Premiums vary by property, location, coverage, deductible, claims history, and insurer.

Insurance and monthly payments →

Recurring fees charged by a homeowners association for shared amenities, maintenance, or services. They are usually paid separately from the mortgage and are not always collected through escrow.

Insurance that protects the lender, not the buyer, and may be required on conventional loans when the down payment is below a lender's threshold. It can often be removed once enough equity is built, under the rules of the loan.

What is PMI? →

The mortgage insurance charged on FHA loans. Its rules, cost, and cancellation terms differ from conventional PMI.

The portion of the purchase price paid by the buyer rather than borrowed. It affects the loan amount, the monthly payment, and whether mortgage insurance may apply.

In the calculator: Entered as a dollar amount, not a percentage.

A deposit made shortly after an offer is accepted, showing the buyer is serious. It is generally credited toward the down payment or closing costs at closing.

Transaction expenses paid at closing, which can include lender fees, title and settlement charges, appraisal, recording fees, and other third-party costs. They vary by lender, state, and property.

In the calculator: Estimated as a percentage of the home price so the effect on cash to close is visible.

Costs paid in advance at closing rather than charged as fees — typically the first year of homeowners insurance and prepaid interest and taxes.

Several months of taxes and insurance collected at closing to fund the escrow account so it can pay bills on schedule. Reserves are cash at closing, not a fee.

The total amount a buyer brings to closing: down payment plus closing costs, prepaid items, and reserves, less any credits or the earnest money already paid.

What is cash needed to close? →

An optional upfront payment to the lender in exchange for a lower interest rate. Points raise cash needed at closing and lower the monthly payment.

An agreed amount the seller contributes toward the buyer's closing costs. Loan programs limit how much can be credited.

A lender-ordered opinion of a property's value, used to confirm the loan is supported by the home. An appraisal below the contract price can change the loan amount or the deal.

A policy protecting against certain ownership and lien problems discovered after closing. A lender's policy is usually required; an owner's policy is separate.

Monthly debt payments divided by gross monthly income, expressed as a percentage. Lenders use it as one input among many; it is not by itself an approval or a decline.

In the calculator: Used for educational payment-pressure context when income and debts are entered.

How much income for a house payment? →

The front-end ratio compares the housing payment alone with income. The back-end ratio compares the housing payment plus all other monthly debts with income.

The loan amount divided by the property value. A higher LTV means a smaller down payment and often a greater chance that mortgage insurance applies.

An informal early estimate of what a buyer might borrow, usually based on stated information. It is not a commitment to lend.

A more thorough lender review, generally involving documentation and a credit check, resulting in a conditional letter. Conditions still apply and it is not a final approval.

The lender's review of credit, income, assets, the property, and the loan program before issuing a final decision.

Money left after closing that could cover future housing payments. Some loan programs require a minimum, and many buyers keep more than the minimum for repairs and emergencies.

A lender's agreement to hold a quoted interest rate for a set period. Without a lock, a quoted rate can change before closing.

A standardized three-page disclosure a lender provides after an application, showing the estimated rate, monthly payment, closing costs, and cash to close. Its format makes offers easier to compare side by side.

The final itemized statement of loan terms, payment, closing costs, and cash to close, provided before closing. These are the numbers that actually apply — every estimate should be checked against it.

A condition in a purchase contract, such as financing, appraisal, or inspection, that must be satisfied or waived for the sale to proceed.

A gap that appears when actual tax or insurance bills exceed what was collected. Servicers typically resolve it by raising the monthly escrow amount, requesting a lump sum, or both — which is a common reason a payment changes after year one.