Higher Standard Homes

Buyer Toolkit

Understanding Mortgage Terms



An estimate of the value of a property, made by a qualified professional called an "appraiser."

Closing Costs

Closing costs represent all of the costs of going through the home-buying process (lawyers fees, taxes, title insurance, escrow payments) that aren’t covered in the purchase price of the house. Your lender should provide you with a good-faith estimate of what these will add up to.

Credit Report

A report documenting the credit history and current status of a borrower's credit standing.

Debt-to-Income Ratio

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income.

Down Payment

Money paid to make up the difference between the purchase price and the mortgage amount.

Earnest Money

Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.


Escrow is an extra account that holds all the money and documents that make up a property transfer until the sale is complete. Escrow can also be an account that holds property taxes and insurance money until they are due, like a savings account you pay a little into with each mortgage payment.


Equity is the amount of a property’s value that is owned by the property owner. It can grow through improvements to the property, growth in the market, and through making mortgage payments that go towards the principal of the loan.

Fixed-Rate Mortgage

A fixed-rate mortgage is a home loan with a solid, unchanging interest rate. If you get one of these, you may want to refinance later if interest rates go down, but you won’t have to worry about them going up.

Prepaid Expenses

Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.


The amount of debt, not counting interest, left on a loan.


A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.

Private Mortgage Insurance

Private mortgage insurance, or PMI, is an insurance policy that protects the bank or loan company from the losses they would incur if you were to default on your mortgage payments. The lower your credit and down payment are, the more likely you will be to pay for this type of insurance.


A document that gives evidence of an individual's ownership of property.

Title Insurance

A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.


The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.