Real estate terms every homebuyer should know

A gradual paying off of a debt through periodic installments. Most mortgages require the payment of at least some principal amortization with interest so that the loan is eventually retired.

An estimate of a home's market value completed by a licensed professional.

One who is obligated to repay a loan; a mortgagor. Legal documents involved with a mortgage loan refer to the person who applies for a loan or the person who actually gets the loan as the borrower. The borrower is legally obligated under the terms of the mortgage contract.

One who is licensed by a state to act for principals in real estate transactions, within the scope of state law. In most states, including Texas, one must be licensed as a broker to act in a real estate transaction for another. A licensed real estate salesperson must be sponsored by a broker who accepts responsibility for the salesperson’s acts. A broker is regulated by the law of agency, which requires the broker to act in the best interest of the principal.

In a sales contract, the party that pays the sales price and takes ownership of the property.

Fees and expenses paid when you finalize the purchase of a home. These may include lender fees, title charges, taxes, insurance and other costs associated with the transaction.

An evaluation of the credit worthiness of an individual based on their credit history. Mortgage loan approval may be difficult to obtain without a favorable credit rating or with no credit rating. Someone who has never borrowed money may have as much difficulty obtaining credit as a person who has a poor credit history.

A document maintained by a credit reporting agency that describes an individual’s credit history. Loan underwriters commonly order credit reports on loan applicants. Individuals have the right to inspect their credit report and make corrections as needed.

A written document, properly signed and delivered, that conveys title to real property. See bargain and sale deed, general warranty deed, quitclaim deed, special warranty deed.

A clause in a deed that limits the use of the property. For example, a deed might stipulate that alcoholic beverages are not to be sold on the land for 20 years. A prospective buyer should check that deed restrictions would not inhibit an intended use of property; a prospective seller should consider whether he or she wants to restrict the use of land.

The portion of the home's purchase price that you pay upfront rather than finance through a mortgage. Buyers with low-to-moderate incomes may qualify for down payment assistance, also called homebuyer assistance, which can help reduce the amount of cash needed to purchase a home.

A neutral account used to hold money or important documents until certain conditions of the home purchase have been met. After closing, an escrow account may also be used to collect and pay property taxes and homeowners insurance.

The difference between your home's value and what you still owe on your mortgage. As you make mortgage payments and your home's value increases, you build equity. Over time, equity can help build wealth and may be used to finance home improvements, cover major and unexpected expenses, or support other financial goals, such as education or retirement.

A legal procedure whereby property pledged as security for a debt is sold to pay the defaulted debt. Foreclosure gives a lender the right to sell property that was pledged for a debt. All parties to a mortgage contract should recognize its consequences.

A charge against property, making it security for the payment of a debt, judgment, mortgage or taxes; a type of encumbrance. A lien makes the property collateral for a debt. Some liens may allow the property to be sold to satisfy the debt.

A charge to help defray the costs of originating a loan. The fee is paid by the borrower at closing as a specific percentage of the amount borrowed. See Discount points. Mortgage loan terms often are quoted as “8 percent with 1 plus 2 points.” This means that three discount points (equal to 3 percent of the loan amount) will be charged with one of the points considered a loan origination fee. If the origination fee is charged to pay for specific services, such as an appraisal or credit check, it may not be included in tax deductible interest expenses.

A loan used to purchase a home. You'll repay the loan over time through monthly payments that typically include principal and interest, and may also include property taxes and homeowners insurance. Credit scores significantly impact a buyer’s ability to qualify for a mortgage.

A lender's estimate of how much you may be able to borrow based on your income, assets, debts and credit history.

The amount of money you borrow to purchase a home, before interest is added. As you make mortgage payments, your principal balance decreases.

The legal right to own a property. Before closing, a title search helps confirm that ownership is clear and that there are no outstanding claims or liens that could affect the sale.

An insurance policy that protects the holder from any loss resulting from defects in the title. The premium is paid once and is good only until ownership changes.

Same as ad valorem taxes.