Home Buyers' Vocabulary

Test Yourself on These Terms Every Homebuyer Should Know

• Appraisal - An expert judgment or estimate of the quality or value of real estate as of a given date.
  
  

• Closing Costs - The numerous expenses that buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate and to obtain a mortgage loan. These costs are in addition to price of the property and are items prepaid at the closing day. 
  
  

• Equity - The value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting from the property's fair market value, the total of the unpaid mortgage balance and any outstanding liens or other debts against the property.
  
  

• Escrow - Funds paid by one party to another to hold until the occurrence of a specified event, after which the funds are released to a designated individual. The money is held in a trust fund, provided by the lender for the buyer. Such funds should be adequate to cover yearly anticipated expenditures for mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments.
  
  

• Points - A point is one percent of the amount of the mortgage loan. For example, if a loan is for $25,000, one point is $250.
  
  

• Principal - Principal is the amount upon which interest is paid.