Common Mortgage Terminology

As if buying a home isn't stressful enough, you have all of this mortgage jargon to learn as well. I've been a Newnan mortgage lender for many years and part of my job is to explain all of the terms you come across when applying for a mortgage. It can be a lot to take in all at once, so I'll go over the most common mortgage terms you will come across when going through the home buying process.


When you make a loan payment, part of the money goes towards the loan balance and part towards the interest payment. The amortization schedule shows you how much is allocated to each overtime, and it changes as you pay your loan down. When you first start, a lot of the payments are going to interest. But interest gets smaller over time, and more goes to the actual loan later on.

APR (Annual Percentage Rate)

You may have noticed that mortgages have two sets of rates; the interest rate and APR. It's important to know the difference between these two. The APR represents your credits' true cost, which is the interest fees and one time costs that may be associated with a mortgage. All lenders have different interest rates and the APR can help you to better compare these.

Closing Costs

When it comes time to close a mortgage deal you will have to pay closing costs. This can include any lender charges, recording fees, escrow fees, title insurance, transfer tax, and real estate commission. You also have origination fees, which include underwriting, application processing, and loan funding. This can be 1% to 6% of the amount of your loan. 


The equity of a home refers to the difference between the homes' market value and the amount that you owe on the mortgage. Equity builds up over time as you make your loan payments and you can tap into this money with a home equity loan for renovating or other necessities.

Mortgage Insurance

Mortgage insurance is something you may have to pay for if you are putting down less than 20% towards the home price. It protects the lender if you are not able to pay your mortgage and default on the loan.

Pre-Approval and Pre-Qualification

Sometimes these two terms are used interchangeably, however, they are not the same thing when it comes to making an offer on a home.

Pre-qualification refers to given your basic financial information to a lender to see how much you could be approved for. A pre-approval, on the other hand, requires a more in-depth look at your finances and the lender will verify, in a letter, how much they are willing to give you a loan for. A pre-approval letter holds more weight than a pre-qualification. It shows the seller that you are serious about buying a home and not just window shopping.


Principal refers to the amount of money you have borrowed for your mortgage. Each monthly payment is split. Part goes to the principal amount, and part to the interest.


Rate, or percentage, is how much it will cost you to borrow money. Your rate is determined by your credit score and financial history, the term of the loan, and the down payment you make. A really good credit score will get you a much lower rate of interest than a poor one.


When you make a loan application, it goes to an underwriter first, to review the loan agreement and see if it should be approved or not. It will take into account your income, credit history, home appraisal, and any liabilities.

Hopefully, this will clear up some of the confusing jargon that comes with applying for a mortgage. If you have questions about mortgages, give our Newnan mortgage lender staff a call today!

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NMLS#206798, Georgia Residential Mortgage Licensee #26534, 45 Newnan Station Drive, Suite B, Newnan, GA 30265, Homestar Financial Corporation Branch NMLS #1074746, Georgia Residential Mortgage Licensee #65965

Copyright © 2019. Homestar Financial Corporation NMLS #70864 Georgia Residential Mortgage Licensee #17368. This is not an offer to enter into an agreement or a commitment to lend. Not all customers will qualify. All terms, information, conditions, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all loan products are available in all states. The rates/APRs or other terms advertised, if applicable, are examples of loan products available as of the date indicated and are subject to change without notice. Certain other restrictions may apply. Homestar Financial Corporation is not affiliated with any government entity.

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