Down Payment: The amount paid in cash upfront towards the purchase price of a property.
Lender Fees:The fees paid to the lender during the home buying or refinancing process, including at closing. Lender fees compensate the lender for processing, underwriting, approving and issuing the loan, and comprise part of a borrower’s loan closing costs.
Principal: The total value of the home loan set to be repaid in monthly increments for the duration of the loan term. In addition, if the lender requires an upfront mortgage insurance premium as part of the lender fees, the upfront premium may be rolled into the principal. Loans are structured such that at the beginning of the loan term, principal payments will be small relative to interest payments, but increase over the duration of the loan.
Interest: The amount the lender charges for issuing and servicing the loan. It is based on the interest rate charged by the lender and the total value of the loan. Loans are structured such that at the beginning of the loan term, interest payments are large relative to principal payments, but decrease over the duration of the loan.
Property Tax: Government taxes assessed on the property as a percentage of the total property value.
Homeowners Insurance: Insurance required by lenders to protect homeowners and lenders from damage or loss to the home, its contents, or other personal property.
Mortgage Insurance: Insurance to protect lenders against default on the loan. Lenders typically require insurance if the down payment is less than 20% of the purchase price. Mortgage insurance can either be purchased from the FHA (mortgage insurance premium, MIP, for FHA loans) or through private insurers (private mortgage insurance, PMI). Lenders are required to cancel mortgage insurance on most home loans once the loan value equals 78% of the home value. Borrowers who wish to cancel earlier can terminate mortgage insurance when their loan value equals 80% of the home value given they have a good payment history.