Learning • Step 8 of 8

Essential terminology every buyer should know

I know this part can feel boring — but if you learn a small set of terms, the entire process becomes less intimidating. This isn’t everything, but it covers the ~80% that almost every buyer will run into.

The payment terms that actually matter

Most confusion comes from people thinking “mortgage” = “payment.” In reality, your monthly payment is a bundle of multiple costs.

Example

Know these: • Principal & Interest (P&I): the loan payment • Taxes + Insurance: often paid monthly via escrow • HOA dues: separate recurring cost • PMI/MIP: insurance you pay when down payment is small Mortgage calculators often show P&I and maybe taxes — but the real number is the full bundle.

Summary

If you can’t explain what’s inside your payment, you can’t tell whether a home is truly affordable or just looks affordable on paper.

Loan types you’ll hear constantly (and what they imply)

Loan names aren’t just labels — they come with rules that affect down payments, inspections, repairs, and long-term costs.

Example

The big ones: • Conventional loan: most common; PMI can usually be removed later • FHA loan: lower down payment, but stricter property rules and often lifetime mortgage insurance • VA loan: for eligible veterans; often no down payment, but strict appraisal/condition requirements Each loan type changes how flexible your offer really is.

Summary

Loan type affects negotiation power, repair requirements, and future costs — not just your interest rate.

Escrow, escrow shortage, and why payments jump

Escrow is a lender-controlled account used to pay taxes and insurance. If those costs rise, your lender adjusts your payment.

Example

Two common surprises: • Escrow shortage: not enough collected to pay bills → payment increases • Catch-up: some lenders add an extra amount to refill escrow faster Even with a fixed-rate loan, the monthly payment can still increase.

Summary

Escrow doesn’t make costs go away — it just spreads them out. If taxes or insurance rise, your payment usually follows.

HOA (and why it’s more than just dues)

HOA stands for Homeowners Association — and it effectively acts as a second financial system layered on top of your mortgage.

Example

HOA-related terms to recognize: • Monthly dues: recurring cost • Reserves: savings for future repairs • Special assessment: one-time bill when reserves fall short • Rules/CC&Rs: restrictions you agree to by buying Low dues often mean deferred costs, not efficiency.

Summary

HOAs can be fine — but only if you understand their finances. Ignoring them is one of the fastest ways buyers get surprised later.

Contingencies and deadlines

A contingency is your escape hatch. Deadlines are where buyers lose leverage — usually without realizing it.

Example

Common contingencies: • Inspection contingency • Financing contingency • Appraisal contingency Once a contingency expires, backing out can become expensive or impossible.

Summary

Most buyer regret comes from rushing past deadlines. If you’re unsure, slow down before a contingency expires — not after.

Appraisal vs inspection

These are completely different. People confuse them constantly.

Example

• Appraisal: protects the lender (value) • Inspection: protects you (condition) A home can appraise fine and still have major problems.

Summary

Never treat appraisal as a substitute for inspection. They answer different questions.

Closing costs (what they actually include)

Closing costs are the collection of fees required to complete the transaction — and they exist whether you notice them or not.

Example

Typical buyer-side closing costs include: • Lender fees • Title insurance • Escrow setup • Prepaid taxes and insurance A common ballpark: ~2–3% of purchase price (varies by market and loan).

Summary

Closing costs don’t build equity. They’re the price of entry — and they matter a lot if you sell again soon.

Credits, concessions, and rate buydowns

Sellers can help you with costs — but you need to understand whether you’re getting cash relief, financing relief, or just a higher sale price.

Example

Examples you’ll see: • Seller credit toward closing costs • Repair credit instead of repairs • Rate buydown (lower rate temporarily or permanently) A “credit” can be real value — or just reshuffling numbers.

Summary

If you don’t understand how credits work, you can’t compare offers cleanly (and you can’t tell whether you’re actually winning a negotiation).

End of learning content

We’ve shared all the core knowledge we can here.

If you want a more rigorous way to test your understanding, you can take the readiness exam. It’s optional — and if this project helped you, you’re welcome to leave a tip. Completely optional.

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