The mortgage terms Indianapolis first-time buyers ask about most
First-time homebuyers face a steep learning curve with mortgage terminology. This glossary covers the mortgage terms that matter most during your Indianapolis home buying journey. From PMI to IHCDA to DTI ratios, each term is explained simply, with examples drawn from the Indianapolis market.
Click any term below to see its definition. These 6 have the biggest impact on your mortgage.
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Use the Mortgage Calculator ›A mortgage with an interest rate that changes over time. Typically starts with a lower fixed rate for 5, 7, or 10 years, then adjusts annually based on market conditions plus a margin.
The process of paying off a loan through regular monthly payments over time. Early payments are mostly interest. Later payments are mostly principal. A 30-year loan takes 30 years to fully amortize.
The total yearly cost of borrowing, expressed as a percentage. Includes the interest rate plus lender fees, points, and mortgage insurance. Always compare APR when shopping loans, not just the interest rate.
A licensed appraiser's professional opinion of a home's market value. Lenders require appraisals before approving a loan to confirm the home is worth the purchase price.
The increase in a property's value over time. Appreciation rates vary significantly by year, neighborhood, and market conditions. No annual rate can be guaranteed.
The dollar value assigned to a property by the county assessor for property tax purposes. In Marion County, assessed value is typically lower than market value. Your property tax bill is based on this figure multiplied by the tax rate.
A large lump-sum payment due at the end of a loan term, after smaller regular payments. Rare in standard mortgages but sometimes seen in seller-financed deals or commercial loans.
A real estate agent who represents the buyer's interests in a transaction. Under Indiana law (effective July 1, 2024) and NAR rules (effective August 17, 2024), you must sign a written buyer's agency agreement before touring homes. Compensation is negotiated and disclosed upfront in that agreement. The seller may agree to cover buyer's agent compensation as part of the offer, but this is no longer guaranteed. Sources: Indiana HEA1068 (iga.in.gov); NAR settlement practice changes (facts.realtor).
A market condition where there are more homes for sale than buyers. Prices are flat or falling, homes sit longer, and buyers have more negotiating power.
Fees and expenses paid at closing to finalize the home purchase. Includes lender fees, title insurance, attorney fees, recording fees, and prepaid items. Closing costs vary by state, lender, and loan type. Your Loan Estimate, provided within three business days of applying, itemizes the specific amounts.
A 5-page document provided by your lender at least 3 business days before closing. Shows the final loan terms, monthly payment, and all closing costs. Compare it carefully to your Loan Estimate. Source: TILA-RESPA Integrated Disclosure rule, 12 CFR §1026.19(f); CFPB at consumerfinance.gov.
The final step in the home buying process where ownership officially transfers from seller to buyer. You sign loan documents, pay closing costs and down payment, and receive the keys. Typically takes 1-2 hours and happens at a title company or attorney's office.
Recently sold homes similar in size, location, and condition used to determine a home's market value. Appraisers and agents use comps to price homes and assess offers.
A condition that must be met for the sale to proceed. Common contingencies include financing (loan approval), inspection (satisfactory home inspection), and appraisal (home must appraise at purchase price).
A mortgage not backed by a government agency. Offered by private lenders and following Fannie Mae or Freddie Mac guidelines. Standard conventional loans typically require 5% down. Fannie Mae HomeReady and Freddie Mac Home Possible first-time-buyer programs allow 3% down with income and counseling requirements. Minimum credit scores generally start at 620 (Fannie Mae Selling Guide).
A number (300-850) representing your creditworthiness based on payment history, debt levels, credit age, and other factors (FICO scoring range, myFICO.com). Higher scores get better interest rates.
Money left in your bank accounts after paying your down payment and closing costs. Reserve requirements vary by occupancy type, loan program, and risk factors. Investment properties commonly require six months; primary residences may require zero to two months depending on the program and credit profile (Fannie Mae Selling Guide B3-4.1). Your lender will tell you the specific amount.
Your total monthly debt payments divided by your gross monthly income, expressed as a percentage. Lenders evaluate DTI during qualification. The 43% threshold is widely referenced as a benchmark; it was the CFPB's pre-2021 Qualified Mortgage limit, replaced in March 2021 by an APR-based test (12 CFR §1026.43, as amended). Lenders may approve higher or lower DTIs based on compensating factors.
A legal document that transfers ownership of real property from seller to buyer. The deed is recorded with the county recorder's office after closing to make the transfer official and public.
The portion of the purchase price you pay upfront in cash, not covered by the mortgage. Minimum amounts vary by loan type: 5% for standard conventional (3% via Fannie Mae HomeReady and Freddie Mac Home Possible first-time-buyer programs), 3.5% for FHA (HUD Handbook 4000.1), 0% for VA (38 CFR Part 36), 0% for USDA (USDA RHS Handbook 1-3550).
The research and investigation a buyer does before finalizing a purchase. Includes reviewing the inspection report, title history, HOA documents, zoning, and neighborhood information.
A good-faith deposit made when submitting an offer, showing the seller you are serious. Earnest money amounts are negotiated as part of your offer and held in escrow until closing, at which point the funds apply to your down payment or closing costs. Your buyer's agent can advise on appropriate amounts based on current market conditions and the specific listing.
A legal right for someone else to use part of your property for a specific purpose. Common examples include utility easements (power lines, sewer pipes) and access easements for neighboring properties.
The portion of your home's value that you actually own. Calculated as current market value minus the remaining mortgage balance. Equity grows as you pay down the loan and as the home appreciates.
An account held by a neutral third party to manage funds during a transaction. Also refers to the ongoing account your lender manages to collect and pay property taxes and homeowners insurance on your behalf.
The word "escrow" is used two different ways in real estate, which confuses many first-time buyers.
1. Closing escrow: A neutral third party (title company or attorney) holds funds and documents during the transaction until all conditions are met and ownership transfers.
2. Ongoing escrow account: After closing, your lender holds a portion of each monthly payment to pay your property taxes and homeowners insurance when they come due.
The price a knowledgeable buyer would pay and a knowledgeable seller would accept in an arm's-length transaction. Determined by comparable sales, condition, and market conditions.
A mortgage insured by the Federal Housing Administration. Allows down payments as low as 3.5% and credit scores as low as 580 (HUD Handbook 4000.1; scores below 580 require 10% down). Popular with first-time buyers who have limited savings.
A mortgage with an interest rate that never changes. Monthly principal and interest payments stay the same for the life of the loan. Common fixed-rate mortgage terms include 15, 20, and 30 years. Some lenders also offer 10-year and 25-year terms.
A temporary agreement with your lender to pause or reduce mortgage payments during financial hardship. The missed payments are not forgiven; they must be repaid later.
The legal process by which a lender takes ownership of a property when the borrower stops making payments. Results in serious credit damage and loss of the home.
A signed letter confirming that money given to a buyer for a down payment is a gift, not a loan that must be repaid. Required by lenders when gift funds are used in the transaction.
An older term for the initial cost estimate lenders provided before 2015. Now replaced by the Loan Estimate, which is standardized across all lenders and easier to compare (TILA-RESPA Integrated Disclosure rule, effective October 3, 2015).
The window of time after your payment due date during which you can pay without a late fee or credit impact. Most mortgage notes include a grace period before a late fee applies. Check your specific mortgage note for the exact grace period and late-fee terms.
A visual examination of a home's condition by a licensed inspector. Covers structure, roof, electrical, plumbing, HVAC, and more. Strongly recommended for all buyers.
An organization in some communities that sets rules and collects fees to maintain common areas and enforce community standards. Fees vary widely.
Insurance that protects your home and belongings from damage, theft, and liability. Required by all lenders. Homeowners insurance premiums in Indiana vary by dwelling coverage amount, deductible, insurer, and your home's specifics. Forbes Advisor's 2026 analysis shows Indiana state averages of $1,435 per year for $200,000 dwelling coverage and $2,057 per year for $350,000 dwelling coverage (Forbes Advisor, audited April 22, 2026; $500 deductible). Your actual premium depends on your home, location, and chosen coverage. Get quotes from multiple insurers.
The U.S. Department of Housing and Urban Development. Oversees federal housing programs, FHA loans, and fair housing laws. HUD-approved housing counselors provide free guidance to homebuyers.
Indiana's state housing agency that offers down payment assistance and affordable mortgage programs for first-time buyers. Programs include First Step (up to 6% assistance, non-forgivable second mortgage due on sale, refinance, or payoff) and Next Home (up to 3.5% assistance, repayment and forgivability terms vary by loan type). Verify current terms at in.gov/ihcda.
Maximum household income thresholds set by loan programs like IHCDA, FHA, USDA, and others. Exceeding the limit disqualifies you from that program.
The percentage the lender charges annually to borrow money. Does not include fees, unlike APR. A lower interest rate means lower monthly payments and less paid over the life of the loan.
Real estate purchased to generate income through rent or resale, rather than as a primary residence. Mortgage rates and down payment requirements are higher for investment properties.
A form of co-ownership where two or more people own equal shares of a property with the right of survivorship. If one owner dies, their share passes automatically to the surviving owner(s) without probate.
A mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac. In 2026, the baseline conforming loan limit is $832,750 for most areas (FHFA, announced November 25, 2025). High-cost areas have a ceiling of $1,249,125. Loans above the local limit are jumbo loans, which carry stricter qualification requirements and typically higher rates.
A standardized 3-page document provided within 3 business days of applying for a mortgage. Shows estimated interest rate, monthly payment, and closing costs. Use it to compare lenders (TILA-RESPA Integrated Disclosure rule, 12 CFR §1026.19(e); CFPB at consumerfinance.gov).
The loan amount divided by the appraised value of the home, expressed as a percentage. Lower LTV means more equity and less risk for the lender.
The real estate agent who represents the seller. Their legal duty is to get the best deal for the seller, not you. Never rely on the listing agent for advice. Always have your own buyer's agent.
The effective property tax rate applied to assessed values in Marion County, Indiana. Currently approximately 0.91% effective rate. Your exact rate may vary slightly by township within Marion County.
The mortgage insurance required on FHA loans. Includes an upfront premium of 1.75% of the loan amount paid at closing (HUD Mortgagee Letter 2023-05, effective March 20, 2023; HUD Handbook 4000.1), plus an annual premium added to monthly payments. Annual MIP rates were reduced by HUD in March 2023 (Mortgagee Letter 2023-05). For 30-year loans under the conforming loan limit threshold, the annual rate is 0.50% to 0.55% depending on LTV; rates run higher for larger loans (up to 0.75%) and lower for shorter-term loans (down to 0.15%). The rate that applies to your loan depends on loan term, base loan amount, and LTV.
Insurance that protects the lender, not you, if you default. On conventional loans, lenders typically require PMI when the down payment is less than 20% (the Homeowners Protection Act of 1998 establishes the 80% LTV cancellation right). FHA loans require MIP regardless of down payment, with different duration rules (HUD Handbook 4000.1). Called PMI on conventional loans and MIP on FHA loans.
The legal document you sign promising to repay the loan. Specifies the loan amount, interest rate, payment schedule, and consequences of default. This is your formal debt obligation.
When more than one buyer submits an offer on the same property at the same time. Common in seller's markets. Sellers can accept the best offer, counter one or all, or call for "highest and best" from all buyers.
When your monthly payment is less than the interest owed, causing your loan balance to grow rather than shrink. Rare in standard mortgages but can occur with certain ARM products.
A mortgage that does not meet Fannie Mae or Freddie Mac guidelines, either due to loan size (jumbo) or borrower qualifications. Typically has stricter requirements or higher rates.
A formal notice from a lender that a borrower has missed payments and the foreclosure process may begin. A serious warning that requires immediate action.
A fee charged by the lender to process and create your loan. Origination fees vary by lender. They appear in Section A of your Loan Estimate, where you can compare across lenders directly.
When the seller acts as the lender and finances the buyer's purchase directly. The buyer makes payments to the seller instead of a bank. Uncommon but sometimes used in unique situations.
A lender's written commitment to loan you up to a specific amount based on verified income, assets, and credit. Stronger than pre-qualification. Sellers take pre-approved buyers more seriously.
An informal estimate of how much you might be able to borrow based on self-reported information. Does not involve credit checks or document verification. Less reliable than pre-approval.
Costs collected at closing to fund your escrow account and pay initial insurance. Prepaid items typically include an initial deposit to your escrow account for property taxes and homeowners insurance, the first year's homeowners insurance premium, and interest from closing through the end of the month. Your Closing Disclosure itemizes them.
The original loan amount borrowed, not including interest. Each monthly payment reduces the principal slightly. Over time, more of your payment goes to principal and less to interest.
Insurance required on conventional loans when the down payment is less than 20%. Protects the lender, not you. Can be removed once you reach 20% equity.
An annual tax assessed by local government based on your home's assessed value. Indiana's constitution caps owner-occupied property tax at 1% of gross assessed value (Article 10, Section 1(f)). After Marion County's homestead deductions (IC 6-1.1-12-37) and local income tax credits, the effective rate for typical owner-occupied homes in Marion County is approximately 0.91%.
A deed that transfers whatever ownership interest the grantor has, with no guarantees about the quality of title. Often used between family members or to clear up title issues.
A lender's guarantee to hold your interest rate for a set period while your loan is processed. Lock periods vary by lender, with longer locks typically costing more. Confirm available lock periods with your lender when ready to lock. Protects you from rate increases before closing.
The official filing of your deed and mortgage documents with the county recorder after closing, making your ownership public record.
Replacing your existing mortgage with a new one, usually to get a lower rate, reduce the term, or access equity. Involves new closing costs and a new loan application.
A federal law giving borrowers 3 business days to cancel a refinance on their primary residence. Does not apply to purchase mortgages (Truth in Lending Act §1635, 15 USC §1635; CFPB Regulation Z §1026.23).
A market condition where demand exceeds supply. Homes sell quickly, often above asking price, and buyers have less negotiating power. Market conditions in Indianapolis vary by neighborhood and price point; check current days-on-market data from Redfin or local MLS sources for your target area.
An additional loan taken against a property that already has a mortgage. Sits behind the first mortgage in priority. Common types include home equity loans and HELOCs. IHCDA down payment assistance is often structured as a second mortgage.
When a lender agrees to accept less than the full mortgage balance from a sale, because the home is worth less than what is owed. Requires lender approval and takes longer than a standard sale.
A professional measurement of a property's boundaries and features. Identifies lot lines, easements, encroachments, and improvements. Lenders and title companies often require one.
The legal ownership right to a property. A clear title means no outstanding liens, claims, or disputes. Title is transferred via deed at closing.
Insurance protecting buyers and lenders against losses from title defects, liens, or ownership disputes discovered after closing. Owner's policy protects you; lender's policy protects the bank.
Indiana does not impose a state real estate transfer tax. Buyers pay a Sales Disclosure Form filing fee of $20 to the county auditor at closing (Indiana Code 6-1.1-5.5-4), and county recording fees apply separately. Both are itemized on your Closing Disclosure.
A federal law requiring lenders to disclose the true cost of borrowing, including APR, total interest paid, and loan terms, before you commit. The Loan Estimate and Closing Disclosure fulfill this requirement.
The lender's process of evaluating your loan application to assess risk and make a final approval decision. The underwriter reviews your income, credit, assets, and the property's appraisal.
A zero-down mortgage for eligible rural and some suburban areas, backed by the U.S. Department of Agriculture. Income limits apply.
A zero-down mortgage guaranteed by the Department of Veterans Affairs for eligible service members, veterans, and surviving spouses. No PMI required.
The federal agency that guarantees VA loans. Sets the guidelines lenders must follow. Does not lend directly but protects lenders against default, enabling favorable terms for veterans.
A final inspection of the property shortly before closing to verify the home is in the agreed condition, agreed repairs were completed, and no new damage has occurred. Your agent will coordinate the exact timing.
A deed in which the seller guarantees they have clear title and the right to sell, and will defend the buyer against any future title claims. Provides the strongest buyer protection.
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