State of Minnesota
More about
Attorney General
Lori Swanson

Minnesota Attorney General's Office

1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101

(651) 296-3353
(800) 657-3787

M - F 8 am - 5 pm

TTY:(651) 297-7206
TTY:(800) 366-4812


Home Buyer's Handbook


Addenda (addendum, singular):

Supplemental documents added on to the purchase agreement that become part of the legally binding document.

Adjustable Rate Mortgage (ARM):

A loan in which the interest rate fluctuates during the term, based on an index to which the interest rate is tied.

Amortization Chart:

A chart that breaks out the principal and interest you pay on a loan each year, over the term of the loan.

Annual Percentage Rate (APR):

Expressed as an annual rate, this is really the cost of the loan. It includes the interest rate, points on a loan, the loan origination fee, and all other charges made by the lender.

Arbitration Agreement:

When a seller and buyer agree to settle all disputes about the property out of court. If both parties sign, they agree to have an independent arbitrator decide disputes.


City taxes homeowners must pay periodically when the city decides to make improvements to city property.

Association Dues:

The monthly payment condominium and townhouse owners must make for upkeep and management of shared property. The association is made up of condominium or townhouse owners.


Describes a loan that a buyer can arrange to take over from the seller.

Buyer's Broker:

An agent who works on behalf of a buyer.

Closing Costs:

Costs involved in transferring ownership of a home. (See Explanation Of Closing Costs in Appendix E.)

Commitment Letter:

The letter your lender may send you stating that your loan is approved and describing the terms of the loan.


A clause that is added to a purchase agreement stating that certain conditions must be met within a specified time period for the purchase agreement to be valid.

Contract for Deed:

Some owners may choose to offer you financing, consequently you make your monthly payments to the owner.

Conventional Loans:

Home loans not backed by the government.

Credit Score:

The rating a credit reporting agency gives you based on your credit report.


Failure to make loan payments when they are due.

Down Payment:

The amount of the purchase price you pay up front to the seller when you buy a home. The amount depends on the loan you are taking out, but is usually a minimum of 3 percent of the total loan amount.

Earnest money:

"Good faith" money usually given to the agent when you make a bid on a home.


The portion of the home's value that you own, free and clear of any mortgage or lien.


Lenders often ask homeowners to keep up to two months of future tax and insurance payments in a bank account called an escrow account.

FHA Loans:

Home loans made by the Federal Housing Administration that have low down payments and allow you to borrow a larger amount than you would be allowed to borrow in a conventional loan.

Fair Credit Reporting Act:

A federal law that gives citizens the right to challenge the accuracy of incorrect information in their credit reports.

Fixed Rate Loan:

A loan with a constant interest rate over the term of the loan.

For Sale By Owner (“FSBO”):

FSBO, pronounced “fisbo” is a home that is offered for sale by the owner without the benefit of a real estate professional.

Good Faith Estimate:

The disclosure form on which your lender estimates all closing costs. A lender must give you this form within three days after you apply for a loan.

Gross Income:

Your income before you pay taxes.

HUD-1 Form:

A settlement statement listing all the closing costs. The U.S. Department of Housing and Urban Development requires that a closer make this statement available to a buyer one business day before the closing.

Homeowner's Insurance:

Also called hazard insurance. This is insurance home buyers must purchase to protect the investment they and their lender have in the home.

Homestead Taxes:

Property taxes paid by live-in property owners.


A lender's charge for the loan.

Loan Origination Fee:

This is a fee you pay a lender for handling your loan application.

Loan Processing:

A lender’s analysis of your ability to qualify for a loan. The analysis involves weighing your income, credit report and financial records against the value of the home you want to buy.

Lock-In Agreement:

An agreement you can make with your lender to guarantee you the interest rate your lender quotes for your loan. You can lock in a rate when you apply for a loan or at any time before the closing.

Long-term debt:

Any debt you will continue to owe for six months or more.

Mortgage Discount Points:

Prepaid interest on a loan. One point equals 1 percent of your total loan.

Mortgage Insurance Premium (MIP):

An insurance premium the buyer is required to pay for an FHA loan. The cost is 2 or 21/4 percent of the loan, depending on the term. This can be paid as part of monthly loan payments.

Multiple Listing Service (MLS):

A service that real estate agents subscribe to that lists homes for sale and homes that have sold by neighborhood, price and features.

Non-homestead Taxes:

Taxes paid by landlords who rent their property, or by owners who do not use the property as their primary residence.


The monthly loan payment which includes "principal, interest, taxes and insurance."

Prepayment Penalty:

The payment of a penalty due to the early payoff of the mortgage. Terms of prepayment penalties may vary.

Prime Mortgage:

A prime mortgage is the highest grade of mortgage you can qualify for — grade "A."


The total amount you are borrowing to pay for a home. This is usually the purchase price minus the down payment.

Private Mortgage Insurance (PMI):

Insurance you pay when you take out a conventional loan. Most lenders charge this if you make less than a 20 percent down payment on a home. It protects the lender from losing money owed on a loan if a buyer defaults on the loan, and is cancelable under Minnesota state law after two years if certain requirements are met.

Property Tax Adjustment:

An adjustment made to reimburse the seller for taxes already paid for the year.

Purchase Agreement:

The legally-binding document that lists all the terms of a home sale including contingencies.

Real Estate Settlement Procedures Act (RESPA):

The federal law that regulates lenders' closing or settlement practices.

Re-issue Credit:

A savings on the cost of title insurance, when the buyer uses the same title company that the previous owner used. Because the company is “re-issuing” the insurance, it can offer a lower rate.

Sub-prime Mortgage:

A sub prime mortgage is a grade "B" or lower and has a higher rate of interest than a prime mortgage.


A seller's agent who may bring a potential buyer to a home, but owes his or her loyalty to the seller.

Title insurance:

The insurance you pay to protect your lender against claims on the title to your property. As a buyer, you also can take out title insurance to protect yourself against claims.

Truth-in-Housing Report:

A report the seller completes that discloses the condition of the house.

Truth-in-Lending Disclosure Statement:

A statement your lender must give you informing you of all the fees and costs of a loan using the annual percentage rate (APR).


Risk analysis conducted by a lender to decide whether or not to approve you for a loan.

Veterans Administration loan (VA loan):

Low interest, no down payment loans available to those who have served in the U.S. military.

Next Page: A Buyer's Schedule