An email I received over the weekend was sort of a knock on the head. The sender made me realize that sometimes I dive too deep in my articles. I assume too much knowledge on behalf of the reader. The suggestion was that I create a few "Personal Finance 101" articles with some basic personal finance rules and definitions.

Fair enough. Today I'll start with some of the terms you might encounter when buying a home. After all, buying a home is unlike almost every other kind of purchase. The activity has its own language; and as anyone who has visited a foreign country can tell you, not understanding the language can be not only intimidating, it can get you int trouble.

Down Payment - This one's easy, just like when you buy a car. The Down Payment on a home is the initial amount you'll want to pay in cash toward your home's purchase price. Your down payment becomes your initial home equity. The amount of your down payment is typically expressed as a percentage of the purchase price. Down payments are usually in the 15-25% range.

A large down payment–typically 25%–may help you get a more favorable interest rate and let you avoid paying for mortgage insurance.

Home Equity, or simply equity, is the portion of your home you actually own. The other portion belongs to your mortgage lender. Your equity is not the same as your loan amount. Equity is tied to the value of your home. Your equity is your home's current market value minus the amount you still owe.

Home equity example: Suppose you purchase your home for $100,000 by making a $20,000 down payment and taking out an $80,000 mortgage. Your equity at the time of loan origination is $20,000. Now fast forward a few years. Your regular mortgage payments have paid down your mortgage loan to $55,000, and your home has increased in value to $125,000. Your equity is the difference between it's value, $125,000, and the amount you still owe, $55,000. $125,000 - $55,000 = $70,000.

A Home Equity Loan is a loan secured by your equity in your a primary residence or second home. In years past home equity loans were also known as second mortgages. Whatever the name, these are loans made to you, using your equity as collateral. Home equity loans function in much the same way as your first mortgage. Notable exceptions are that interest on home equity loans may or may not be tax deductible, and there is no down payment to be made. One thing remains, however: If you fail to make your home equity loan payments, your lender can take posession ofyour home and sell it to pay off the debt.

The Loan-to-value Ratio is the ratio of the amount you're borrowing to the appraised value of your home. The LTV is not necessarily representative of your down payment. For example, if you borrow $60,000 to pay $100,000 for a house that the bank appraises for $120,000, the LTV is 50%. Your down payment is 40%. In general, the lower your LTV the more favorable the terms of the loan can be. This is because your lender is taking on less risk in granting you the loan.

A Mortgage is a specialized type of loan designed for the purchase of a home. A mortgage is secured by the home itself, or said another way, the home itself is collateral for a mortgage. If the borrower doesn't make mortgage payments on time, the lender may take posession of the home and sell it to recover the funds loaned. The legal process through which this is done is known as foreclosure.

A Loan Origination Fee is the fee usually charged to the borrower by the mortgage lender. The loan origination fee typically includes costs associated with a credit check, document preparation, property inspection and appraisal.

Points are fees the borrower pays to the mortgage lender at the time of loan closing. Points are expressed as a percent of the loan. For example, 2&frac1; points on a $100,000 loan would mean a payment of $2500. Points are separate from loan origination fees. They are an up-front payment to the creditor for extending a mortgage loan at a given interest rate. Higher ponts are usually associated with lower, even below market, interest rates. In fact, as a borrower, paying more points to the lender is a customary way of "buying down" the rate of interest on the mortgage loan, because points offset the lower interest rate of return.

Refinancing is the name given to replacing your home mortgage loan with another loan. You'll usually refinance your home loan to get a lower interest rate. But refinancing is also a way to borrow against equity you've built. For example, you may decide to refinance or original $80,000 mortgage on your $100,000 home purchase if, by virtue of your improvements and price appreciation, your home is now worth, say, $150,000. You could replace your original $80,000 mortgage with a $120,000 mortgage, drawing down your equity by $40,000, which could be used for further improvements. Note that refiancing may change the Loan-to-Value ratio, because the amount of the loan relative to the value of your home may change.