Real Estate Glossary
Real estate comes with its own vocabulary. Here are clear definitions of the terms you're most likely to encounter.
- Adjustable-rate mortgage (ARM)
- A loan whose rate is fixed for an initial period and then adjusts periodically based on an index plus a margin.
- Amortization
- The schedule by which loan payments are split between interest and principal over time.
- Appraisal
- An independent estimate of a property's market value, usually required by the lender.
- APR
- Annual percentage rate: the interest rate plus certain fees, expressed as a yearly rate, for comparing loans.
- Buyer's agent
- An agent who represents the buyer in a transaction.
- Capital gains exclusion
- A federal tax rule that lets eligible homeowners exclude up to $250,000 ($500,000 for joint filers) of gain on the sale of a primary residence.
- Closing
- The final step where documents are signed, funds change hands, and ownership transfers.
- Closing costs
- Fees and expenses paid at closing, separate from the down payment.
- Closing Disclosure
- A five-page form showing final loan terms and costs, delivered at least three business days before closing.
- Comparable sales (comps)
- Recently sold similar homes used to estimate a property's value.
- Contingency
- A contract condition that must be met for the sale to proceed, such as inspection, appraisal, or financing.
- Conventional loan
- A mortgage not insured or guaranteed by the government.
- Debt-to-income ratio (DTI)
- Monthly debt payments divided by gross monthly income.
- Deed
- The legal document that transfers ownership of real property.
- Discount points
- Upfront fees paid to lower a loan's interest rate; one point equals 1% of the loan.
- Down payment
- The portion of the purchase price paid in cash rather than borrowed.
- Earnest money
- A deposit made with an offer to show good faith, held in escrow and applied at closing.
- Equity
- The difference between a home's value and the amount owed on it.
- Escrow
- A neutral third party holding funds or documents; also the account a servicer uses to pay taxes and insurance.
- FHA loan
- A mortgage insured by the Federal Housing Administration, allowing lower down payments and credit scores.
- Fixed-rate mortgage
- A loan with an interest rate that never changes.
- HOA
- Homeowners association: an organization that manages a community and charges dues.
- Home inspection
- A professional visual evaluation of a home's condition.
- Homestead exemption
- A state or local property tax reduction for owner-occupied primary residences.
- Jumbo loan
- A mortgage larger than the conforming loan limit set by the FHFA.
- Listing agent
- An agent who represents the seller.
- Loan Estimate
- A standardized three-page form lenders must provide within three business days of an application.
- Loan-to-value (LTV)
- The loan amount divided by the property's value.
- MLS
- Multiple listing service: a database of homes for sale shared among brokers.
- Months' supply
- How long current inventory would last at the current sales pace; lower numbers favor sellers.
- Mortgage insurance (PMI/MIP)
- Insurance protecting the lender when the down payment is small.
- Origination fee
- A lender charge for processing a loan.
- Preapproval
- A lender's conditional commitment to lend a certain amount after reviewing your finances.
- Prequalification
- An informal estimate of how much you might borrow, based on self-reported information.
- Principal
- The amount borrowed, or the remaining balance excluding interest.
- Rate lock
- A lender's guarantee of an interest rate for a set period.
- Refinance
- Replacing an existing mortgage with a new one.
- Seller concession
- Money the seller agrees to pay toward the buyer's closing costs.
- Title insurance
- Insurance protecting the owner or lender against defects in the property's title.
- Underwriting
- The lender's process of verifying information and deciding whether to approve a loan.
- USDA loan
- A zero-down mortgage backed by the U.S. Department of Agriculture for eligible areas and incomes.
- VA loan
- A mortgage guaranteed by the Department of Veterans Affairs for eligible service members and veterans.