78 Essential Real Estate Terms and Expressions to Master. Whether you’re venturing into homeownership for the first time or just need a refresher on industry lingo, keep this comprehensive glossary at your fingertips.
Real Estate Terms
You don’t need a real estate license to discover your dream home, but familiarizing yourself with common real estate terms and acronyms can make the journey smoother. As you search for a home or apply for a mortgage, your real estate agent or lender may use any of the terms or abbreviations listed below.
Feel free to read through the list of real estate terms or take a look at our friend Kris’s video. He does a great job at explaining a lot of these real estate terms.
Keep this guide within reach — you’ll be well-versed in the language of home buying in no time.
2-1 Buydown Advantage
A 2-1 buydown is an attractive incentive, typically negotiated with a seller or builder, that temporarily lowers a buyer’s mortgage interest rate by 2% in the first year and 1% in the second year. In the third year, the interest rate reverts to the originally fixed rate from the lender.
Adjustable-Rate Mortgage (ARM) Explained
An ARM offers an initial interest rate for a predetermined period, after which it adjusts every six months for the remaining loan term. The interest rate and monthly payment will fluctuate after the set period. Discover more about adjustable-rate mortgages.
Home Affordability Breakdown
Affordability refers to the amount a buyer can comfortably spend on a home. A property is considered affordable if the mortgage accounts for no more than 30% of a household’s income. Affordability assessments consider income, down payment, and monthly debts. Try our affordability calculator to estimate your home-buying potential.
American Society of Home Inspectors (ASHI) Overview
ASHI is a reputable, non-profit professional association that establishes and promotes high-quality standards for property inspections. Seek ASHI accreditation or a similar credential when selecting a home inspector.
Amortization Made Simple
Amortization is the gradual repayment of a mortgage through consistent monthly installments of principal and interest, based on a predetermined schedule. By making all required payments, homeowners will fully own their property at the end of the loan term (e.g., 15 or 30 years). Try our amortization calculator to learn more.
Back-End Ratio Demystified
The back-end ratio is one of two debt-to-income ratios lenders use to determine a borrower’s home loan eligibility. It compares a borrower’s monthly debt payments to their gross income.
Backup Offer Unveiled
A backup offer is made on a property where the seller has already accepted another offer. This secondary offer positions the buyer to purchase the home if the initial deal collapses.
Bumpable Buyer Clarified
A bumpable buyer enters a purchase agreement with a contingency allowing the seller to continue marketing the property to other potential buyers. For example, a buyer may commit to purchasing the home only if they can sell their current property first. This buyer can be “bumped” if a more favorable offer arises.
Buyer’s Agency Fee Decoded
This fee or commission, typically expressed as a percentage of the sale price, is paid to the buyer’s agent or brokerage for locating and managing a home purchase. The seller covers this fee at closing.
Buy-Rent Breakeven Horizon Defined
This benchmark represents the tipping point where buying a home becomes more financially advantageous than renting one. Learn more about the Buy-Rent Breakeven Horizon.
Buyer’s Market Characteristics
A buyer’s market occurs when available homes for sale outnumber potential buyers. Properties may remain on the market longer, and prices often decrease.
Cash-Value Policy Explained
This type of homeowners insurance policy compensates for a property’s replacement cost, minus depreciation, in the event of damage.
Closing Costs Unraveled
These fees, associated with purchasing a home, are due at the end of the transaction. They may include appraisal, home inspection, title search, pest inspection, and more. Buyers should budget 2% to 5% of the home’s purchase price for closing costs. Discover more about closing costs.
Closing Disclosure Demystified
A borrower receives this statement from their lender at least three days before closing on a property. Line items should resemble those on the loan estimate received during the application process. Borrowers should scrutinize their closing disclosure and inquire about any discrepancies with their lender, as there are limits to how much fees can change between application and closing day.
Comparative Market Analysis (CMA) Explained
A CMA is a comprehensive evaluation prepared by a real estate agent that estimates a property’s value based on recently sold, comparable homes in the same area, with similar conditions, size, features, and age.
Comps Uncovered
Comparable sales, or “comps,” are homes in a specific area that have sold within the past several months. Real estate agents use these sales to determine a property’s value.
Contingencies Clarified
Contingencies are protective conditions written into a home purchase contract for the buyer, addressing potential issues with financing, home inspection, or other concerns. Learn about nine common real estate contingencies for buyers.
Conventional Loan Unveiled
A conventional loan is a home loan not guaranteed by a government agency, such as the FHA or VA. Discover more about conventional loans.
Days on Market (DOM) Defined
DOM refers to the number of days a property listing remains active.
Deed Decoded
A deed is a legal document that establishes and transfers real property ownership.
Debt-to-Income Ratio (DTI) Breakdown
DTI is a ratio comparing a home buyer’s expenses to their gross income. Try our debt-to-income calculator to learn more.
Depository Institutions Unraveled
Depository institutions include banks, savings and loans, and credit unions. These institutions underwrite and set home loan pricing internally.
Down Payment Demystified
A down payment is the portion of a home’s purchase price paid upfront by the buyer. Minimum requirements often depend on the loan type. Learn more about down payments.
Due Diligence Unveiled
Due diligence is an extensive investigation of a property to ensure buyers are fully informed before purchasing. Starting upon offer acceptance, due diligence typically involves home inspection, permit review for improvements, and more within an agreed-upon timeframe. Buyers can renegotiate or cancel their offer without penalty if problems are discovered.
Earnest Money Explained
Earnest money is a security deposit made by the buyer to demonstrate their commitment to purchasing the property.
Equity Defined
Equity represents the homeowner’s ownership percentage of a property’s value.
Escalation Clause Uncovered
An escalation clause, or addendum to a real estate contract, states that a buyer is willing to increase their offer price up to a predetermined amount if the seller receives a higher competing offer. Learn more about escalation clauses and making an offer on a home.
Escrow State Clarified
In an escrow state, a designated escrow agent is responsible for closing the transaction.
Fair Housing Act Overview
This federal law prohibits discrimination in housing based on race, color, religion, sex (including gender identity and sexual orientation), national origin, disability, or familial status. Explore more about the Fair Housing Act.
Fannie Mae® Unveiled
Fannie Mae is a government-sponsored enterprise founded in 1938 to ensure a consistent, affordable supply of mortgage funds across the country.
Federal Housing Administration (FHA) Explained
The FHA is a government agency established by the National Housing Act of 1934 that insures loans made by private lenders. It operates under the U.S. Department of Housing and Urban Development.
FHA 203(k) Uncovered
An FHA 203(k) is a federally-backed rehabilitation loan that allows home buyers to finance repairs, improvements, or upgrades into their mortgage.
FHA Loan Demystified
FHA loans are private lender loans regulated and insured by the Federal Housing Administration. Unlike conventional loans, they accommodate borrowers
with lower credit scores and may allow down payments as low as 3.5% of the total loan amount. Maximum loan amounts can vary by county. Learn more about FHA loans.
FICO Score Explained
A FICO score is a creditworthiness measure used by lenders to decide if they will lend money for a home purchase. The score, reported as a single number, is based on data compiled by the three major credit reporting bureaus (Experian, Equifax, and TransUnion). Scores range from 300-850.
Fixed-Rate Mortgage Uncovered
A fixed-rate mortgage features principal and interest payments that remain constant throughout the loan term, as the interest rate does not change.
Forbearance Defined
Forbearance is an agreement between a homeowner and lender allowing the homeowner to catch up on missed mortgage payments. The lender may reduce the amount owed or temporarily suspend loan payments.
Foreclosure Demystified
A foreclosure occurs when a bank repossesses a property after the owner fails to make mortgage payments. Discover more about foreclosure.
Freddie Mac® Unveiled
Freddie Mac is a government agency chartered by Congress in 1970 to provide a continuous source of mortgage funding for the nation’s housing markets.
Comprehensive Home Inspection
A meticulous examination conducted by a certified home inspector, scrutinizing potential flaws or noteworthy aspects of a property, its structures, and systems. Typically performed when a home is under contract or in escrow.
All-inclusive Homeowners Insurance
A safeguard policy covering your home’s structure, personal belongings, liability for injuries, and living expenses in case of damage. Discover more about homeowners insurance.
Crucial Housing Ratio
One of two vital debt-to-income ratios that lenders evaluate when determining a borrower’s eligibility for a home loan. This ratio compares total housing costs (principal, homeowners insurance, taxes, and private mortgage insurance) to gross income.
Escrow Phase
A time frame, generally 30 days or more, following a buyer’s offer acceptance by the seller. During this period, the property undergoes inspection and appraisal, and the title is examined for liens and other concerns.
High-Value Jumbo Loans
Mortgages surpassing conforming loan limits for a specific area, as determined by two government-backed home mortgage companies. In 2023, the majority of the United States considers loans above $726,000 to be jumbo loans. Areas with particularly expensive homes have higher limits. Explore jumbo loans in detail.
Property Lien
A legal claim on a property due to unpaid debt or non-monetary interest. Liens serve as security interests, allowing creditors to take possession of a property if the borrower defaults on loan obligations. Most lenders require title insurance to protect their interests against unresolved liens.
Seller-Set Listing Price
The price assigned to a home by the seller.
Transparent Loan Estimate
A three-page document provided to applicants within three days of applying for a home loan, detailing loan terms, monthly payments, and closing costs. Loan estimates enable borrowers to compare loan costs among lenders. Receiving a loan estimate does not obligate you to accept the loan. Savvy mortgage shoppers often apply for multiple loans and use loan estimates to select their preferred lender.
Rewarding Loan-to-Value Ratio (LTV)
The loan amount divided by the home’s price. Lenders favor lower LTV ratios.
Proficient Mortgage Banker
A professional who originates, sells, and services mortgage loans before reselling them to secondary mortgage lenders such as Fannie Mae or Freddie Mac.
Expert Mortgage Broker
A licensed specialist who represents the buyer in securing financing through a bank or other lending institution.
Trustworthy Mortgage Escrow Account
An account mandated by a lender and funded by a buyer’s mortgage payment to cover homeowners insurance and property taxes. A portion of your monthly payment is allocated to the escrow account for tax and insurance expenses. If your mortgage lacks an escrow account, you may pay property-related expenses directly.
Secure Mortgage Insurance Premium (MIP)
A monthly mortgage insurance premium paid by borrowers with an FHA loan, protecting the lender in case of borrower default. Unlike private mortgage insurance (PMI), MIP is managed by the government and lasts for the loan’s duration, not rolling off when a specific LTV ratio is reached. Learn more about mortgage insurance.
Advantageous Mortgage Points
Prepaid interest rates acquired through an upfront payment to the lender at closing, resulting in a reduced interest rate. Also known as buying down your interest rate, points are usually paid during closing. Discover more about mortgage discount points.
Protective Private Mortgage Insurance (PMI)
A monthly mortgage insurance premium safeguarding the lender if the borrower defaults on the mortgage loan. Typically required for conventional mortgage loans when the down payment is less than 20% of the sale price. Delve deeper into mortgage insurance.
Customized Mortgage Interest Rate
The cost of borrowing money, with the base rate set by the Federal Reserve and tailored per borrower based on credit score, down payment, property type, and points paid to lower the rate.
Comprehensive Multiple Listing Service (MLS)
A database where real estate agents showcase properties for sale.
Clear-Cut Origination Fee
A charge by a broker or lender for underwriting and processing a home loan application. Origination fees are a collection of lender-specific fees, forming part of your closing costs for a mortgage loan. Learn more about origination fees.
Progressing Pending Status
Indicates that the seller has accepted an offer, a purchase contract has been signed, and contingencies between the buyer and seller have been addressed.
Strategic Piggyback Loan
A bundle of loans designed to bypass private mortgage insurance, with one loan covering 80% of the home’s value, another covering 10% to 15%, and the buyer contributing the remaining amount.
Valuable Points
Prepaid interest due at closing, with one point representing 1% of the loan. Tax-deductible points lower the monthly mortgage payment.
Comprehensive Pre-Approval
An in-depth evaluation of a borrower’s income, assets, and other data to determine the loan amount they qualify for. Real estate agents typically request a pre-approval or pre-qualification letter before showing a buyer a home. Discover more about pre-approval.
Preliminary Pre-Qualification
A basic assessment of income, assets, and credit score used to determine potential loan programs a borrower may qualify for. Real estate agents usually request a pre-approval or pre-qualification letter before showing a buyer a home. Learn more about pre-qualification.
Prepayment Penalty Awareness
A fee some lenders may charge if you pay off a portion or the entirety of your mortgage early. Not all mortgages carry a prepayment penalty, so carefully read the fine print.
Prime Rate Benchmark
The interest rate a lender offers to customers with the lowest risk of defaulting on their loans. The most credit-worthy customers, primarily large corporations, receive the best or lowest rate a lender offers. Each lending institution sets its prime rate. Most consumer mortgage interest rates are higher than the prime rate.
Essential PITI Components
Principal, interest, property taxes, and homeowners insurance make up a monthly mortgage payment.
Essential Private Mortgage Insurance (PMI)
A fee charged to borrowers making a down payment less than 20% of the home’s value. The fee, ranging from 0.3% to 1.5% of the annual loan amount, can be canceled under specific circumstances when the borrower reaches 20% equity. Learn more about PMI.
Rewarding Property Tax Exemption
A tax reduction based on particular criteria, such as installing a renewable energy system or renovating a historic home.
Strategic Refinancing
The process of paying off one loan by obtaining another, usually to secure better loan terms like a lower interest rate. Explore refinancing in depth.
Competitive Seller’s Market
Market conditions where buyers outnumber available homes for sale, often leading to bidding wars and above-average prices.
Streamlined Short Sale
The sale of a home by an owner who owes more on the property than its worth. The owner’s bank must approve a reduced listing price before completing the sale. Learn more about short sales.
Annual Tax Assessment or Assessed Value
A value assigned to a home by local government to determine property tax amounts. This assessment, typically conducted annually, differs from an appraisal, which estimates a home’s value based on market conditions when it is listed for sale.
Government-Enforced Tax Lien
A legal claim against a property when the homeowner neglects or fails to pay a tax debt, enforced by the government.
Protective Title Insurance
Insurance that safeguards both the buyer and lender in case an individual or entity presents a claim that was attached to the property before the seller transferred legal ownership or “title” to the buyer.
Applicable Transfer Taxes
Fees imposed by state, county, or municipality upon the transfer of a property title.
Crucial Under Contract Period
A timeframe (typically 30 days or more) after a buyer has made an offer on a home and a seller has accepted. During this period, the home undergoes inspection and appraisal, and the title is searched for liens, etc.
Underwater or Upside Down Dilemma
A situation in which a homeowner owes more on their mortgage than the current value of their home.
Thorough Underwriting Process
A lender’s procedure for assessing a home loan applicant’s income, assets, and credit, along with the risk associated with offering the applicant a mortgage.
Essential Walkthrough
A buyer’s final inspection of a home before closing the deal.
Zoning Designations
Designations assigned by local governments to parcels of land, dictating how they can be used. Common designations include residential, commercial, industrial, and agricultural.
Conclusion
Understanding real estate terms is crucial for anyone looking to buy or sell a property. This article has provided a comprehensive glossary of 78 essential real estate terms and expressions that home buyers and sellers should be familiar with. From back-end ratios to escrow states, these real estate terms cover a wide range of topics and will help readers navigate the complex world of real estate. By mastering these real estate terms, buyers and sellers can make informed decisions and confidently navigate the home buying and selling process.
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