Glossary

Homebuying glossary

Plain-English definitions for the terms you'll run into on your way to closing — no jargon left unexplained.

A

Adjustable-rate mortgage (ARM): A mortgage with an interest rate that changes periodically based on a market index, typically after an initial fixed period (e.g., 5, 7, or 10 years).
Amortization: The process of paying off a loan through scheduled payments, where each payment covers interest first and principal second, shifting toward more principal over time.
Annual percentage rate (APR): The cost of borrowing expressed as a yearly rate, including the interest rate plus certain fees — useful for comparing loan offers side by side.
Appraisal: A licensed appraiser's independent estimate of a home's market value, required by lenders to confirm the loan amount is justified by the collateral.
Appraisal gap: The difference between a home's appraised value and the agreed purchase price, which the buyer typically has to cover in cash if the appraisal comes in low.

B

Bridge loan: A short-term loan that lets a buyer tap equity in their current home to fund a down payment before that home sells.

C

Closing costs: Fees paid at closing beyond the purchase price — typically 2-5% of the loan amount — covering things like title insurance, recording fees, and lender charges.
Closing disclosure: A standardized form lenders must provide at least three business days before closing, detailing final loan terms and costs.
Contingency: A condition that must be met for a contract to become binding, such as financing, inspection, or appraisal contingencies.
Conventional loan: A mortgage not insured or guaranteed by a government agency, typically requiring stronger credit than government-backed loans.
Credit score: A three-digit number summarizing your creditworthiness, used by lenders to set loan terms and interest rates.

D

Debt-to-income ratio (DTI): Your total monthly debt payments divided by your gross monthly income — a key number lenders use to decide how much you can borrow.
Down payment: The portion of the purchase price you pay upfront, in cash, rather than financing through the loan.
Dual agency: When one agent or brokerage represents both the buyer and seller in the same transaction — legal in some states, restricted or banned in others.

E

Earnest money: A deposit, typically 1-3% of the purchase price, that demonstrates a buyer's good faith and is held in escrow until closing.
Equity: The portion of your home's value that you actually own — its market value minus what you still owe on the mortgage.
Escrow: A neutral third-party account that holds funds — earnest money, or ongoing tax and insurance payments — until contractual conditions are met.

F

FHA loan: A mortgage insured by the Federal Housing Administration, allowing lower credit scores and down payments as low as 3.5%.
Fixed-rate mortgage: A mortgage whose interest rate stays the same for the entire loan term, keeping the principal-and-interest payment constant.

H

Hazard insurance: Coverage for physical damage to the home from events like fire, storms, or wind — usually bundled into a standard homeowners policy.
HOA (homeowners association): An organization that manages shared spaces and enforces community rules, funded by mandatory dues.
Home inspection: A professional, buyer-ordered evaluation of a home's condition, covering structure, systems, and visible defects.

I

Inspection contingency: A contract clause letting the buyer cancel or renegotiate based on what a home inspection finds.
Interest rate: The percentage charged annually by the lender for borrowing money — narrower than APR, which folds in certain fees.

J

Jumbo loan: A mortgage that exceeds the conforming loan limit set by federal regulators, usually requiring stronger credit and a larger down payment.

L

Loan estimate: A standardized form lenders must provide within three days of application, outlining estimated rate, payment, and closing costs.
Loan-to-value ratio (LTV): The loan amount divided by the home's appraised value, expressed as a percentage — a 20% down payment produces an 80% LTV.
Lock-in period: The time during which a lender guarantees a quoted interest rate, regardless of market movement, before closing.

M

Mortgage insurance (PMI/MIP): Insurance that protects the lender — not you — if you default. Typically required when your down payment is under 20%.
Multiple listing service (MLS): The database real estate agents use to list and search properties for sale in a given area.

O

Origination fee: A fee a lender charges to process a new loan, often expressed as a percentage of the loan amount.
Owner's title insurance: An optional policy that protects the buyer — rather than the lender — against future claims on the property's title.

P

PITI: Shorthand for the four components of a typical monthly mortgage payment: principal, interest, taxes, and insurance.
Pre-approval: A lender's conditional commitment to lend a specific amount, based on verified income, assets, and credit.
Pre-qualification: A quick, non-verified estimate of how much you might be able to borrow, based on self-reported information.
Principal: The original amount borrowed, or the remaining balance owed — separate from interest.
Private mortgage insurance (PMI): See mortgage insurance, above.

R

Rate lock: See lock-in period, above.
Realtor: A real estate agent who is a member of the National Association of Realtors and bound by its code of ethics. Not every licensed agent is a Realtor.
Recording fee: A government fee charged to officially register the deed and mortgage in public land records.

S

Seller concessions: Costs the seller agrees to cover on the buyer's behalf, such as a portion of closing costs — often negotiated into the offer.
Settlement statement: An itemized list of every fee and credit in a real estate transaction, finalized at closing.

T

Title insurance: A policy protecting against financial loss from defects in a property's title, such as liens, errors, or competing ownership claims.
Title search: A review of public records to confirm a seller has clear legal ownership and to surface any liens or claims before closing.
Transfer tax: A tax some states and municipalities charge when real estate changes ownership, typically based on the sale price.

U

Underwriting: The lender's formal review of your full financial file to make a final decision: approve, conditionally approve, or deny the loan.

V

VA loan: A mortgage guaranteed by the Department of Veterans Affairs for eligible service members and veterans, often requiring no down payment.

Additional terms

Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that changes periodically after an initial fixed period. A 5/1 ARM has a fixed rate for 5 years, then adjusts annually. ARMs typically offer lower initial rates but carry rate risk after the fixed period ends.
Amortization: The process of paying off a loan through scheduled payments over time. Early payments are mostly interest; later payments are mostly principal. A 30-year amortization schedule means the loan is fully paid in 30 years if all payments are made on schedule.
Annual Percentage Rate (APR): The true yearly cost of borrowing, including the interest rate plus fees and costs. APR is higher than the stated interest rate and is a more accurate comparison tool when shopping lenders.
As-is sale: The seller is not willing to make repairs or provide credits. The buyer accepts the property in its current condition. Not the same as waiving an inspection — you can still inspect an as-is property; you just can't request repairs based on the findings.
Back-end DTI: Your total monthly debt payments divided by gross monthly income. Includes all debts — car loans, student loans, credit cards, and the proposed mortgage. Most loan programs require a back-end DTI under 43–50%. See also: Front-end DTI.
Bridge loan: A short-term loan used to bridge the gap between buying a new home and selling your current one. Allows you to make a non-contingent offer on a new home before your existing home sells. Higher rates and fees than standard mortgages.
Cash to close: The total amount of money you need to bring to the closing table. Includes your down payment plus closing costs, minus any seller concessions, lender credits, or earnest money already paid.
Chain of title: The complete history of ownership of a property, from original owner to present. A clean chain of title with no gaps or disputes is required to obtain title insurance.
Clear to close (CTC): The underwriter's final approval after all conditions have been satisfied. Once you receive clear to close, you're typically 3 business days from closing.
Comparable sales (Comps): Recently sold homes that are similar in size, location, and condition to the property being evaluated. Used by appraisers to determine market value and by buyers and agents to assess whether a listing price is fair.
Conforming loan: A mortgage that meets Fannie Mae and Freddie Mac's purchase criteria, including loan limits (updated annually), borrower qualification standards, and documentation requirements. Conforming loans typically offer better rates than non-conforming (jumbo) loans.
Contingency: A condition in a purchase contract that must be satisfied for the transaction to proceed. Common contingencies include financing (you must secure a loan), inspection (property must pass inspection), and appraisal (home must appraise at or above purchase price).
Conventional loan: A mortgage not insured or guaranteed by a government agency (unlike FHA, VA, or USDA loans). Conventional loans are purchased by Fannie Mae or Freddie Mac and must meet their guidelines. They typically require better credit but offer more flexibility in property types.
Counter offer: A response to an offer that proposes different terms — price, closing date, contingencies, or repairs. A counter offer voids the original offer; the other party can accept, reject, or counter again.
Credit utilization: The percentage of your available revolving credit that you're using. Calculated per card and overall. Keeping utilization below 30% (ideally below 10%) is a key factor in maintaining a strong credit score.
Days on market (DOM): How long a listing has been actively for sale. High DOM can indicate overpricing or property issues. Low DOM in a competitive market often signals high demand. Agents use DOM to assess seller motivation and negotiating leverage.
Deed: The legal document that transfers ownership of real property from seller to buyer. The deed is recorded with the county recorder's office at closing, creating a public record of the transfer.
Default: Failure to meet the legal obligations of a mortgage — most commonly by missing payments. Default can lead to foreclosure, which is the lender's legal process to recover the property when the borrower stops paying.
Due diligence: The investigation a buyer conducts before finalizing a purchase — typically during the inspection period. Includes physical inspection, title review, reviewing HOA documents, researching neighborhood, and verifying property disclosures.
Equity: The portion of a property's value that you own outright. Calculated as current market value minus outstanding loan balance. Equity increases as you pay down the mortgage and as the property appreciates in value.
Escalation clause: A provision in an offer that automatically increases the purchase price by a set amount above competing offers, up to a stated maximum. Used in competitive markets to win bidding wars without overpaying unnecessarily.
Fannie Mae / Freddie Mac: Government-sponsored enterprises (GSEs) that buy mortgages from lenders, package them into mortgage-backed securities, and sell them to investors. Their purchase criteria define the "conforming loan" standards that most mortgage lenders follow.
Fixed-rate mortgage: A mortgage where the interest rate remains constant for the life of the loan. Your principal and interest payment never changes. The most common type is the 30-year fixed, though 15-year and 20-year fixed are also common.
Flood zone: A geographic area defined by FEMA's flood maps that indicates the risk of flooding. Properties in high-risk flood zones (Zone A or AE) typically require flood insurance as a condition of obtaining a mortgage. Check FEMA's flood map before making an offer.
For Sale By Owner (FSBO): A property listed and sold directly by the owner without a listing agent. FSBO sellers avoid paying a listing agent commission but take on all marketing, showing, and contract responsibilities themselves.
Front-end DTI: Your proposed monthly housing costs (principal, interest, taxes, insurance, HOA) divided by gross monthly income. Most loan programs prefer this below 28–31%.
Gift funds: Money given by a family member or other approved party to help fund a down payment or closing costs. Lenders require a gift letter confirming the money is not a loan. Rules vary by loan program regarding who can give and how much.
Hardship letter: A written explanation provided to a lender explaining the circumstances behind a negative credit event — late payment, bankruptcy, job loss. Sometimes called a letter of explanation (LOE). Required by underwriters when derogatory credit history needs context.
Hard inquiry: A credit check initiated by a lender when you apply for credit. Hard inquiries appear on your credit report and can lower your score by a few points temporarily. Multiple mortgage inquiries within a 14–45 day window are usually counted as one.
HOA (Homeowners Association): An organization in a planned community, condo building, or townhome development that sets rules and collects fees to maintain common areas. HOA dues are required and should be factored into your monthly housing budget. HOA financial health and rules should be reviewed during due diligence.
Home equity: See Equity.
Home inspection: A visual examination of a property's condition conducted by a licensed inspector. Covers structure, foundation, roof, electrical, plumbing, HVAC, and other systems. The inspection report informs repair negotiations and helps buyers understand what they're buying.
Homestead exemption: A property tax reduction available in many states to homeowners who use the property as their primary residence. Must be applied for — it's not automatic. Reduces the taxable assessed value, lowering your annual property tax bill.
HUD-1 Settlement Statement: A closing document formerly used to itemize all funds received and disbursed in a real estate transaction. Replaced by the Closing Disclosure for most residential mortgage transactions after 2015.
Jumbo loan: A mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac. Jumbo loans are not eligible for purchase by these agencies and are held by lenders or sold to private investors. They typically require stronger credit, larger down payments, and more reserves.
Lien: A legal claim against a property, typically for unpaid debt. Common liens include mechanic's liens (unpaid contractors), tax liens (unpaid property taxes), and judgment liens (from court judgments). Liens must be resolved before a clear title can transfer at closing.
Listing agent: The real estate agent who represents the seller. Owes fiduciary duty to the seller, not the buyer. Also called the seller's agent.
Loan-to-value ratio (LTV): The loan amount divided by the property's appraised value, expressed as a percentage. An 80% LTV means you've borrowed 80% and have 20% equity. LTV determines whether PMI is required and affects your interest rate.
MLS (Multiple Listing Service): A database where real estate agents list and search properties for sale. Listings on Zillow, Realtor.com, and other consumer sites are typically fed from MLS data. Access to the full MLS (including off-market listings and agent notes) requires working with a licensed agent.
Mortgage insurance premium (MIP): The FHA equivalent of PMI. MIP has two components: an upfront premium (1.75% of the loan amount, added to the loan at closing) and an annual premium (paid monthly). Unlike conventional PMI, FHA MIP typically cannot be removed without refinancing if you put less than 10% down.
Multiple offers: A situation in which a seller receives offers from more than one buyer simultaneously. Sellers may ask all buyers to submit their "highest and best" offer. Buyers in this situation often need to make quick decisions about price and terms.
Non-warrantable condo: A condominium that doesn't meet Fannie Mae or Freddie Mac guidelines — typically because investor ownership exceeds 35%, the project has pending litigation, or the HOA is financially distressed. Non-warrantable condos often require portfolio loans with higher rates and down payments.
Origination fee: A lender fee for processing the loan, typically 0.5–1% of the loan amount. May also be called a loan origination fee or underwriting fee. One of the most negotiable closing costs.
Pending: A property status indicating an offer has been accepted and the property is under contract. The sale is not yet complete. In some cases, sellers accept backup offers while pending. "Active under contract" means the same thing in some MLSs.
Principal: The original loan amount borrowed, excluding interest. Each mortgage payment reduces the principal balance. Early in a loan's life, most of the payment goes to interest; over time, more goes to principal (amortization).
Rate lock: An agreement between borrower and lender that guarantees a specific interest rate for a set period — typically 30, 45, or 60 days. Protects the borrower from rate increases while their loan is processing. Extending a rate lock usually costs money.
Recording fee: A fee charged by the county or municipality to officially record the deed and mortgage in public records. Typically $50–$250. Non-negotiable.
Right of first refusal: A contractual right giving one party the option to purchase a property before the seller can accept an offer from another buyer. Common in some co-op buildings and certain HOA communities.
Short sale: A sale in which the proceeds are less than the amount owed on the mortgage, requiring lender approval. Can take significantly longer than a traditional sale (months rather than weeks) due to the additional approval process.
Survey: A professional measurement of a property's boundaries. Can reveal encroachments, easements, or boundary disputes. Not always required but recommended, especially for properties with unclear lot lines or recent additions.
Transfer tax: A tax charged by state or local governments when property changes hands. Rates vary widely by location. May be paid by buyer, seller, or split — per local custom or contract negotiation.
Under contract: A property where an offer has been accepted by both parties but closing has not yet occurred. The sale is not final until closing and deed recording.
VA loan: A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible veterans, active-duty service members, and surviving spouses. Key benefits: no down payment required, no PMI, competitive rates, and no minimum credit score set by VA. One of the most favorable loan products available.

This glossary is educational and general in nature. Specific definitions and requirements can vary by lender, loan program, and state.