Last Updated on April 29, 2022 by Luke Feldbrugge
Home buying terminology is its own language at times. This glossary of terms for home buyers is something we hope you will reference again and again during your journey. It’s alphabetically organized and ideal for learning on the go. Knowing a few of these terms can make you look like a smart buyer ready for a competitive market.
Home Buying Terminology – Keywords, Phrases and Definitions
Acceptance – Is the formal term for coming to an agreement on an offer and establishing a contract between the buyer and the seller. This is when documents are created and signed, and if either party backs out, there are consequences.
Amortization – This is a table or schedule that shows you how much you will be paying on your mortgage over time. It should separate the two parts of your payments: the principal and the interest. It will show you clearly what you will owe and how much you will pay on a month by month basis.
Annual Income – Is something the mortgage folks will ask you when you apply. It’s what it sounds like: all the money you made last year including wages, child support, alimony, rental payments, commissions, investments or side gigs.
Annual Percentage Rate (APR) – Is the number that tells you how much interest you will pay, described as a percentage, on your home loan. A low number on this is good for you when you are buying a home and getting a mortgage.
Appraisal – This is how much the property you are looking at, or selling, is worth. The mortgage company will send an appraiser out to look over the home to generate a price. That number will be key to how much you can borrow.
Appraisal Contingency – Is a clause in the contract that will negate it if the appraisal comes back and the house is worth less than the sale price.
Appreciation – Is how much your house increases in value over time. A lot of factors can affect this increase including making improvements, housing demand in the area, and inflation. These factors can drive up home prices, as we have seen recently.
ARM, Adjustable Rate Mortgage – Is a house loan where the interest rates are variable and can change from time to time. It can look good up front, in terms of low payments, but it can be “less predictable.” Talk to your agent about this one before you sign.
Assessed Value – Is the value of your house and property that will establish your property tax for the year. Your county or city assessor will send you a yearly statement telling you what your property is worth…and what you will owe.
As-is – Means the owner will not be making any improvements or changes to the house before the sale. That often means that the price will be lower than other similar houses in the area.
Assumable Mortgage – Is a mortgage where the buyer can step into the seller’s existing mortgage and just start making payments. These are very rare since mortgage companies want to know that the new borrower can afford to make the payments.
Back-End Debt-to-Income Ratio – This is a comparison of your monthly income to the debts you owe such as car payments, school loans, etc. This type of ratio does not include your rent in the calculation. Mortgage lenders use this ratio to measure your ability to pay your debts and is usually expressed as a percentage (it generally should not be higher than 36%)
Backup Offer – This is an offer you can make on a house if they’ve already agreed to selling it to someone else but that deal falls through. You still need to negotiate this offer and commit money to it to make sure you are next in line.
Balloon Mortgage – Is a home loan where you pay very low interest for the first few years and then, five or seven years into the loan, you agree to pay off the whole loan (that payment is where they get the term balloon). If you are sure you are going to sell the house in a short time, you might consider this
Blind Offer – If you make an offer on a house you haven’t actually seen, this is what you call it. This is used in highly competitive real estate markets…like now.
Buyer’s Agent / Listing Agent – Is the licensed real estate who will help you, the home buyer, find a new home and work on your behalf. They will help you find the best price and the best financial terms.
Cap (Interest) – Is a safeguard, a limit, on the amount your interest rate can change in a year when you have an ARM.
Cap (Payment) – Is a limit on how much your monthly payments can change on your ARM mortgage.
Cash Reserve – Is the amount of money you will need to have after closing. Typically, you will need to have two months worth of mortgage payments in your savings account.
Closed-Ended Credit – Is just another name for a home loan, where you pay the same amount each month until the loan is paid for.
Closing – Is usually a meeting that includes documents, signatures, checks and everything you need to officially buy or sell the house. After closing, the buyer owns the house.
Closing (Settlement) Statement – Is a list of all the costs involved in the closing for both the buyer and the seller. It used to be called the HUD-1 Statement but is now the Closing Disclosure Form.
Closing Costs – Are all the costs involved in closing the sale of the house that don’t include the actual price of the house. These extra costs include insurance fees, discount points, origination fees, cost of the transaction and more.
Closing Disclosure (CD) – This is a document that explains information about your mortgage including interest, monthly payments and closing costs. You get this at least 3 days before closing and it should match the loan estimate you got when you applied.
Credit Report – Is a written list of information about your loans, credit cards, bill and accounts. It usually includes a credit score (between 300 and 850) that your loan company will look at to see if you qualify for the mortgage you are requesting.
Credit Reporting Agency – One of the Big Three (Equifax, Experian and Transunion) companies that collects and sells information about your credit history.
Common Area – Are things like parking lots, laundry rooms or courtyards in condominiums and some cooperative housing projects.
Common Interest Development – Is a housing collection with individual owners who share common areas such as swimming pools and parking lots. Condominiums are the most common version of this.
Comparative Market Analysis – Is a tool REALTORS® and real estate agents use to estimate the value of a specific property. The tool looks at similar homes in the area that have sold recently. The analysis is typically provided to buyer clients to help them determine their offer to the seller.
Comps – Is short for “comparables”, meaning other homes similar to the one you are looking at that have recently sold. Appraisers use this to come up with the fair market value of the house you are interested in.
Condominium – Is a housing unit you can own that is part of a larger development with common areas, often managed by a homeowners’ association.
Conforming Loan – Fannie Mae and Freddie Mac are two government organizations (sort of) that have some rules and guidelines around mortgages. If your mortgage fits into those guidelines, Freddie and Fannie will insure it and you could get a better interest rate.
Contingency – Is a clause in a contract that can change or cancel the contract if certain things happen. For example, if your offer depends on the seller first finding another place to live, that’s a contingency.
Contract of Sale – Is another term for the contract between you and the buyer when you buy or sell a house.
Conventional Loan – Is a loan not insured by a government organization.
Conventional Sale – Is when the homeowner completely owns the house or owes less on the mortgage than they will get when they sell it. That makes the sale smoother.
Co-operative Housing – Is property owned by multiple people or organizations, such as an apartment complex.
Covenants, Conditions & Restrictions (CC&Rs) – Are typically rules established by a homeowner’s association or neighborhood association telling you what you can do with and on your property. These rules may include monthly fees that keep the association running.
Counteroffer – Is a response to your initial offer, when the seller wants to change your original offer (usually meaning they are asking for more money). This is a very common occurrence when buying or selling a house.
Credit Limit – Is the maximum you can borrow to buy a house (established by the mortgage company).
Days on Market (DOM) – Is a simple one because it just describes how many days the house you are buying was on the market, i.e. on the real estate lists. As a measure of the house’s sellability, it’s an important indicator.
Debt-to-Income Ratio (DTI Ratio) – This is a comparison of your monthly income to the debts you owe such as car payments, school loans, rent, etc. Mortgage lenders use this ratio to measure your ability to pay your debts and is usually expressed as a percentage (it generally should not be higher than 36 percent)
Depreciation – Is when your home loses value due to things like market conditions, wear and tear, age of the property, etc. So get that roof fixed.
Deed – Is the document you get when you buy the house.
Deed of Trust – Is an arrangement where a trustee holds on to the title for the house until you pay it off or default on the loan. Some states require this instead of mortgages. It’s also used if you are not using a traditional mortgage lender.
Default – Is when you fail to make payments on your mortgage, or fail to pay them on time. This is the path toward foreclosure, so it’s to be avoided.
Delinquency – Means you are not making your payments on your mortgage on time.
Department of Housing and Urban Development (HUD) – Is a federal government agency in charge of housing policy and regulation enforcement. The FHA is part of HUD, so if you get an FHA loan it comes from this organization.
Disclosure – Is when a homeowner informs the buyer of defects in the home, such as a leaky basement, lead paint or other problems with the structure. The home buyer must be aware of the problem to be responsible for the disclosure.
Discount Point – Is when you pay money to the mortgage company, up front, to reduce your overall interest rate on the loan. One discount point is equal to one percent of the loan.
Down Payment – Is what you typically pay up front for a house in order to close the sale. The old rule was that you needed 20 percent of the price of the house for a down payment, but
Due-on-Sale – Is a clause in a mortgage contract. It means that if you sell your house, whatever you owe on the mortgage is due right away.
Due Diligence – Is a period of time written into the purchase agreement, when the buyer can have the property inspected and tests done.
Earnest Money Deposit (EMD) – Is money you put down when making an offer to a seller to show them you are serious about buying the place. It can be 1-3 percent of the purchase price of the home. If the offer is accepted, the earnest money will go toward the down payment.
Encumbrance – Is anything that can get in the way of your acquiring a full ownership of the title for your house. Examples can be mortgages, leases, easements, or liens.
Equal Credit Opportunity Act (ECOA) – Is a federal law that requires lenders to give equal access to loans regardless of race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equity – Is a ratio that compares how much you owe on a mortgage versus what the property is worth. Equity can increase as you pay down the loan, but it can also increase as your house appreciates.
Escrow – There are two kinds of escrow accounts you might use. One is a collection of funds that your mortgage company sets aside to pay for taxes and insurance. That escrow amount can be added into your monthly mortgage payment. The other escrow is an account where your down payment is stored until closing.
Escrow Holder – Is the bank or lender (usually a third party) that holds on to the down payment money until closing.
Fannie Mae – Is the largest mortgage investor in the U.S. It is a private company that supports investment companies that buy and sell mortgages as investors.
Federal Housing Administration (FHA) – Is part of HUD and insures mortgages for home buyers. It also sets construction standards and underwriting rules, but it does not issue loans.
Fixed Rate Mortgage – Is one where your interest rate stays the same for the entire mortgage. Most of the mortgages in the U.S. are fixed rate.
FHA Loan – Are loans that are insured by the Federal Housing Authority. That insurance on the loan typically gives you both a lower interest rate and a lower down payment. For first home buyers, that’s a huge benefit.
FHA 203k Rehab Loan – Is a loan which can be combined with your mortgage to handle any fixes that need to be made to your house. These fixes are for things like roofs or energy efficient HVAC and not luxuries, such as pools.
Floor – Is the minimum interest rate if you have an adjustable rate mortgage (ARM).
Forbearance – Is when your mortgage company does not put your loan in default even though it’s delinquent. They usually only do this if you make a plan to pay it in the future.
Foreclosure – Is a legal proceeding when you fail to make your mortgage payments and the lender takes your house and sells it to pay off the remainder of the amount.
Freddie Mac – Is a private company, somewhat associated with the federal government, that supports organizations that invest in the mortgage market.
Front End Debt-to-Income Ratio – Is the number you get when you compare all your monthly debts, including rent or mortgage payment, against your monthly income. Mortgage companies want this number to show if you can afford the loan amount you are requesting.
FSBO (For Sale By Owner) – Means the owner of the house is not using a real estate agent or broker (to save money). There are lots of state and federal rules to take into account when buying or selling a house, so be careful with this one.
Good Faith Estimate (GFE) – Tells you what you should expect to pay at or before closing. This is supplied by the mortgage company and must be delivered to you within 3 days of your application for the loan.
Graduated-Payment Mortgage – This is a type of mortgage where your payments increase for a period of time and then level off.
Gross Income – This is your income before they take out taxes, social security, medicare or certain retirement savings.
Hard Money Loan – Is one where the mortgage company bases its decision on the value of the house and property you are considering and not on your credit score. This usually involves a large down payment and a fast repayment of the loan.
Home-Equity Line of Credit – Is a revolving loan that uses your home as collateral. It gives you a credit limit and you can use as much as you want up to the limit, so it’s more like a pot of money you can spend.
Home-Equity Loan – This is a loan that uses your house as collateral, but it’s for a fixed amount that you will pay back with monthly payments.
Homeowner Association (HOA) – Is a private association that takes care of the property around a condominium complex or planned housing development. It issues rules and collects dues.
Homeowner’s Warranty (HOW) Program – If you are building a new home, this is an insurance program that your builder uses to guarantee their workmanship and materials.
Home Sale Contingency – Is when the buyer needs to sell their current house in order to afford to buy the new house or put up the down payment. The seller must agree to this.
iBuyer – Is a company that will quickly make an offer, buy, market and resell your home using technology. These are often all-cash deals.
Inspection – Is when the buyer hires a professional who examines the house. The inspection usually includes plumbing, foundation, roof, electrical, HVAC and more. The inspector then issues a report on the house.
Inspection Certificate – When an inspection is done on a house, these documents verify it.
Inspection Contingency – Is a clause in a purchase agreement that gives the buyer time to have a professional inspection done.
Jumbo Loan – Is a loan that is bigger than statutory limits set by your county. They exceed the limits set for conforming loans (see above). People that get jumbo loans need to prove a lot:
- Higher credit score
- Bigger down payment
- More cash reserves
- Jumbo loans are requested more often in very competitive real estate markets.
Land Lease – Usually when you buy a home, you own the land too. But not always. Sometimes you will be leasing the land while owning the structure. It may allow you to afford a bigger house, but the lease payments can increase each time the lease is renewed. It’s also harder to sell. There are more pros and cons regarding land leases.
Lease-Purchase – If you are renting a house you want to buy, you can pay a little more each month and then eventually convert it over to a mortgage where you own the house.
Lien – If you take out a loan using the house as collateral, the lender will put a lien on your house, meaning they have a claim on it and must be paid before you can sell it. The county can also put a lien on your house for failing to pay taxes.
Listing – Is the printed (or digital) description of your property when it goes up for sale.
Loan Contingency – Is a clause in your offer contract where you can back out if you can’t get the mortgage with the specified terms in a certain amount of time.
Loan Estimate (LE) – Is a disclosure from a mortgage company that makes it easier to compare and shop for loans. The lender is required to provide this.
Loan Servicing – Is the act of managing your mortgage including:
- Escrow disbursements
Loan-to-Value Ratio (LTV) – Is a number (often a percentage) comparing the mortgage loan for a house to the appraised value of the house.
Lock-In Period – Is the number of days your mortgage company has to honor an interest rate once it gives it to.
Manufactured Housing – These are prefabricated houses or homes manufactured in advance (including mobile homes).
Market Value – Is the value of a house based on a the appraisal value and
similar homes in the area.
Mortgage – Is a legal document describing the loan for your home. Technically it promises the property to the mortgage company as security until the debt is paid.
Mortgage Broker – Is someone who matches you with a lender, for a fee, but generally doesn’t provide the funding for the loan.
Mortgage Pre-Approval Letter – This is important because it’s a letter from the mortgage company saying what you can afford and what they are willing to lend you. This is a vital piece in the process of making an offer on a house.
Mortgagee – Is basically the company that lends you the money.
Mortgagor – This is you, when you take out a mortgage.
Multiple Listing Service – Is a database of house listings. Real estate agents use this to see what’s for sale in the area you are looking for. They will typically add your listing to this database when your house goes up for sale.
Natural Hazards Disclosure (NHD) Report – Lists the natural disasters that could happen to your home because of where you are located, including:
- Earthquakes or seismic activity
Net Income – Is your take-home pay after taxes, social security and other withholdings.
Nonrecurring Closing Costs – Are closing costs that only occur once such as:
- Appraisal fees
- Title insurance
- Transfer taxes
Offer – Is when you offer to buy a house, which includes the price you are willing to pay plus any additional conditions. Your agent will write it up, ask you to sign it and show it to the sellers. If they accept it, the offer then becomes the purchase contract.
Open-Ended Credit (Non-Installment or Revolving Credit) – Is a pre-approved loan that creates a pool of money you can use up to a limit, but you don’t have to use all of it. A home equity line of credit is an example of this kind of credit. There isn’t any time limit to use this money.
Origination Fee – Is the fee your mortgage company charges you to cover expenses. It is typically 1 percent of the loan total.
Principal, Interest, Taxes and Insurance (PITI) – These are typically the factors that make up your mortgage payment.
Points – Are prepayments on interest on a mortgage. You might pay points up front to get a better overall interest rate on the lifetime of your mortgage. If you can afford it, paying points up front saves you a lot of money long-term.
Pre-Approval – Is a letter from the mortgage company saying what you can afford and what they are willing to lend you. This is a vital piece in the process of making an offer on a house. With this, the seller knows your offer is valid. This will make the buying process proceed more quickly.
Preliminary Report – Is done by the title company. It researches the title on the house to make sure it’s clear of any potential problems. Typically the seller pays for this report, but that’s negotiable. It’s a requirement for title insurance.
Prepaid Items – Are things you pay for separately at closing such as taxes, insurance and interest. These are recurring items and can’t be folded into the financing.
Prepayment Penalty – Is a fee you pay if you pay off your mortgage early. The FHA will not insure mortgages that have this clause.
Pre-Qualification – Is an informal calculation to see how much you can afford in a house. Your agent will do this, comparing your income to your debts. This will help your agent as they look for houses in your price range.
Principal – Is the total amount for the loan, minus the interest. When you pay down your principal, you are paying for the actual money you borrowed. Paying down your principal early can pay off in the long run, but make sure there isn’t a prepayment penalty.
Private Mortgage Insurance PMI – is something your mortgage company may require you to buy to protect them. It typically kicks in if you don’t put a 20 percent down payment for the loan, but it’s not necessary for the life of the mortgage. Once you pay down a certain amount of your mortgage, this is no longer necessary, so you should not be paying this for the lifetime of the loan.
Probate Sale – Happens when the owner of a house dies without legally leaving it to someone. It’s more complicated than a conventional sale since it involves courts and lawyers.
Proof of Funds – Is one of four things you need to prove to the seller you have enough money for the down payment and closing costs:
- Bank statement
- Copy of money market account balance
- Certified financial statement (you usually need this signed by an accountant)
- Open equity line of credit
Property Tax – Is the tax you pay to the county or the state for owning property. This can often be folded into your monthly escrow payment.
Purchase and Sale Agreement (PSA) – Is a written contract between buyer and seller, and it says you have a formal agreement to buy and sell the house.
Qualifying Ratios – Are two calculations to see if you can qualify for the mortgage you are requesting:
- Housing expense as a percent of income
- Total debt as a percentage of income
Real Estate Broker – Is someone who is licensed to negotiate the purchase and sale of a house. In most states, that means they have more training and can supervise other real estate agents.
Real-Estate Owned (REO) – This means the property is owned by the mortgage company due to a foreclosure. Two things to remember are:
- Mortgage companies are eager to sell these so you might get a better price.
- They will usually sell these properties As-Is, so they won’t make any repairs to the foreclosed house.
Real Estate Settlement Procedures Act (RESPA) – Is a federal law requiring the lender to give you a list of the settlement costs you will need to pay.
REALTOR® – Is a licensed real estate agent, and a member of the National Association of REALTORS. They abide by a code of ethics and other standards of conduct.
Real Property – Is the land and all the buildings associated with it when you are buying property. It’s also known as real estate.
Recurring Closing Costs – Are costs that you pay during closing but are also things you have to pay while owning your house too, such as taxes and insurance.
Refinancing – Technically it means repaying your mortgage with another loan, but it’s typically used to get a new mortgage with a lower interest rate. This is popular when interest rates are falling.
RHS Loan – Is a mortgage that’s guaranteed by the Rural Housing Source for folks looking to buy homes outside of cities.
Rent-Back – Is an arrangement between the buyer and seller where the seller is allowed to live in the house for a while after the close of escrow. Also known as a lease-back, the seller typically pays rent and a deposit for a limited time period.
Sales Contract – When a seller officially accepts a buyer’s offer, the offer becomes a sales contract (legally binding).
Second Mortgage – Is a loan tied to, but secondary to, your original mortgage, such as a home equity loan.
Secured Debt – Is a loan that uses property or a house as collateral. Most mortgages are secured debt. The penalty for defaulting on secured debt is losing the property.
Seller’s Agent – Is the real estate agent representing the seller.
Seller Concessions – Are things a seller might offer to a buyer to sweeten the deal, such as covering some of the closing costs.
Seller Disclosure – Are things about the house that the seller must tell you about, to the best of their knowledge. Some items might be:
- Property line disputes
- Pest problems
- Major construction in the area
- Noise problems, especially related to nearby military bases
Settlement – Is the same as Closing (a meeting that includes documents, signatures, checks and everything you need to officially buy or sell the house).
Short Sale – Is when the seller tries to sell the property for less than they owe. Their mortgage company will typically make the approval for this a long, drawn out process.
Subject to Inspection – Means the seller won’t show you the house without getting an offer first. If you are nervous about making an offer “sight unseen,” you should be. On the plus side, this requirement will eliminate a lot of competition for the house.
Tenancy in Common (TIC) – Is when property is owned by multiple people jointly. The tenants all own part of the property but often in different ratios.
Termite Report – Is the report that tells if a house has, or has had, termite damage. It will include a diagram of the property including the locations of damage and suggestions about taking care of the infestation.
Title – Indicates who owns the property. It is recorded in the county land records office when you get the deed on a house.
Title Insurance – Protects the mortgage company against any unknown debts or liens against a property and its title. The buyer is typically required to pay for this. A buyer can also buy title insurance to protect themselves (owner’s title insurance).
Title Search – Is an examination of the public records regarding a house. It reports on:
- Previous sales and purchases
Townhouse – Is a two or three-story house that shares a wall with another house. Rows of townhouses are also called row houses.
Trust – Is the same as a Deed of Trust, where a trustee holds on to the title for the house until you pay it off or default on the loan.
Trust Sale – Means the house is being sold by a trustee, not the original owner. This is often because the owner has died and put their assets in a living trust. A trustee may be more eager to sell.
VA Loan – Is a mortgage guaranteed by the Department of Veteran Affairs. Veterans, both active and retired, are eligible for these loans (and sometimes their spouses). The benefits of these loans are:
- Low-to-no down payments
- Competitive interest rates and fees
Underwriting – Is an analysis of the risk of issuing a mortgage for a particular property. It’s done by the mortgage lender.
Upfront Costs – Are the costs a buyer must pay before closing. They can include:
- Appraisal fees
- Credit report fees
- Hazard insurance
- Flood insurance
- Origination charges
- Service charges
- Taxes and government fees
- Prepaid and escrow payments
Variable Interest Rate – These interest rates are affected by rate changes made by the U.S. Treasury. They can affect your mortgage if you have an Adjustable Rate Mortgage (ARM).
Zoning – Is a collection of local laws that dictate what you can build in certain areas or zones. This can come into play if you want to change the purpose of the house you own or are buying. For example, if you want to start a home based business or add a rental unit, you will want to check the zoning laws for your area.
We hope the home buying terminology list is a useful resource through the buying process, but we also hope it gives you some confidence as you move into a competitive market.
Save an Average of $2,400 on a New Home
We hope the home buying terminology list is a useful resource through the buying process, but we also hope it gives you some confidence as you move into a competitive market.
If after spending some time with our list of home buying terminology, you decide to start the house hunting process, take a moment to sign up on our website to speak with our local Homes for Heroes real estate and mortgage specialists. They are experienced real estate and mortgage professionals who specialize in serving heroes like you to find your dream home. They will contact you to learn how they can best assist you and explain how our Hero Rewards savings works. There’s no obligation. We would be honored to assist you in finding that perfect home.