Real Estate Glossary
Plain-English definitions of the terms you’ll encounter when buying, selling, or financing a home — no jargon required.
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index. ARMs typically start with a lower fixed rate for an initial period (e.g., 5 years on a 5/1 ARM), then adjust annually. They carry more risk than fixed-rate loans if rates rise.
Amortization
The process of paying off a loan through regular payments over time. Early payments are mostly interest; later payments shift toward principal. A 30-year mortgage is “fully amortized” — meaning you’ll owe nothing at the end if you make all scheduled payments.
Appraisal
An independent, licensed professional’s estimate of a property’s market value. Lenders require an appraisal before approving a mortgage to confirm the home is worth at least as much as the loan amount. If the appraisal comes in low, the deal may need to be renegotiated.
As-Is
A property listed “as-is” is sold in its current condition. The seller makes no repairs and typically offers no credits. Buyers can still inspect the home, but must accept it with known and unknown defects. Common in foreclosures and estate sales.
Backup Offer
An offer submitted on a home that’s already under contract. If the primary deal falls through, the backup offer moves into first position. Sellers can accept a backup offer without relisting the property.
Bridge Loan
A short-term loan that helps homeowners buy a new home before selling their current one. Bridge loans are typically more expensive than traditional mortgages and are repaid when the existing home sells.
Buyer’s Agent
A real estate agent who represents the buyer’s interests in a transaction. Traditionally paid by the seller through the listing agent’s commission split, though compensation structures have been evolving since 2024 rule changes.
Buyer’s Market
A market condition where supply (homes for sale) exceeds demand (buyers). In a buyer’s market, prices tend to soften, homes sit longer, and buyers have more negotiating leverage. Generally defined as more than 6 months of inventory.
Closing
The final step in a real estate transaction where ownership officially transfers from seller to buyer. At closing, both parties sign documents, funds are disbursed, and the buyer receives the keys. Closing typically occurs 30–45 days after an offer is accepted.
Closing Costs
Fees and expenses paid at closing beyond the purchase price. Buyers typically pay 2–5% of the loan amount in closing costs (lender fees, title insurance, taxes). Sellers typically pay 6–10% (agent commissions, transfer taxes, prorated costs).
Comparable Sales (Comps)
Recently sold homes that are similar in size, location, condition, and features to a property being priced or appraised. Comps are the foundation of pricing — both for sellers setting a list price and appraisers determining market value.
Contingency
A condition that must be met for a real estate contract to proceed. Common contingencies include financing (loan approval), inspection (satisfactory condition), and appraisal (property value meets purchase price). If contingencies aren’t met, the buyer can typically exit without penalty.
Conventional Loan
A mortgage not backed by a government agency. Conventional loans conform to Fannie Mae and Freddie Mac guidelines and typically require a minimum credit score of 620 and a 3–20% down payment. They’re the most common loan type for buyers with solid credit.
Debt-to-Income Ratio (DTI)
A key metric lenders use to evaluate loan eligibility. DTI is calculated by dividing your total monthly debt payments (including the proposed mortgage) by your gross monthly income. Most conventional lenders prefer a DTI below 43%.
Deed
The legal document that transfers property ownership from seller to buyer. The deed is recorded with the local government and serves as the official public record of ownership.
Down Payment
The upfront cash portion of a home purchase paid by the buyer. Expressed as a percentage of the purchase price (e.g., 20% down on a $400K home = $80K). A larger down payment reduces your loan amount, monthly payment, and may eliminate the need for PMI.
Due Diligence
The process of investigating a property before completing a purchase. Includes reviewing inspection reports, title history, HOA documents, permit records, and neighborhood data. The due diligence period is typically defined in the purchase contract.
Earnest Money
A deposit made by the buyer when submitting an offer, typically 1–3% of the purchase price. It shows the seller the offer is serious. Earnest money is credited toward the purchase at closing but may be forfeited if the buyer backs out without a valid contingency.
Equity
The portion of a property’s value that the owner actually owns, calculated as market value minus outstanding mortgage balance. Equity grows as you pay down your loan and as the property appreciates in value.
Escrow
A neutral third party that holds funds and documents during a real estate transaction until all conditions are met. Also refers to the ongoing account held by your lender to collect and pay property taxes and insurance on your behalf.
FHA Loan
A mortgage insured by the Federal Housing Administration. FHA loans allow down payments as low as 3.5% and accept credit scores as low as 580. They require mortgage insurance premiums (MIP) for the life of the loan in most cases, which adds to the cost.
Fixed-Rate Mortgage
A mortgage where the interest rate stays the same for the entire loan term. Your principal and interest payment never changes. The most common terms are 15 and 30 years. Offers stability and predictability compared to adjustable-rate mortgages.
For Sale By Owner (FSBO)
A home sold directly by the owner without a listing agent. FSBO sellers avoid paying a listing agent’s commission (typically 2.5–3%) but take on all marketing, negotiation, and paperwork responsibilities themselves.
Good Faith Estimate (GFE)
A document lenders previously provided outlining estimated loan terms and closing costs. Replaced in 2015 by the Loan Estimate (LE) under the TRID rule, which standardizes disclosure of mortgage costs across lenders.
Home Inspection
A professional examination of a property’s condition, covering structure, systems (HVAC, electrical, plumbing), roof, and more. Buyers typically pay $300–$600 for an inspection. Findings can be used to negotiate repairs, credits, or to exit the contract.
Homeowners Association (HOA)
An organization in planned communities or condos that enforces rules and manages shared amenities. HOA fees (monthly or quarterly) cover maintenance of common areas. Buyers should review HOA bylaws, financials, and fee schedules before purchasing in an HOA community.
Home Equity Line of Credit (HELOC)
A revolving line of credit secured by your home equity. Works like a credit card — you draw funds as needed up to a limit and pay interest only on what you use. HELOCs typically have variable rates and a draw period followed by a repayment period.
Key Date
A contractually specified deadline in a purchase agreement, such as the inspection deadline, financing contingency removal date, or closing date. Missing key dates without written extension can put a deal at risk or constitute a breach of contract.
Loan-to-Value Ratio (LTV)
The ratio of your mortgage amount to the home’s appraised value. LTV = loan amount ÷ property value. An 80% LTV means you’re borrowing 80% and putting 20% down. Lenders use LTV to assess risk — lower LTV typically means better rates and no PMI requirement.
Listing Agent
A real estate agent who represents the seller and lists the property on the MLS. The listing agent markets the home, facilitates showings, presents offers, and guides the seller through closing. Typically paid a commission of 2.5–3% of the sale price.
Lock-In Effect
The phenomenon where homeowners with low-rate mortgages (e.g., 2–4%) are reluctant to sell because doing so means buying a new home at today’s higher rates (6–7%+). The lock-in effect has been a major driver of reduced housing inventory since 2022.
Market Value
The price a willing buyer would pay and a willing seller would accept in an arm’s-length transaction, with both parties having reasonable knowledge of the facts and neither under duress. Market value is determined by comparable sales, not list price or what the owner “needs.”
MLS (Multiple Listing Service)
A database used by real estate agents to share property listings. When a home is listed on the MLS, it becomes visible to all agent members and syndicates to consumer sites like Zillow and Realtor.com. Access to the MLS is a primary reason sellers use listing agents.
Mortgage Insurance (PMI / MIP)
Insurance that protects the lender if you default. PMI (Private Mortgage Insurance) applies to conventional loans with less than 20% down. MIP (Mortgage Insurance Premium) applies to FHA loans. PMI can typically be removed once you reach 20% equity; FHA MIP is often permanent.
Net Proceeds
The amount a seller actually receives after all costs are deducted from the sale price. Net proceeds = sale price minus mortgage payoff, agent commissions, closing costs, and any seller concessions. The gross sale price can be significantly higher than what the seller walks away with.
Points (Discount Points)
Upfront fees paid to a lender to reduce the mortgage interest rate. One point = 1% of the loan amount. Paying points lowers your monthly payment but increases upfront costs. Whether buying points makes sense depends on how long you plan to stay in the home.
Pre-Approval
A lender’s conditional commitment to lend up to a specific amount, based on a verified review of your income, assets, credit, and employment. A pre-approval letter strengthens your offer — it’s significantly more credible than a pre-qualification, which is based only on self-reported information.
Principal
The original loan amount borrowed, or the remaining balance owed. Each mortgage payment reduces the principal balance (amortization). Interest is calculated on the outstanding principal, which is why early payments are mostly interest.
Property Tax
An annual tax levied by local governments based on assessed property value. Property taxes vary enormously by location — from under 0.5% annually in some states to over 2.5% in others. They’re typically collected monthly through your escrow account.
Rate Lock
An agreement between a borrower and lender that guarantees a specific interest rate for a set period (typically 30–60 days) while the loan processes. Protects you from rate increases between application and closing. Some lenders offer float-down options if rates drop.
Refinance
Replacing an existing mortgage with a new one, typically to get a lower interest rate, reduce the monthly payment, change the loan term, or access equity (cash-out refinance). Refinancing involves closing costs (usually 2–5% of the loan amount), so a break-even analysis matters.
Seller Concessions
Credits or contributions a seller offers to help cover the buyer’s closing costs or buy down their interest rate. Common in buyer-friendly markets, concessions effectively reduce the seller’s net proceeds but can make a deal work for buyers with limited cash.
Seller’s Market
A market condition where demand (buyers) exceeds supply (homes for sale). In a seller’s market, prices rise, homes sell quickly, and sellers have strong negotiating leverage. Typically defined as less than 3 months of housing inventory.
Settlement Statement (HUD-1 / Closing Disclosure)
A document detailing all financial aspects of a real estate transaction — every fee, credit, and cost for both buyer and seller. The Closing Disclosure (CD) replaced the HUD-1 for most transactions in 2015 and must be provided to buyers 3 business days before closing.
Title
Legal ownership of a property. When you buy a home, title is transferred to you via a deed. A clear title is free of liens, disputes, or encumbrances that could challenge your ownership. Title is searched and insured as part of every purchase.
Title Insurance
Insurance that protects against losses arising from defects in the title. Owner’s title insurance protects the buyer; lender’s title insurance (required by most lenders) protects the mortgage holder. Unlike other insurance, title insurance is a one-time premium paid at closing.
Underwriting
The process a lender uses to evaluate the risk of approving a loan. Underwriters review your credit, income, assets, employment, and the property appraisal. The result is an approval (sometimes with conditions), a suspension (more info needed), or a denial.
VA Loan
A mortgage guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty service members, and surviving spouses. VA loans require no down payment, no PMI, and typically offer competitive rates. One of the most valuable benefits available to eligible borrowers.