61 Real Estate Terms Every Buyer Should Know
You don’t need a degree in real estate to find your dream home, but it sure helps to know the lingo. Peep this 4-part guide and you’ll be fluent in homebuying before you know it.
WHEN YOU’RE HOUSE HUNTING
affordability
How much money you can comfortably spend on a house. Takes into account your income, down payment and monthly debts. Try NerdWallet’s affordability calculator to see how much you can afford.
approved for short sale
Means the seller’s bank has received your offer and has determined that the reduced price meets their short sale criteria, which is based on the seller’s circumstances and how much is owed.
buy-rent breakeven horizon
Concrete point at which buying a home makes more financial sense than renting one. Read more about the buy-rent breakeven horizon.
buyer’s market
Market condition that exists when the number of homes for sale is more than the number of buyers. Homes can sit on the market and prices tend to drop.
comparative market analysis
In-depth analysis prepared by a real estate agent that determines the value of your home based on recently sold homes of similar condition, size and age, located in the same area.
comps
Homes recently sold in a given area that a real estate agent uses to determine a home’s value.
days on market
Number of days a listing is active before the home sells.
listing price
Price of a home as set by the seller.
multiple listing service
The database where real estate agents list properties for sale.
seller’s market
Market condition that exists when the number of buyers is greater than the number of homes for sale. Bidding wars are common. Prices are higher than average.
short sale
Sale of a house by an owner who owes more than it’s worth. Owner’s bank must approve the lower sales price before it can be sold.
WHEN YOU’RE APPLYING FOR A MORTGAGE
adjustable-rate mortgage
Mortgage with an introductory interest rate that lasts a set period of time and adjusts every six months thereafter for the remaining term of the loan. After the set period, not only will your interest rate change—your monthly payment will too.
conventional loan
Any normal home loan not guaranteed by a government agency.
back-end ratio
Ratio that compares a buyer’s monthly debt payments, like auto loans and credit cards, to gross income.
depository institutions
Banks and credit unions. They underwrite mortgages as well as set fees and pricing in-house.
debt-to-income ratio
Ratio that compares a buyer’s expenses, like electricity bills and childcare, to gross income.
down payment
Percentage of a home’s purchase price a buyer must pay upfront. A minimum requirement is often dictated by the type of loan.
fannie mae
Government program that helps ensure a reliable supply of mortgage funds available throughout the country.
federal housing administration
Government agency that insures loans made by private lenders.
fha 203k
Renovation loan backed by the federal government that permits buyers to include extra money in a new mortgage to repair or improve a home.
fha loan
Loans from private lenders that are insured by the FHA. Different from conventional loans because borrowers with lower credit scores can still get them. Allows for down payments as low as 3.5%. Maximum loan amounts can vary by county.
fixed-rate mortgage
Mortgage with principal and interest payments that remain the same throughout the life of the loan because the interest rate does not change.
foreclosure
Property repossessed by a bank when the owner fails to make mortgage payments.
freddie mac
Government agency that provides a constant source of mortgage funding for the nation’s housing markets.
housing ratio
Ratio that compares total housing cost (principal, insurance, taxes, private mortgage insurance) to gross income.
loan estimate
Three-page document sent to an applicant three days after they apply for a mortgage. Document includes loan terms, monthly payment and closing costs.
loan-to-value ratio
The amount of a loan divided by the price of a house. The lower the ratio, the better.
origination fees
Set of fees charged to underwrite your mortgage application and cover closing costs.
mortgage banker
Originates, sells and services mortgage loans and resells them to secondary mortgage lenders such as Fannie Mae or Freddie Mac.
mortgage broker
Licensed professional who works on behalf of the buyer to secure financing through a bank or other lending institution.
mortgage interest rate
The price of borrowing money. Base rate is set by the Federal Reserve and then customized per borrower based on credit score, down payment, property type and points the buyer pays to lower the rate.
mortgage preapproval
Thorough assessment of income and assets to determine how much mortgage a borrower would qualify for. Pretty much guarantees that borrower will get loan unless their financial status changes before they decide on a house to buy.
mortgage prequalification
Basic assessment of income, assets and credit score to determine which loans a borrower might qualify for. Stops short of guaranteeing that the borrower will actually get the loan.
piggyback loan
Combination of loans bundled together to avoid private mortgage insurance. One loan covers 80% of the home’s value, another loan covers 10%-15%, and the buyer pays the remainder.
prepayment penalty
Fee some lenders charge if you pay off some or all of your mortgage early. Not all mortgages have a prepayment penalty.
prime rate
Interest rate charged to people who are least likely to default on their loans. The most credit-worthy customers (mostly large corporations) receive the lowest rate the lender has to offer. Each lending institution sets its own prime rate. Most people’s interest rate will be higher than the prime rate.
principal, interest, property taxes and homeowners’ insurance
The four components of a monthly mortgage payment.
private mortgage insurance
A fee of 0.3%-1.5% of the yearly loan amount that is charged to borrowers who make a down payment less than 20%. Fee can be canceled when the borrower reaches 20% equity.
points
Prepaid interest owed at closing, with one point representing 1% of the loan. Paying points, which are tax deductible, lowers the monthly mortgage payment.
underwriting
Process a lender follows to assess a home loan applicant’s income, assets and credit, and the risk involved in offering the applicant a mortgage.
WHEN YOU’RE UNDER CONTRACT
american society of home inspectors
Professional association that sets standards for home inspections.
cash-value policy
A homeowners’ insurance policy that pays for the replacement cost of a home, minus depreciation, should damage occur.
closing costs
Fees for purchasing a home that are due at the end of the sales transaction. May include the appraisal, home inspection, title search, pest inspection and more. Buyers should budget for 2%-5% of the purchase price.
contingencies
Conditions written into a contract that protect the buyer’s earnest money investment should issues arise with the purchase.
earnest money
A security deposit made by buyers to assure sellers of their intent to purchase.
escrow account
Account required by your lender and funded by your mortgage payment to pay your homeowners’ insurance and property taxes. A portion of your mortgage payment goes into the account each month.
escrow state
US state in which an escrow agent is responsible for closing.
home inspection
Assessment performed by a licensed home inspector to look for defects or items of note related to the property, house and systems in the house. Inspection occurs when the home is under contract or in escrow.
homeowners’ insurance
Policy that protects your home, its contents, injury to others and living expenses should damage occur.
in escrow
Period of time after you’ve made an offer on a home and a seller has accepted—usually 30-45 days. During this time, the home is inspected and appraised, and the title is searched for liens.
title insurance
Insurance that protects the buyer and lender should an individual or company come forward with a claim that was attached to the property before the seller transferred ownership of the property to the buyer.
transfer taxes
Fees imposed by the state or county upon the transfer of title.
under contract
Period of time after you’ve made an offer on a home and a seller has accepted—usually 30-45 days. During this time, the home is inspected and appraised, and the title is searched for liens.
walkthrough
Buyer’s final inspection of a home before closing.
WHEN YOU OWN A HOME
amortization
Repayment of a mortgage through regular monthly installments based on the amortization schedule. When you have made all your monthly payments you will own your home outright.
deed
Legal document that establishes ownership of a property. Also used to transfer ownership of a property to somebody else when the time comes.
equity
Percentage of the value of a home that is owned by a homeowner.
homeowners’ association
Governing body of a neighborhood or condo community that sets rules and regulations. Charges dues for maintaining common areas.
lien
Any legal claim upon a property. Can give a creditor the right to take possession of the property when the borrower defaults on an obligation. Most lenders require title insurance to protect their interests should there be outstanding liens on the property.
property tax exemption
Reduction in taxes based on specific criteria such as installation of a renewable energy system or rehabilitation of a historic home.
refinancing
Act of paying off one loan by obtaining another. Generally done to secure better loan terms such as a lower interest rate.
tax lien
Government’s legal claim against a property when the homeowner fails to pay their taxes.
