50 of the Most Common Real Estate Terms, Explained

Homebuying has taken a sharp turn for the worse in recent years, with post-pandemic inventory at record lows in many markets and steep mortgage rates increasing monthly payments. A lack of options means buyers are facing competition from people paying above listing price or in cash. In short, shopping for a new home is like trying to buy a Cabbage Patch Kid in 1983: It’s arduous and expensive.

Still, being in the market means being versed in real estate lingo. If you’re buying (or selling), take a look at some common terms you’re likely to encounter, as defined [PDF] by the Federal Trade Commission (FTC) and other sources. This is by no means an exhaustive glossary. Instead, it’s a rundown in plain language of some of the most common terms you’ll encounter in real estate listings, when speaking with a real estate agent, or when negotiating a deal. For more detailed guidance, always consult with an agent or broker.

1. Above Asking
2. Adjustable Rate Mortgage (ARM)
3. Annual Percentage Rate (APR)
4. Appraisal
5. As-Is
6. Assumable Mortgage
7. Closing
8. Closing Costs
9. Concession
10. Commission
11. Contingency
12. Contingent
13. Conventional Mortgage
14. Debt-to-Income Ratio
15. Down Payment
16. Due Diligence
17. Earnest Money Deposit
18. Exclusive Listing
19. Fannie Mae / Freddie Mac
20. Federal Housing Administration (FHA) Loan
21. Foreclosure
22. For Sale by Owner (FSBO)
23. Fixed-Rate Mortgage
24. Home Equity Loan / Home Equity Line of Credit
25. Home Inspection
26. Jumbo Loan
27. Homeowners Association (HOA)
28. Loan-to-Value Ratio (LTV)
29. Mortgage
30. Mortgage Broker
31. Mortgage Insurance
32. Multiple Listing Service (MLS)
33. Property Disclosure Form
34. Property Tax
35. Multifamily Home
36. Pending
37. PITI
38. Pocket Listing
39. Points
40. Pre-Approval and Pre-Qualification
41. Radon
42. Rate Lock
43. Real Estate Agent / Realtor
44. Refinancing
45. Second Mortgage
46. Title and Title Insurance
47. Under Contract
48. Underwriting and Underwriters
49. Veterans Affairs (VA) Loan
50. Walkthrough

Above Asking

An offer above asking or over asking is an offer to purchase a home that exceeds the seller’s list price. If you want a home listed at $200,000 in a competitive market, you might choose to offer $210,000, or $10,000 above asking, to improve your chances of getting it.

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage is a loan with no fixed interest rate. Suppose your mortgage is at 5 percent for the first five years of the loan. It might jump to 6 percent depending on market conditions. ARMs can be attractive when a borrower wants a lower-than-average rate early on and plans on refinancing, paying it off, or selling it in the near future to avoid the rate spike.

Annual Percentage Rate (APR)

The annual percentage rate, or APR, is the mortgage rate charged to a homeowner after all fees and other lending costs have been factored in. This is different—and usually higher—than the interest rate, which is simply the rate charged for borrowing money.

Consider the example provided by Bankrate. Suppose you take out a mortgage with a 7 percent interest rate. Is that what you pay exactly? Not quite. By the time loan fees (origination, points) are factored in, the true rate, or APR, is really 7.197 percent. The APR is the number most people pay attention to when shopping for mortgage rates.

Appraisal

An appraisal is done by a professional (appraiser) to determine the estimated market value of a home using both its condition and comparable home sales. Say you’re selling a home with an asking price of $300,000. Both the buyer and buyer’s lender will want to know the home’s market worth and will look at sales of homes of a similar size, layout, age, and location. If the appraisal falls below the asking price—say $280,000—then the lender may not approve the $300,000 loan amount. The buyer or seller would then need to negotiate how to make up the difference, either by lowering the price or paying the additional $20,000 at closing.

An appraisal is different from an assessment, which is the value of the home to calculate property taxes owed. A home might have a market value of $300,000, while a tax appraisal might consider it worth $200,000.

As-Is

When a property is listed as-is, it means buyers can expect to take possession in whatever condition it’s currently in—the seller is unlikely to want to negotiate any repairs or improvements and the asking price reflects as much. Sellers, however, are still obligated to disclose any known issues prior to closing.

Assumable Mortgage

Though rare, it is sometimes possible for a homebuyer to take over an assumable mortgage, a home loan where a lender will permit another party to replace the current borrower. This is typically done to benefit from an interest rate lower than what’s currently being offered. There are some major caveats, however: Since the outstanding balance will likely be lower than the purchase price, the buyer will have to make up the difference, either in cash or via a separate loan at current rates.

Closing

Closing is the completion of a mortgage transaction where both parties sign documents and transfer ownership of a home. It’s usually done under the guidance of legal counsel for both sides.

Closing Costs

Closing costs are expenses incurred from taking out a mortgage. They typically include the costs involved in verifying the title or deed, legal fees, and home insurance and property tax that must be pre-paid by the buyer. Closing costs vary widely, but might be anywhere between 2 percent to 6 percent of a home’s purchase price, not including any down payment due. These are all typically paid by the buyer of a home, though sellers may sometimes assist in paying them. (See concession.)

Concession

A concession is an item negotiated by buyers and sellers where sellers agree to a stipulation in order to complete the transaction. One concession might be a seller agreeing to pay the buyer’s closing costs—although that’s far less common in a competitive housing market—or offering a home warranty.

Commission

A commission is the fee paid to a real estate agent or broker who has marketed a home or brought a buyer to the table. The commission has traditionally been 3 percent of the purchase price for each agent, though recent shifts in the market have made that fee more transparently negotiable. A seller may, in theory, agree to pay just 2 percent to their agent, for example. Sellers have traditionally paid both buyer and seller agent fees out of the purchase price for the home, though recent changes in commission structure may put more of the burden on buyers to pay their own agent fees.

Contingency

A contingency is a condition that must be met in order for a contract to be binding. A buyer might agree to buy a home for $200,000 contingent on it getting an inspection, on a seller making a roof repair, or on the home appraising for the full purchase price. A buyer may also waive contingency, forgoing a common stipulation in order to make a more favorable deal. They could waive a home inspection, opting not to have the property inspected. Waiving contingencies is more common in competitive housing markets.

Contingent

Homes that have found a buyer but are not yet closed may be described as contingent. This means an offer has been accepted but certain contingencies (like a buyer selling their current home) must be met in order to proceed. (See also: pending and under contract.)

Conventional Mortgage

A conventional mortgage is a home loan that is backed by a private lender rather than a government entity like the Federal Housing Administration (FHA) or Veterans Affairs (VA). Different types of mortgages may offer different terms that may make it easier or harder to qualify. Down payment requirements might also be different.

Debt-to-Income Ratio

The debt-to-income ratio is what lenders look at when considering a mortgage application in order to evaluate affordability. Someone who has a gross income of $10,000 a month with $5000 in fixed expenses (existing home mortgage or rental, car, credit card payments) would have a DTI of 50 percent. Lenders typically like to see DTI between 35 to 50 percent of income, depending on the type of loan.

Down Payment

A down payment is what a buyer puts forward in cash toward the sale price of the home. Lenders may require as little as 3 percent to as much as 10 percent down depending on the type of mortgage, though buyers are free to put down more if they like. Some mortgages, especially those targeted at low-income borrowers or veterans, may offer no money down options.

Due Diligence

Due diligence is the period after an offer has been accepted and before closing in which a buyer is able to confirm the condition of the property, obtain insurance, perform a title search to verify the seller has the right to sell, and various other duties that helps mitigate any problems down the line. Depending on the state and the purchase contract, issues that arise during this period might warrant termination of the purchase.

Earnest Money Deposit

An earnest money deposit is money offered by a buyer to demonstrate a serious willingness to complete a purchase. While the amount counts toward the purchase price or closing costs, in many cases an earnest money deposit is not refundable if a buyer decides against moving forward with the transaction or otherwise fails to qualify for a loan. Earnest money may make a buyer more attractive to a seller in a hot market.

Exclusive Listing

An exclusive listing or exclusive agent listing means a seller has agreed for one agent or agency to market their property. The seller cannot opt for another agent, though depending on the language, they might be able to bring their own buyer in and not be responsible for paying a commission to their own agent. An exclusive right of sale listing guarantees the agent a commission, even if they’re not the party who found a buyer.

Fannie Mae / Freddie Mac

Fannie Mae and Freddie Mac are government-subsidized private companies that finance and purchase mortgages from lenders, which are then offered as securities to investors. The services help keep money flowing into the mortgage industry.

Federal Housing Administration (FHA) Loan

A Federal Housing Administration (FHA) mortgage loan is insured by the government and may offer terms to lower-income buyers that are more favorable than a conventional loan, like a lower down payment or lower credit score thresholds.

Foreclosure

When a mortgage borrower fails to satisfy their loan requirements, the lender may initiate foreclosure proceedings, in which the property’s ownership transfers to the bank. Local government can also foreclose on a property if property taxes are not paid. This is known as a tax foreclosure.

For Sale by Owner (FSBO)

A home for sale by owner means the owner has not enlisted the services of a real estate agent to market and show the property. This is typically done to save on the commission paid to the seller’s agent, though it might mean the home is less visible to potential buyers.

Fixed-Rate Mortgage

The most common type of mortgage with an interest rate that will not change during the life of the loan unless the borrower refinances.

Home Equity Loan / Home Equity Line of Credit

A home equity loan is a loan taken out against the equity of a home. Say your house is worth $500,000, but you only owe $400,000 on the mortgage. A lender may permit you to use the $100,000 in equity as collateral for a loan. A home equity line of credit means a lender is extending credit against your home’s equity.

Home Inspection

A home inspection is a walkthrough of a home done by a professional home inspector to assess the condition of both the residence and its various systems (heating, cooling, plumbing, roof, gutters). Home inspectors can spot issues that might go unreported by a seller or unnoticed by a buyer and can help prevent expensive repairs or aid in a buyer negotiating a better deal. A seller may agree to lower the asking price, for example, if the roof is in need of replacement.

Jumbo Loan

A jumbo loan is one in which the amount exceeds the spending limit offered by lenders. A $1 million home, for example, might require a jumbo loan.

Homeowners Association (HOA)

A homeowners association is a community board that mandates properties in a given area adhere to specific rules. An HOA might forbid certain Halloween decorations, or insist that grass be kept mowed. Though they might not be serving on the board, all property owners belong to the HOA and will typically have to pay monthly fees or dues.

Loan-to-Value Ratio (LTV)

A loan-to-value ratio assesses how much a home has left on a loan against its value. Suppose you have a mortgage balance of $100,000 but thanks to a favorable market, your home is now worth $200,000. You have a loan-to-value ratio of 50 percent.

Mortgage

A mortgage is the loan taken out to purchase a home using the home as collateral. If you fail to repay the loan, the lender knows they can satisfy the debt and recoup their money by foreclosing on the property.

Mortgage Broker

A mortgage broker acts as an intermediary between a buyer and a lender and can inform buyers of the most favorable mortgages available to them. A buyer can also forgo a broker and deal with a bank or lending institution directly.

Mortgage Insurance

Mortgage insurance is a fee paid by the borrower to insure the lender is protected in case of default. Different lenders have different terms, though generally, having less than 20 percent equity in a home means paying mortgage insurance.

Multiple Listing Service (MLS)

The multiple listing service (MLS) is a database for homes currently for sale. Agents and brokers pay for homes to be listed on the service, which expands the pool of potential buyers and helps those in the real estate market have an overall snapshot of properties available. (There is not, however, just one MLS but hundreds around the country.) While sites like Zillow and Realtor.com make house listings available for public viewing, the MLS typically has more information like property disclosure forms.

Property Disclosure Form

Also known as a seller’s disclosure, the property disclosure form is a mandatory document provided by a homeowner that summarizes the current condition of a property. The seller might note it’s in a flood zone, that there’s a termite infestation, or that the roof is old. Most states require this to be filled out before a mortgage transaction can proceed. If a seller fails to disclose an issue and it can be proven they purposely withheld the information, it’s possible a buyer could later take legal action.

Property Tax

The tax paid to a town, city, and/or school district relative to its assessed value. Rates vary widely. New York residents tend to pay higher property tax rates than residents of Texas, for example.

Taxes can sometimes be paid directly, though many lenders keep tax funds in escrow and pay them on behalf of the borrower. Suppose your property taxes are $6000 annually. Your monthly mortgage payment would include $500 toward the tax bill. If property taxes are raised, however, and your lender doesn’t have enough in escrow, you’ll get a bill for the difference.

Multifamily Home

A home with two or more units offering separate entrances, kitchens, and utilities for multiple occupants.

Pending

A home listed as pending is property that has been sold but has not yet closed, though that’s the most likely outcome barring any unforeseen circumstances. (See also: contingent and under contract.)

PITI

An acronym for “principal, interest, taxes, and insurance,” or the entirety of one’s monthly mortgage payment. Say your mortgage payment is $1500 monthly. A relatively low amount, perhaps $200, will be directed toward the principal. Another $800 goes toward interest. The rest ($500) is for property taxes and home insurance and/or mortgage insurance.

Pocket Listing

A pocket listing is a property that is not submitted to the MLS and is not circulated publicly. Instead, an agent may opt to keep it restricted to an exclusive pool of potential buyers. Sellers may decide on a pocket listing if they want to keep the transaction private or because they already have a handful of buyers in mind. But it also means sellers might get less than they would if the home were on the open market.

Points

A mortgage point is a method in which buyers can buy down their interest rate by paying up front. Typically, one point will cost 1 percent of the home’s purchase price. If it’s $200,000, one point is $2000. That point could bring down the interest rate by 0.25 percent. If you bought four points for a total of $8000, then your rate would go from 7 percent to 6 percent. Your monthly payment would then be reduced.

Buying points can make sense if you plan on carrying a mortgage for a long time. If you intend to pay it off quickly, then it might not add up.

Pre-Approval and Pre-Qualification

When a borrower appears eligible for a mortgage, a lender may consider them pre-approved or pre-qualified for the loan. This enables the prospective buyer to know what homes are in their price range and allows sellers to feel comfortable that the would-be buyer will likely get a mortgage.

The two are slightly different. Pre-qualification means a broker or lender has made a preliminary assessment of a buyer’s financial profile, whereas a pre-approval involves a closer look at tax returns and other financial documents. Being pre-approved may put a buyer in a stronger position to make an attractive offer.

Radon

You may come across mention of radon in your real estate searches. Radon is an odorless, colorless gas found in soil in certain parts of the country that can have adverse health effects when present in higher concentrations. If a home has a radon problem, the owner may opt to install a radon mitigation system to bring levels to a safe threshold.

Rate Lock

A buyer may elect to pay a lender or broker a fee for a rate lock, or a guarantee of an interest rate for a fixed period of time—often between 30 to 60 days. That permits the buyer to continue a home search without being concerned of rates going up in the interim.

Real Estate Agent / Realtor

A real estate agent is an advocate for a homebuyer (or seller) looking to transact real estate and navigate parties through the acquisition process. Agents are typically licensed by their state of residence, though having a license isn’t necessarily a guarantee of competency.

A Realtor, on the other hand, is part of the National Association of Realtors and bound by a code of ethics that amount to a pledge to look out for the person they’re representing.

One is not necessarily superior to the other: An agent might have more information or a better handle on a market or specific type of listing (like commercial buildings) than a Realtor, or vice versa.

Refinancing

A homeowner may decide to refinance a mortgage if interest rates have gone down since their loan was originated. Whether this will be financially advantageous depends on whether they’ll save more in interest than they spend in closing costs for the new loan. Someone planning to move in a few years may decide refinancing won’t save much, whereas someone planning to stay put for 20 years will.

Second Mortgage

A second mortgage is a loan separate from the first and primary mortgage that utilizes a home’s equity so a borrower can obtain cash. (See: home equity loan.)

Title and Title Insurance

A title is legal ownership of a home; it’s transferred when a property is sold or otherwise transacted. (This is different from a deed, which is a physical document proving ownership.) Title insurance protects the owner or lender from title issues, like another party laying claim to it.

Under Contract

A home under contract means the seller has accepted an offer—but there’s a lot of paperwork to go before it’s officially sold, and it’s possible some contingencies (like a repair) haven’t yet been satisfied. It’s possible the seller’s agent may still accept offers in case the current purchase agreement falls through. (See also: contingent and pending.)

Underwriting and Underwriters

A lender may utilize the services of an underwriter to assess a borrower’s creditworthiness and ability to repay a loan. During underwriting, an applicant might have their income verified or their loan application vetted before the lender approves the mortgage and clears it for closing.

Veterans Affairs (VA) Loan

A loan backed by the U.S. Department of Veterans Affairs that typically has terms more favorable than other types of mortgages—but you have to be a veteran to be eligible.

Walkthrough

When a buyer looks at a house for a final time before closing, they’re doing a walkthrough. This ensures a property has been emptied, that its occupants have left, and that no new issues have sprung up since the house was last toured or inspected.

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