Your Interactive Glossary of Real Estate Terms

Welcome to the world of real estate! This glossary is designed to be your quick and easy reference guide. It's filled with simple definitions for all the terms you'll encounter on your homeownership journey.

Adjustable-Rate Mortgage (ARM)

A type of home loan with an interest rate that is fixed for an initial period and then adjusts periodically based on an economic index. This can be a good option for people who plan to sell or refinance before the fixed period ends.

Amortization

This refers to the process of paying off a loan over a set period of time through regular, scheduled payments. With a mortgage, your amortization schedule shows how each payment is split between paying off the loan's interest and the loan's principal.

Appraisal

A professional, independent valuation of a property's market value. Lenders require an appraisal to ensure the home is worth the amount of money they are lending you.

Assessed Value

A valuation placed on a property by a public tax assessor to determine property taxes. This value is usually a percentage of the home's market value and may not be the same as the price you pay for the home.

Closing

The completion of a real estate transaction. This is the official meeting where all legal documents are signed, and the title to the property is transferred from the seller to the buyer.

Closing Costs

These are the fees and expenses you pay at the end of the home-buying process, which are separate from your down payment. They typically range from 2-5% of the purchase price and can include fees for loan origination, appraisals, and title insurance.

Condominium

A single residential unit in a multi-unit building. As a condo owner, you own your individual unit but share ownership of common areas like the building's exterior and grounds with other owners.

Contingency

A condition that must be met for a real estate contract to be legally binding. Common contingencies include the buyer securing financing or the home passing an inspection.

Counteroffer

A new offer made in response to a previous offer. If you receive a counteroffer, you have the option to accept it, reject it, or create your own counteroffer.

Credit Report

A detailed document compiled by a credit bureau that outlines your credit history, including a list of your debts, payment history, and credit accounts. Lenders use this to help assess your creditworthiness.

Credit Score

A computer-generated number that summarizes your credit risk and predicts the likelihood that you'll pay future debts. A higher score typically allows you to qualify for a lower mortgage interest rate.

Down Payment

The portion of the purchase price of a home that you pay upfront with your own funds. It is not part of your loan amount.

Earnest Money

A deposit made by the buyer to show a seller that they are serious about their offer. This money is held in a third-party account and is typically applied toward your down payment or closing costs when the sale is finalized.

Equity

The portion of a home that you actually own. It's calculated by subtracting the amount you still owe on your mortgage from the current market value of your home. Equity builds over time as you pay down your loan and as the property appreciates.

Escrow

An impartial third party that holds and protects funds and documents for both the buyer and seller during a real estate transaction. They ensure all conditions of the sale are met before distributing the money and keys.

Foreclosure

A legal process that begins when a homeowner is unable to make their mortgage payments. The lender takes over ownership of the property and can sell it to recoup their losses.

Home Inspection

A professional, non-invasive examination of a home's condition. It's an opportunity for you to discover any hidden issues with the property before you finalize the purchase.

Homeowners Association (HOA)

A private organization that manages and maintains the common areas of a residential development. As a homeowner in an HOA, you will pay fees to cover these services and must follow the rules set forth by the association.

Homeownership

The legal right to, and ownership of, a residential property. This includes a clear title to the home and the property it sits on.

Home Warranty Plan

An optional service contract that covers the cost of repairing or replacing major home systems and appliances for a set period of time.

Lien

A legal claim on a property that gives the holder the right to be paid from the proceeds of a sale. It can be placed on a property if the homeowner fails to pay debts, such as taxes or contractor fees.

Listing Price

The initial price a seller asks for a home. The final sale price may be higher or lower depending on market conditions and negotiations.

Mortgage

A loan used to buy or refinance a home. The property serves as collateral for the loan, which is paid back with interest over a set period of time.

Mortgage Insurance Premium (MIP)

An insurance policy that protects the lender against loss if a borrower defaults on an FHA-insured loan. All FHA loans require MIP, regardless of the down payment amount.

Offer

A written proposal to purchase a property at a specific price and under certain conditions.

Open House

A scheduled time when a seller's home is open to the public for viewing without a private appointment.

PITI

An acronym for the four components of a monthly mortgage payment: Principal, Interest, Taxes, and Insurance.

Planned Unit Development (PUD)

A type of residential community with privately owned homes and shared common areas. A PUD is similar to a condominium, but homeowners typically own the land their home sits on.

Pre-Approval Letter

A formal letter from a lender that states a specific loan amount they are conditionally willing to lend to you. It's a critical first step that shows sellers you are a serious and qualified buyer.

Private Mortgage Insurance (PMI)

An insurance policy that protects the lender if a borrower defaults on their loan. It is typically required on conventional loans where the down payment is less than 20%.

Purchase Agreement

A legally binding contract that outlines the terms of a real estate sale. This document protects both the buyer and seller by specifying all conditions and deadlines of the transaction.

Realtor

A real estate professional who is a member of the National Association of REALTORS® and adheres to its strict Code of Ethics.

Refinance

The process of paying off an old mortgage with a new one. Homeowners often refinance to secure a lower interest rate, change the loan term, or convert equity into cash.

Short Sale

A real estate transaction where the sale price is less than the amount owed on the mortgage. The lender agrees to accept the sale proceeds as full payment for the loan.

Title

The legal right to, and evidence of, ownership of a property. A clear title means that no other person or entity has a claim to the property.

Title Insurance

An insurance policy that protects both the buyer and the lender from financial loss due to defects in the title, such as unpaid liens or errors in public records.