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Home Buying Terminology To Know While You House Hunt
Whether you’re up late scrolling through homes in your dream city or going to your first open house, there’s a lot of new vocabulary involved when buying your first home.
Knowing these terms can help simplify the home buying process so you’re in control of your finances and understand all the fine print in your contracts.
We’ve compiled a list of the most important home buying terminology. These simple home buying definitions will help you get pre-approved and start your homeownership journey with confidence.
Let’s get started.
Home Buyer Glossary:
A
Actual Cash Value
A method used by insurance companies to value your possessions. Roughly equal to what an item is worth in its current condition. Accounts for wear and tear and time since purchase.
What Buyers Should Know: Actual cash value determines how much an insurance company owes you after your property is stolen or damaged.
Adjustable-Rate Mortgage (ARM)
A mortgage for which the interest rate can change, but only after an initial period of up to 10 years. An alternative to fixed-rate mortgages. Learn more about adjustable-rate mortgages.
What Buyers Should Know: ARMs might save you money over time, but there is some risk because interest rates can increase. Check your eligibility for an ARM loan.
All-Inclusive Coverage
A type of insurance coverage for a condo building. Covers common areas and everything inside individual units, except for personal property such as jewelry or collections.
What Buyers Should Know: Condominium associations purchase this insurance. It covers everything in your condo that could be included if you sold your property, such as appliances.
Annual Income
The amount that you earn in a year before tax deductions.
What Buyers Should Know: Your annual income is one of the factors that determines your loan approval, including interest rate and loan total.
Annual Percentage Rate (APR)
A government calculation meant to show the true cost of borrowing money over long periods of time.
What Buyers Should Know: APR estimates how much you’ll owe for your loan’s interest annually. It’s useful for comparing loan offers, but it’s not a guarantee that you’ll actually pay that percentage.
Appraisal
A process that determines the cost of an item, asset, or service.
What Buyers Should Know: Home appraisals provide a home value estimate that can influence the home’s sale and cost.
Arms-Length Transaction
A business deal in which the buyer and seller act independently, with both party negotiating in their own self-interest. Arms-length transaction are the default real estate transaction.
What Buyers Should Know: Arms-length transactions are considered fair and in the best interest of all parties.
Assumable Mortgage
A mortgage that can be passed along, interest rate and terms intact, to the next owner of a home.
What Buyers Should Know: When interest rates are high, an assumed mortgage can still offer you a low rate. You’ll need to qualify for the assumed mortgage to take over the loan.
B
Balance
The amount of money due on a loan, excluding interest. This is also known as principal.
What Buyers Should Know: Your balance tells you how much you have left to pay on your mortgage.
Balloon Mortgage
A short-term mortgage where initial payments are low, but typically has one large final payment.
What Buyers Should Know: Borrowers may benefit from a balloon mortgage when they plan on moving or refinancing before payments increase.
Bankruptcy
A legal process available to consumers and businesses by which debts are eliminated or reduced.
What Buyers Should Know: Bankruptcy lowers your credit score. You can apply for a mortgage after raising your credit score and discharging your bankruptcy. If you’re filing for a Chapter 7 bankruptcy, a reaffirmation agreement might allow you to keep your current mortgage.
Learn more about buying a house after bankruptcy.
Bare Walls Coverage
A type of insurance coverage for a condo building. Covers common areas only. Does not extend into individual condo units.
What Buyers Should Know: This insurance covers damage on common areas such as walkways, but doesn’t include anything in individual units, unlike all-inclusive coverage.
Basis Point (BPS, BP, BIPS)
Equal to 1/100 of 1 percent, or 0.01 percent.
What Buyers Should Know: BPS shows changes in interest rates.
Boarder Income
Income earned from a person temporarily living in your home, receiving meals, or related services.
What Buyers Should Know: Up to 30 percent of your income for a loan application can come from boarder income.
C
Cash Gift for Down Payment
A cash gift used by home buyers for a down payment on a home, which requires no repayment.
What Buyers Should Know: Your cash gift usually comes from a family member or close friend. Your lender may ask for a cash gift letter to prove that you’ve received this gift and don’t need to pay back the gifter.
Cash-Out Refinance
A mortgage refinance that results in a homeowner getting more than $2,000 cash in hand at closing.
What Buyers Should Know: Cash-out refinances offer benefits similar to other refinances, such as lower rates and payments, with the added bonus of an immediate cash-out.
Cleared-to-Close
The status assigned to a mortgage application after a lender issues its final loan approval and there is nothing left to do.
What Buyers Should Know: After you’re cleared to close, your lender will schedule your closing meeting with all necessary parties.
Closing
When money and keys are exchanged between a home buyer and home seller. The last step of buying a home.
What Buyers Should Know: After signing closing documents, you’re unable to cancel a mortgage loan.
Closing Cost
A fee linked to the buying or selling of a home and paid immediately upon signing the closing documents.
What Buyers Should Know: Closing costs are usually 1-2 percent of the total purchase price.
Cosigner
A mortgage cosigner agrees to make payments on behalf of a homeowner if the homeowner cannot pay. Cosigners are added to the mortgage application to add additional income. Don’t confuse a cosigner with a co-borrower. Co-borrowers also co-own the home. Cosigners hold no homeownership rights whatsoever.
What Buyers Should Know: Before considering a cosigner, ask your lender if a mortgage co-borrower is more suitable.
Combined Rate
The sum of your mortgage rate and your FHA Mortgage Insurance Premium (MIP) Rate. This is the total interest paid on your mortgage, including your interest rate and mortgage insurance.
What Buyers Should Know: Combined rate is used for the FHA Net Tangible Benefit Test to change an adjustable-rate mortgage to a fixed-rate mortgage. The benefit must lower your entire monthly payment by at least 5 percent.
Commission
A sum of money paid for completing a task, usually linked to sales.
What Buyers Should Know: Real estate agents are often paid by commission. When they help sell a home, they earn a percentage of that home’s value paid by the seller.
Condominium
A legal form of homeownership in which real estate is divided into units, which individuals can purchase and own. Learn more about the difference between condos and apartments.
What Buyers Should Know: Condominiums often offer extra amenities, such as gyms and pools, at a lower cost.
Condominium Master Insurance Policy
An insurance policy for the shared areas of a condo community. Covers damage, theft, and injury.
What Buyers Should Know: Condominium associations purchase condominium master insurance because it includes injury coverage, while other policies cover only property.
Conforming Loan Limit
The maximum loan size eligible for backing by Fannie Mae and Freddie Mac.
What Buyers Should Know: The FHFA conforming loan limit for 2023 is $726,200, but increases to $1,089,300 in areas where costs of living are higher.
Contingencies
An event, usually negative, that could possibly happen in the future.
What Buyers Should Know: Insurance brokers evaluate contingencies and their likelihood to determine your rate. Contingencies are also clauses in home contracts that allow either party to nullify the contract if its conditions aren’t met.
Conventional 97 Mortgage
The brand name for a mortgage allowing home buyers to make a down payment of 3 percent on a home. Learn more about the Conventional 97.
What Buyers Should Know: Most lenders, including Fannie Mae and Freddie Mac, offer Conventional 97 mortgages. Check your eligibility for a Conventional 97 mortgage.
Conventional Mortgage
A mortgage that conforms to the guidelines of Fannie Mae or Freddie Mac.
What Buyers Should Know: 82 percent of first-time buyers use conventional loans. Check your eligibility for a conventional mortgage.
Counteroffer
A rejection of an initial offer that includes conditional adjustments for accepting an offer.
What Buyers Should Know: Making multiple offers and counteroffers is a common part of the home-buying process.
Covered Peril
Items and events that are included and reimbursed as part of an insurance policy.
What Buyers Should Know: Some insurance has specific events that are covered peril, such as electrical fires for fire insurance. Perils that aren’t covered are called policy exclusions. You can work with your insurance provider to modify your coverage.
Credit Bureaus
Companies that use a person’s personal information to determine their credit score. Experian, Equifax, and TransUnion are the three largest.
What Buyers Should Know: Credit bureaus determine your credit score but have no other part in determining if you qualify for a loan. FICO scores are used for mortgages.
Credit Limit
The maximum “tab” you can run on your credit card at any one time.
What Buyers Should Know: Higher credit limits don’t necessarily mean that you should use more credit. Always spend what you can pay back.
Credit Score
A number intended to reveal the likelihood of a person repaying money they’ve borrowed. High scores indicate a higher likelihood of repaying loans.
What Buyers Should Know: Reliable use and repayment of credit, such as on credit cards, helps build a better credit score.
D
Days on Market
The number of days a home is listed for sale via the Multiple Listing Service (MLS).
What Buyers Should Know: If a home has been listed for several months, you might be able to negotiate a lower price.
Debt-to-Income Ratio (DTI)
The ratio of monthly debt payments to monthly income, expressed as a percentage.
What Buyers Should Know: Financial advisors use DTI to determine how much of a mortgage you can afford, though this isn’t the only variable that determines your loan size.
Deductible
The amount of money a person must pay from their own savings after an accident or loss before an insurer will pay for the rest of the costs. Also referred to as out-of-pocket costs.
What Buyers Should Know: Consider your emergency savings, monthly insurance payments, and amount of deductibles when you choose an insurance plan.
Deed
A legal document that indicates ownership of assets.
What Buyers Should Know: A deed is a physical document, while a title is the right to own the property.
Default
Describes missed mortgage payments. If you miss multiple payments, your home is in default.
What Buyers Should Know: In most cases, the foreclosure process begins after four missed payments.
Deferred Payments
Payments on a loan that aren’t due until some point in the future, either months or years.
What Buyers Should Know: Deferred payments are usually at the beginning of a loan term, and refers to a grace period before your loan accrues interest.
Delayed Financing
When a home buyer pays cash for a home, then uses a cash-out refinance to get that cash back within six months of the original closing date.
What Buyers Should Know: Delayed financing is helpful for home buyers who can afford to buy a home in cash but later realize they’d rather do something else with that money.
Depreciation
The reduction in something’s value over time, usually from regular use.
What Buyers Should Know: Most assets depreciate, but housing market conditions and renovations can make your home appreciate in value.
Direct Debit
A method for making payments to a company. The company stores your bank account information and withdraws the cash when money is due.
What Buyers Should Know: Also known as automatic payments, this option is easier for people who know that they’ll have enough in their accounts to pay their bills.
Down Payment Assistance
Down payment assistance programs give cash grants and loans to home buyers to buy a home with little or no money.
What Buyers Should Know: There are many federal, state, and non-profit assistance programs that help first-time home buyers cover down payments or closing costs.
Down Payment Grant
A cash gift made to a home buyer that the home buyer never has to pay back. This is unlike a cash gift for down payment because a grant doesn’t come from a friend or family member.
What Buyers Should Know: Grants are a type of down payment assistance. They’ll require an application but you don’t need to worry about paying them back.
Dual Agency
When a real estate agent represents the buyer and the seller in the same real estate transaction.
What Buyers Should Know: Dual agency is illegal in Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont. We recommend getting your own representation with a buyer’s agent.
Due on Sale
The legal requirement that a mortgage loan gets paid off when a home sells, often using the cash from the sale.
What Buyers Should Know: Mortgages with due on sale clauses will not be assumable.
E
Earnest Money Deposit
A deposit to the seller from the buyer that indicates the buyer’s intention to buy the home.
What Buyers Should Know: Often called “good faith money,” an earnest money deposit can give buyers more time to figure out their financing options after finding their dream home.
Escrow
Paying a prorated portion of your real estate taxes and homeowners insurance as part of your monthly mortgage payment.
Escrow also refers to a type of account that holds funds tied to conditional agreements, such as earnest money offers.
What Buyers Should Know: An escrow withholds payments until all parties have fulfilled contractual obligations. This ensures that the borrower or seller won’t lose money if one party can’t fulfill their obligations.
Equity
The value of a property, determined by a home’s market value and remaining interest.
What Buyers Should Know: As you make mortgage payments, your home equity increases.
F
Fannie Mae
A nickname for the Federal National Mortgage Association (FNMA).
What Buyers Should Know: Fannie Mae is a government-backed lender that finances mortgages for low- to moderate-income buyers.
Federal Housing Administration (FHA)
Government agency whose purpose is to promote affordable homeownership for U.S. citizens.
What Buyers Should Know: FHA loans are an option for buyers who have a low credit score or are interested in low down payment mortgages.
Federal Reserve
The central bank of the United States. Its purpose is to maintain stable prices and maximum employment within the economy.
What Buyers Should Know: The Federal Reserve doesn’t directly control mortgage rates, but its policies help boost the economy so that mortgage rates stay low.
Federal Housing Administration Housing Insurance Premiums (FHA MIP)
FHA MIP is the insurance payment that’s included in a monthly FHA mortgage payment.
What Buyers Should Know: FHA loans require up-front mortgage insurance and FHA MIP.
FHA Mortgage
A mortgage insured by the Federal Housing Administration (FHA). FHA mortgages allow low down payments and have flexible credit guidelines.
What Buyers Should Know: FHA loans are ideal for borrowers with a lower credit score and those interested in a low-interest loan. Check your eligibility for an FHA loan.
FICO Credit Score
Abbreviation for Fair Isaac Corporation, which calculates consumer credit scores.
What Buyers Should Know: FICO credit scores are the credit scores used to determine mortgage rates.
Fixed-Rate Mortgage (FRM)
A mortgage loan for which the interest rate cannot change.
What Buyers Should Know: Fixed-rate mortgages ensure that your interest rate can’t go up and are the most popular option for homeowners.
Flip Homes
To buy a home, make repairs, then attempt to sell the home at a profit.
What Buyers Should Know: In the second quarter of 2021, 4.9 percent of home sales were flipped homes.
Foreclosure
When a mortgage lender claims ownership of a property to sell it and make up for unpaid debts. This happens after the borrower misses a certain number of payments.
What Buyers Should Know: A home is in default after 90 days of missed payments. After that, borrowers typically have 30 days to make up for missed payments before foreclosure.
Freddie Mac
A nickname for the Federal Home Loan Mortgage Corporation (FHLMC).
What Buyers Should Know: Freddie Mac purchases loans from smaller banks to sell as mortgage-backed securities.
Free-and-Clear
Description of a home that’s owned without a mortgage.
What Buyers Should Know: When you own a home free-and-clear, the home should still be insured for its replacement value, and real estate taxes are still due at least annually.
For Sale by Owner (FSBO)
Refers to the process of selling a property without a listing agent or broker.
What Buyers Should Know: FSBO saves sellers money because they won’t owe a commission to a real estate agent. However, the seller is responsible for any legal or financial selling risks.
Gross Income
Total income from all sources before deducting taxes or expenses.
What Buyers Should Know: Gross income is used when lenders evaluate your mortgage application for approval.
H
High-Cost Area
Areas where the typical home value is more than 15% above the national conforming loan limit.
What Buyers Should Know: High-cost areas are region-based by county. There are 159 high-cost areas nationwide.
Home Appraisal
The formal valuation process for a residential home, as performed by a state-licensed person.
What Buyers Should Know: Home appraisals typically cost $300-$500 and help you understand the value of your home.
Home Equity Line of Credit (HELOC)
A subordinate, flexible-balance, adjustable-rate mortgage that converts home equity to cash on demand.
What Buyers Should Know: A HELOC works like a credit card. It’s backed by your home’s value.
Home Equity Loan
A subordinate, fixed-rate mortgage. Sometimes called a second mortgage or a junior loan.
What Buyers Should Know: Homeowners often use home equity loans to cover renovations, weddings, or college expenses.
Home Inspection
A complete examination of a home and its appliances, performed by a licensed professional.
What Buyers Should Know: Buyers usually have a week after an inspection to decide whether they’d like to move forward in the buying process.
Home Inspection Clause
An agreement between a home buyer and seller that gives rights to the buyer to negotiate for repairs or to back out of the transaction if a home inspection finds damage.
What Buyers Should Know: Buyers can negotiate that the seller complete needed repairs or lower the home’s sale price.
Homeowners Association (HOA)
A management organization of homeowners within a planned community.
What Buyers Should Know: HOAs charge fees to maintain your community and its amenities with the intent to increase resident property values.
Homeowners Insurance
Insurance that pays for damage to a home from an accident or robbery. Also known as hazard insurance.
What Buyers Should Know: Homeowners insurance doesn’t typically cover “acts of God,” which are unusual events like natural disasters. If you live in an area with higher risk, you should supplement with specialized insurance.
Housing Market Index (HMI)
A measure of home builder confidence in the U.S. single-family new construction housing market. This report is published by the National Association of Home Builders.
What Buyers Should Know: An HMI score of 50 or more is considered good.
Housing Start
When a builder breaks ground on a new unit of housing. Measured by the U.S. Census Bureau and reported in the monthly New Residential Construction report.
What Buyers Should Know: More housing starts per month is an indication of a strong economy.
I
In Trust
A home that’s owned by an estate or entity, and not by an individual.
What Buyers Should Know: If you’d like to leave your home to an heir, putting it in trust can simplify the process.
Interest Rate
The rate at which interest is charged when a person borrows money.
What Buyers Should Know: Lenders make their profits off of interest rates. Your rate will be lower if your lender determines that you’re a low-risk borrower.
L
Lease
A contract where the owner party gives a thing (e.g., an apartment or car) to the lessee (renter) for a set amount of time in exchange for payment.
What Buyers Should Know: Leasing agreements are typically longer than renting agreements.
Lease-Purchase
A lease agreement where you’re obligated to purchase the property at the end of your contract.
What Buyers Should Know: Lease-purchase agreements are ideal if you’re sure that you can afford the home and are looking to determine whether you like the home itself.
Lien
A legal right to own assets if a contract isn’t fulfilled.
What Buyers Should Know: Mortgage lenders have a lien on homes so that they can sell them to offset the expenses if borrowers default on payments.
List Price
The price at which a home is listed for sale. Homes can sell for more or less than their list price.
What Buyers Should Know: Most sellers are willing to negotiate list prices. If a list price is “firm,” then sellers are not willing to negotiate.
Loan Estimate
A document breaking down your loan, including all your loan costs and fees.
What Buyers Should Know: Lenders must give you a loan estimate if you ask. Loan estimates make it easy to compare potential lenders.
Loan Term
The length of time over which a loan gets repaid, usually in years.
What Buyers Should Know: Basic mortgages are available in 15- or 30-year terms. 30-year mortgages are the most popular option for buyers, and offer a lower monthly payment.
Loan-to-Value Ratio (LTV)
The ratio of the size of the loan compared to the value of the home. Expressed as a percentage.
What Buyers Should Know: LTV indicates risk to lenders. An LTV of 80 percent or less will get the lowest rates. Fannie Mae and Freddie Mac will accept borrowers with an LTV up to 97 percent.
Low and No Down Payment Loans
Mortgage loans that require a down payment of 5 percent or less.
What Buyers Should Know: VA and USDA loans off 100 percent financing with no down payment requirement. FHA and other USDA loans offer low down payment options.
M
Market Value
The estimated value of an asset or how much the asset should be worth.
What Buyers Should Know: Market value depends on many factors like your home’s condition and the housing market.
Mortgage
A loan used to purchase a home, including standalone homes, homes with up to four units, condominiums, or co-ops.
What Buyers Should Know: 87 percent of homeowners use a mortgage to purchase their homes.
Mortgage Calculator
A special calculator meant to simplify the math tied to owning a home.
What Buyers Should Know: Mortgage calculators are helpful for personal planning, but you should talk to a lender for accurate estimates.
Mortgage Guidelines
A list of qualifications a person must satisfy in order to get mortgage-approved.
What Buyers Should Know: Each lender has different guidelines, but they usually include a combination of minimum credit scores, maximum DTI, and minimum income.
Mortgage Lender
A term used for the person who helps you get your mortgage loan approved or the company that person works for.
What Buyers Should Know: Institutional mortgage lenders make a profit from charging interest. A specific person who’s a lender might charge a fee for their services.
Mortgage Points
Also known as discount points, mortgage points allow you to put down more money at closing for a better interest rate.
What Buyers Should Know: One mortgage point is worth $1,000 of future interest.
Mortgage Rate
The interest rate charged for a mortgage loan. Mortgage loans with lower interest rates cost less over time.
What Buyers Should Know: Mortgage rate is specific to a mortgage, while interest rates can refer to mortgages or other loans.
Mortgage Rate Lock
A contract where the lender must honor a specific mortgage rate for a specific number of days.
What Buyers Should Know: Mortgage locks guarantee that your mortgage rate won’t go up while you finalize any agreements with your lender or seller.
Mortgage-Backed Securities (MBS)
Bonds that are backed by mortgages and traded similarly to stocks. MBSes are the basis for conforming, FHA, VA, and USDA mortgage rates, as well as some non-conforming mortgage rates.
What Buyers Should Know: The MBS market is one of the factors that indicates the housing market’s health, but bond prices are unpredictable. When the U.S. dollar is strong, MBS prices increase and mortgage interest rates decrease.
Multiple Listing Service (MLS)
The system real estate brokers use to list and track homes for sale.
What Buyers Should Know: Real estate brokers usually team up with other regional brokers to create a local MLS.
Multi-Unit Home
A residential property with 2, 3, or 4 units.
What Buyers Should Know: Duplexes, condominiums, and townhouses are popular types of multi-unit homes.
N
National Association of REALTORS (NAR)
The national trade association for real estate agents. Members are known as REALTORS®.
What Buyers Should Know: NAR offers resources including research databases to its REALTORS®.
Net Tangible Benefit
The FHA test for whether an FHA Streamline Refinance benefits the homeowner and can proceed to closing.
What Buyers Should Know: Refers to whether or not a refinance will significantly lower your monthly payments.
Non-Conforming Loan
A mortgage loan that does not conform to the standards of Fannie Mae or Freddie Mac. Jumbo loans are a type of non-conforming loan.
What Buyers Should Know: A larger loan size is usually what makes a loan non-conforming. Get pre-approved to see your eligibility for a non-conforming loan.
Non-Occupant Co-Borrower
A person who helps another person get a mortgage, who lives in a different house. Non-occupant co-borrowers must pay back the mortgage when the main borrower cannot.
What Buyers Should Know: Non-occupant co-borrowers are linked to a mortgage by credit. When the homeowner falls behind on payments, the borrower and the co-signer’s credit scores get affected.
Non-Warrantable Condominium
Condominiums with traits linked to higher default rates, including one entity owning more than 49 percent of all units, lawsuits involving the association, and more.
What Buyers Should Know: When a condominium is non-conforming, then it’s non-warrantable.
O
Offer Letter
A letter expressing a buyer’s intention to purchase a home, including a proposed price.
What Buyers Should Know: Your offer letter should include a proposed price, any major clauses, and a desired closing date.
Origination Fee
A fee paid to a potential lender for processing a loan application.
What Buyers Should Know: Origination fees typically amount to about 1 percent of your loan amount, depending on your lender.
P
Payment Shock
A large, sudden increase in monthly expenses that increases the risk of mortgage default.
What Buyers Should Know: Many mortgage lenders will limit a home buyer’s housing payment increase to 200 percent between renting and homeownership. Exceptions apply.
Personal Article
Insurance for the items in your home including furniture, jewelry, and collections.
What Buyers Should Know: Floater insurance covers personal articles that your homeowners insurance might not cover.
Personal Liability Insurance
Insurance for the costs of injuries that guests sustain in your home and damage guests may cause.
What Buyers Should Know: Many homeowners insurance plans include personal liability insurance.
Personal Property
Items that belong to you. Personal property is anything that can be moved into or out of a home.
What Buyers Should Know: Personal property insurance supplements other types of home insurance.
PITI
An acronym for principal, interest, taxes, and insurance, which are the components of a mortgage payment.
What Buyers Should Know: PITI refers to your monthly mortgage payment.
Portfolio Loan
A mortgage loan held in a lender’s portfolio of investments.
What Buyers Should Know: Portfolio loans can’t be bought or sold as MBSes, so your lender makes a profit on interest and fees alone.
Pre-Approval
A document issued by a mortgage lender stating that a person is expected to be mortgage-approved, assuming no negative changes with their job, salary, or credit.
What Buyers Should Know: Pre-approvals show buyers how much home they can afford and provide buying power to make an offer on a house. Get pre-approved now.
Prepaid Items
Payments made in advance on your loan that are placed in an escrow account for your lender to withdraw as they’re due.
What Buyers Should Know: Prepaid costs include homeowners insurance payments, mortgage insurance payments, and real estate tax payments. Prepaid costs also include a mortgage per diem charge, or daily mortgage interest.
Pre-Qualification
A document, similar to a pre-approval, that shows sellers that a person is expected to be mortgage-approved. It’s different from a pre-approval because it doesn’t include a credit check.
What Buyers Should Know: Pre-qualification letters are good indicators that you’ll receive a loan but pre-approvals are preferred.
Primary Mortgage Market Survey (PMMS)
Freddie Mac’s weekly mortgage rate survey of approximately 125 mortgage lenders.
What Buyers Should Know: The PMMS reports average rates for 15-year fixed-rate mortgages, 30-year fixed-rate mortgages, and 5/1 adjustable-rate mortgages.
Private Mortgage Insurance (PMI)
An insurance policy for mortgage lenders that protects against loss on certain low and no down payment mortgages.
What Buyers Should Know: Down payments of less than 20 percent of your mortgage require PMI. Your lender or loan type may require PMI.
Planned Urban Development (PUD)
A community of shared maintenance and services.
What Buyers Should Know: PUDs increase property values and help develop communities.
Put Down
Refers to the size of a person’s down payment on a home. Can be expressed in dollars or as a percentage of a home’s purchase price.
What Buyers Should Know: First-time home buyers put down a median of 7 percent of their home purchase price.
Q
Quantitative Easing
A central bank policy to purchase securities on the open market. Increases demand and lowers available interest rates.
What Buyers Should Know: Quantitative easing is a strategy for quickly improving the economy.
R
Real Estate Agent
A licensed professional who represents home buyers and sellers with the purchase and sale of homes.
What Buyers Should Know: A real estate agent isn’t a REALTOR® unless they’re a member of NAR.
Real Estate Contracts
A written agreement between a home buyer and a home seller, including price and dates, which details how to transfer homeownership.
What Buyers Should Know: If the seller doesn’t fulfill their contractual obligations, the buyer can walk away from the home with their deposit.
Real Estate Taxes
A tax bill linked to homeownership, due at least once per year, which may be collected by the city, the township, and the local government.
What Buyers Should Know: Major home improvements increase property value and your property taxes.
Refinance
To replace your existing mortgage loan with a new mortgage loan, usually to save money.
What Buyers Should Know: If your credit score or finances have significantly improved since you received your loan, refinancing might save you money on your mortgage.
RHS Loan
A loan guaranteed by the Rural Housing Service (RHS) for low-income borrowers in rural areas.
What Buyers Should Know: RHS loans serve home buyers with lower credit or income than needed for a traditional loan.
S
Seasoning
The amount of time that’s passed since a real estate-related closing. Typically measured in months.
What Buyers Should Know: A “well-seasoned” loan is at least a year old with a reliable payment history.
Seller’s Agent
Refers to the real estate agent of the party selling a property.
What Buyers Should Know: Seller’s agents help show homes, communicate with buyers, negotiate the sale, and finalize the contract.
Seller Concessions
When the seller of a home agrees to pay part or all of the home buyer’s closing costs. Sometimes, it’s accompanied by a sale price increase.
What Buyers Should Know: You’re more likely to get seller concessions on homes that have been listed for a while.
Shop Around
To compare competing offers between lenders, companies, or banks in search of the best product for your needs. Getting multiple quotes is a great way to lower your mortgage rate.
What Buyers Should Know: It’s a good idea to meet with multiple lenders and real estate agents to build a home-buying team that’s best for your unique situation.
Single Entity Coverage
A type of insurance coverage for a condo building. Covers common areas, original fixtures, and plumbing within individual condo units.
What Buyers Should Know: Single entity coverage covers land and anything attached to it.
Soft Credit Inquiry
An inquiry when you check your own credit or when a creditor checks your credit to pre-approve you for an offer.
What Buyers Should Know: Soft credit inquiries don’t appear on credit reports or affect credit scores. Usually performed for pre-approvals.
Statement
A formal communication showing how much money you owe to a company, bank, or lender. Can also refer to a document that indicates income.
What Buyers Should Know: Bank statements are one way to prove income to lenders.
T
Tappable Home Equity
Home equity that can be readily accessed via a cash-out refinance.
What Buyers Should Know: This is the amount that is typically given during a cash-out refinance.
Tax Deduction
Expenses that can lower the amount of your income taxed by the government.
What Buyers Should Know: You can deduct some home-buying taxes, such as taxes on closing costs, from your federal taxes.
Teaser Rate
The starting interest rate for a credit card, mortgage, or other loan that can change in the future on a specific date.
What Buyers Should Know: An ARM’s initial rate is its teaser rate, which usually lasts five years.
Tenant
A person who rents an apartment or other living space. Sometimes called a renter.
What Buyers Should Know: If you purchase a house with tenants, their contracts remain intact.
Title
Refers to a property owner’s legal rights.
What Buyers Should Know: A clear title is a title that no credit companies can claim.
Title Insurance
Insurance that covers fees for correcting any issues, such as back taxes, that may appear after conducting a title search.
What Buyers Should Know: Title insurance is paid with a one-time fee.
Title Report
Also known as a title search, this is a search of public records to determine who owns a property.
What Buyers Should Know: Title companies or real estate attorneys conduct title reports.
Townhouse
A home that’s attached to other homes where each home has its own entrance.
What Buyers Should Know: Townhouses often provide amenities like condos do, but townhouse owners also own the plot of land where their home is.
Trust
An agreement that gives a third party control over a person or household’s money and assets.
What Buyers Should Know: Trusts are active once they’re created, while wills are only active after a person passes away.
U
Underwriting
A formal process by which a lender evaluates a borrower’s application for approval.
What Buyers Should Know: Underwriters primarily evaluate loan risk.
USDA Mortgage
A mortgage guaranteed by the U.S. Department of Agriculture (USDA). USDA loans are available in rural and less dense suburban areas.
What Buyers Should Know: USDA defines rural areas as areas with populations less than 35,000, which covers 91 percent of the U.S. Get pre-approved for a USDA mortgage.
Utilities
Public services used by homeowners and businesses, such as water, gas, and electricity.
What Buyers Should Know: Some renting or leasing agreements include utilities, but mortgages don’t cover these costs.
V
VA Mortgage
A mortgage guaranteed by the Department of Veterans Affairs (VA). VA loans are available with 100 percent financing to members of the U.S. military.
What Buyers Should Know: VA loans have no PMI, down payment, or credit score requirements for approval. Check your eligibility for a VA loan.
Variable Interest Rate Loan
A loan for which the interest rate can change over time.
What Buyers Should Know: ARMs are a type of variable interest rate loan.
W
Warrantable Condominium
A condominium eligible for conventional mortgage financing via Fannie Mae or Freddie Mac.
What Buyers Should Know: You can use this resource from the U.S. Department of Housing and Urban Development (HUD) to find out if your condo is warrantable.
Zero Interest Rate Policy
When a nation’s central bank lowers its borrowing rate to 0 percent. Usually accompanied by other policies designed to stimulate an economy.
What Buyers Should Know: Zero interest rate policies stimulate the economy because people are able to spend more money with low-cost loans.
Z
Zero-Closing Cost Option
A mortgage option in which the lender pays the borrower’s closing costs using rebate or reverse discount points.
What Buyers Should Know: Zero closing costs are more common with refinances but can occur with new homes too.
#
36 Percent Rule
A generic, outdated mortgage affordability test that suggests a mortgage applicant shouldn’t spend more than 36 percent of their monthly income on recurring debt.
What Buyers Should Know: This rule is outdated because it doesn’t account for the fact that everyone has different needs and expenses.
When you encounter new home buying terminology during your purchase journey, don’t worry. Know that you have all the tools you need to get started.
Ready to master your home buying knowledge? Our Homebuyer course will teach you the basics so you have everything you need to buy your first home.
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