43 Mortgage and Real Estate Terms to Know
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The real estate and mortgage industries use terms and jargon that can be confusing. Here’s a list of definitions for the most common real estate terms to know before (and during) the homebuying and mortgage processes.
- Real estate terms before you buy
- Mortgage terms during the loan process
- APR (annual percentage rate)
- Automated underwriting
- Closing costs
- Conventional mortgage
- Credit score/credit report
- Debt-to-income (DTI) ratio
- Down payment
- Escrow account
- FHA loan
- Fixed-rate mortgage
- Gross monthly income
- Lender’s title insurance
- Loan estimate
- Loan-to-value (LTV) ratio
- Mortgage broker
- Mortgage lender
- Origination fee
- Owner’s title insurance
- Private mortgage insurance (PMI)
- Rate lock
- Title vesting
- USDA loan
- VA loan
- Real estate closing terms
Real estate terms before you buy
Most of the real estate terms to know when you first start searching for a home relate to making an offer on a home. As you make offers and shop around for a mortgage, here’s some key real estate terminology to know.
A property sold without warranties about its condition, meaning what you see is what you get. You’re responsible for inspecting the home for your own protection.
A real estate professional who represents a buyer in a real estate transaction.
A fee paid to real estate agents to sell your home. The average real estate commission ranges from 5% to 6%, usually paid by the seller to their listing agent, who then splits the commission with the buyer’s agent for bringing the buyer to the table.
A discount or benefit offered by a buyer or seller to help close a home sale. Concessions are typically negotiated in the purchase contract and may be applied to closing costs. For example, a seller may be willing to pay for new appliances or repairs to a home.
A contract clause that allows the buyer to back out of the agreement if they can’t get a loan (financing contingency), repairs can’t be negotiated (home inspection contingency), the home’s value is below the asking price (appraisal contingency) or the buyer is unable to sell their current home (home sale contingency).
A response to a previous offer. As a seller, you might make a counteroffer to a buyer’s offer price that’s lower than you’re willing to accept. Likewise, a buyer can counter a seller’s counteroffer with additional terms.
Earnest money deposit
An initial deposit, usually 1% to 3% of the sales price, to show a buyer’s intent to buy a home.
A written report providing a detailed overview of a home’s condition. Buyers typically order a home inspection after the seller accepts a purchase offer.
A real estate professional who represents the seller in a real estate transaction.
Multiple Listing Service
This database, called “MLS” for short, is a resource for real estate professionals to market property listings. MLSs are operated by local real estate associations, and consumers can typically view MLS listings online.
An assessment of what a mortgage company might lend you based on a preliminary review of your credit, debt, income and money available for a down payment. Sellers typically won’t accept an offer without a preapproval letter included.
A more casual conversation about how much you might be able to afford, based on a buyer’s verbal estimated credit scores, earnings and down payment amount.
Also called a purchase or sales contract, this is a legal form detailing the price and conditions for the home you’ve agreed to buy. The typical contract includes information about the property, down payment, earnest money, the date of closing and contingencies.
Mortgage terms during the loan process
In addition to knowing key real estate terms, you’ll be inundated with lender language once your offer is accepted and the final loan approval process kicks in. If you run across a term below that you don’t recognize, ask your loan officer to clarify it so you’re fully informed along the way.
An analysis by a professional appraiser comparing other sales of nearby homes to estimate a home’s value. Most purchase contracts include an appraisal contingency allowing a buyer to back out if the market value doesn’t at least match the sales price.
APR (annual percentage rate)
A measure of closing costs including points, origination fees and other credit charges included in mortgage financing expressed as an annual percentage rate.
An automated process using technology to analyze a borrower’s credit profile to recommend approval or denial of a loan. May be referred to as AUS by lenders.
Upfront fees charged to originate a mortgage, typically about 2% to 6% of your loan amount, depending on its size. The closing costs are detailed on the initial loan estimate provided to borrowers within three business days after applying for a mortgage and, again, on a closing disclosure form provided three business days before closing on the home purchase.
A mortgage loan program that is not insured by any government agency. Allows for down payments as low as 3% with a minimum credit score of 620.
Credit score/credit report
A credit score is a three-digit number that represents your credit risk. A credit report evaluates your credit history, and the results of the data are calculated into a credit score. Lenders have minimum credit score requirements depending on the loan program you use.
Debt-to-income (DTI) ratio
A measure of your monthly debt (including your new mortgage payment) divided by your monthly earnings before taxes. The Consumer Financial Protection Bureau (CFPB) recommends a DTI of 43% or less.
An upfront portion of a home’s sale price paid in cash to purchase a home. Some home loan programs don’t require a down payment.
A savings account set up by your lender to collect and pay property taxes, homeowners insurance and mortgage insurance as they come due.
A mortgage insured by the Federal Housing Administration (FHA) with more lenient borrowing guidelines. For example, you can have a credit score of 500 to 579 and a 10% down payment, or a score of 580 and up and put down as little as 3.5%. FHA loans come with two types of mandatory mortgage insurance: an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP).
A mortgage with an interest rate that stays the same for the life of the loan.
Gross monthly income
Earnings before tax, insurance and other deductions are made. Most loan programs use gross monthly income for a mortgage preapproval.
Lender’s title insurance
Lenders require title insurance to protect them against financial loss if any ownership claims arise against the property (such as ownership disputes, or past judgments or liens).
A written document outlining all of the costs associated with getting a mortgage. Lenders are required to provide a loan estimate to a borrower within three days of receiving a mortgage application.
Loan-to-value (LTV) ratio
A ratio of the amount borrowed compared to a home’s value. Lenders set LTV limits on some loans. For example, conventional loans usually have a 97% LTV maximum, meaning you have to make a down payment of 3%, at minimum, to be approved for the loan.
A licensed mortgage professional who acts as an intermediary between several different lenders to provide options for mortgage financing. Mortgage brokers don’t fund home loans or set lending requirements.
A company that processes, underwrites and funds a home loan. Mortgage lenders typically provide the funds for the loan at closing.
A fee or group of fees paid to a lender for processing and funding a mortgage. The fee may be itemized or charged as a percentage of the loan amount.
Owner’s title insurance
Homebuyers may opt to purchase an owner’s title insurance policy to protect themselves from ownership claims or disputes. Unlike lender’s insurance, which protects the lender for the life of the loan, owner’s title insurance protects you against financial losses for as long as you own the home.
A mortgage term short for principal, interest, taxes and insurance, which are the four key parts of a monthly mortgage payment.
Private mortgage insurance (PMI)
Insurance paid by the borrower to cover a lender’s financial risk on conventional loans with less than 20% down in case the borrower can’t repay the mortgage. Paid monthly, in a lump sum or a combination of both, PMI can be canceled once 20% equity is reached.
A written promise from a lender to secure a specific interest rate for a set period of time prior to closing. Most rate lock periods are 60 days or less.
Legal rights related to ownership of a home. How a home is titled affects what happens to it if there’s an ownership change or an owner dies.
A loan program guaranteed by the U.S. Department of Agriculture (USDA) to help low- to moderate-income homebuyers finance homes in designated rural areas of the country.
A mortgage guaranteed by the U.S. Department of Veterans Affairs (VA) for active-duty military service members, veterans and eligible spouses. Flexible VA loan qualifying requirements include no down payment or mortgage insurance.
Real estate closing terms
Once you hear the word “closing,” you’re almost to the finish line and the keys to your home are within reach. Understanding closing real estate terms will keep you in the know as the transaction wraps up.
Also called close of escrow, this is the process of completing the purchase transaction. It includes signing mortgage and title documents, gathering your closing funds and walking through the home to make sure it’s ready to move into.
Depending on where you live, an attorney or escrow agent will coordinate the closing, ensure that all documents are signed and collect all closing costs from the buyer and seller.
Date outlined in a purchase contract when the transaction and final financing approval must be completed.
Closing disclosure (CD)
You’ll receive a written final accounting of all of the costs and fees due at closing. Lenders must provide the CD at least three business days before closing. Any errors in mortgage terms or seller concessions should be corrected before closing on the loan, so review the document carefully.
A standard contract condition that allows a buyer to inspect a property just before closing. During a walk-through, a buyer ensures that agreed-upon repairs have been completed and that the home is in move-in ready condition.