Can you read through a real estate listing without scratching your head? Most first-time buyers—and even seasoned pros—get caught up on the listing lingo every once in a while.
Real estate vocabulary is a unique set of words, phrases, and acronyms that you learn quickly when you purchase your first home. However, since every purchase agreement is different, you may not even hear each of the home buying terms until you’ve gone through the purchase and sale process multiple times! From financial terms to listing verbiage, learning real estate vocabulary takes time and experience!
There are hundreds of real estate vocabulary words in the dictionary, but we’ll start by explaining the most common home buying terms for first-time home buyers. Keep reading to brush up on your words and phrases, so you can speak fluently no matter where you’re at in the home buying process.
In this article:
Home Buying Terms
Homeowner’s association (HOA)
Home inspection contingency
Multiple listing service (MLS)
Debt-to-income ratio (DTI)
Earnest money deposit
Interest rate lock
Private mortgage insurance (PMI)
Real Estate Acronyms
Home Buying Terms
Whether you’re building a new home or buying a resale home, there are a handful of home buying terms that you just need to know. These real estate glossary basics will have you speaking like an unofficial real estate agent in no time.
Appraisal: An appraisal is a professional opinion of the property's estimated value. An appraisal is required to help the mortgage lender confirm the loan amount needed to purchase the property. If the appraisal value is lower than the desired mortgage loan amount, it’s likely that the lender will not approve the mortgage. Appraisals are different than inspections in many ways.
Closing: Closing is an exciting event that means the home sale is final. Both the buyer and the seller meet to sign the necessary paperwork, exchange funds, and transfer ownership. Read more about what to expect on closing day.
Contingency: A contingency is a condition that must be met for a contract to be valid and binding. These clauses allow the buyer to dissolve a purchase agreement if certain conditions are not met. Common contract contingencies include:
- Appraisal contingency: If the home’s appraised value is less than the sale price
- Home sale contingency: If a buyer needs to sell their property before purchasing the new property
- Loan contingency: If a buyer is unable to secure a mortgage during a fixed period of time
- Inspection contingency: If an item found during the inspection causes the home buyer to no longer want to invest in the property, or if the home seller is unwilling to fix requested updates before closing
Dual agency: Dual agency occurs when a real estate agent represents both the home buyer and the home seller. A dual agency situation is uncommon since most buyers and sellers have separate agents to avoid conflict of interest, but it can happen if, for example, you want to purchase a home your real estate agent has listed.
Homeowner’s insurance: Homeowner’s insurance is a type of insurance that protects homeowners from financial loss due to damage, theft, or accidental loss of their property. Home insurance isn’t mandated by law, unlike car insurance, but many mortgage lenders require buyers to have an insurance policy in place.
Homeowner’s association (HOA): A homeowner’s association is a group that manages rules and regulations and shared spaces for tenants in a community. This association will elect HOA board members who oversee various shared aspects of the community, such as amenities, landscape maintenance, and social events. Shared communities with an HOA most often have an HOA fee paid yearly or monthly for the upkeep of these services.
Home inspection contingency: A home inspection contingency is a clause in a real estate contract that grants the buyer the right to have a home inspected in a specified time period and, depending on the findings of the home inspection, grants them the right to negotiate repairs or cancel the contract entirely.
Home warranty: A home warranty protects the buyer and seller if the home has defects or items that may need to be serviced or replaced. Warranties are typically purchased from a third-party vendor and may cover things like plumbing, heating, and other items in the home within a certain period of time after closing, most often one year. Most new construction homes come with impressive home warranties.
Listing agent: A listing agent is a licensed real estate professional who is hired to market the seller’s property and to represent the seller during the purchase process.
Mortgage insurance: Mortgage insurance is an insurance cost that protects the lender in the event that the borrower defaults on their loan. It is typically required of borrowers with a down payment of less than 20% of the purchase price or borrowing with an FHA or USDA loan.
Multiple listing service (MLS): The Multiple Listing Service is a database that contains all real estate listings in a given area and allows agents and buyers to access information for all properties currently available on the market. The MLS lets you filter specific criteria, so you can search for the right home for you based on how many bedrooms and bathrooms you desire, price, amenities, and more.
Offer: The offer is a proposal by a buyer to purchase a property at a specific price and outlined terms. Also known as a purchase offer, it is the first formal communication that combines the financial details and negotiations that lead to closing on a house.
Title insurance: Title insurance is an insurance option that protects the buyer and the lender from financial loss due to defects in the title, such as hidden liens, filing errors, forgeries, etc. It ensures your ownership rights to your property, protects against future uncovered issues, and lasts as long as you own your home.
Walk-through: The walk-through, or final walk-through, is an inspection of the property by the buyer before closing to ensure that all of the agreed-upon repairs or property changes have been made before ownership is transferred. For a new construction home, you’ll want to make sure that all of your selections from the Design Center have been made.
Real estate vocabulary aside, navigating the mortgage process can be confusing. With so many moving parts and pieces, the financial bits can be the most elusive. While much of the mortgage process happens behind the scenes with your lender, it helps to understand a few home buying terms to assist your budget and bank account.
Amortization: Amortization is the process of paying off a loan over time through regular payments. A borrower may see this term as “amortization schedule” on their mortgage statement, meaning how the mortgage is lowered through regular payments over time.
Closing costs: Closing costs are the assortment of fees needed to complete the sale and are typically paid at the time of closing the real estate transaction. These fees include lender fees, title company fees, attorney fees, insurance company fees, tax fees, HOA fees, real estate agent fees, and other companies that settle the closing documents.
Debt-to-income ratio (DTI): DTI is the ratio of a borrower’s debt payments to their income or all of their monthly debt payments divided by their gross monthly income. This ratio is used to determine a borrower’s ability to afford the mortgage’s monthly payments.
Down payment: The down payment is the total amount of money paid upfront for the property. The mortgage amount is typically the overall home price subtracted from the down payment. Down payments vary depending on the type of loan secured, the buyer’s preferences, and lender minimums.
Earnest money deposit: An earnest money deposit is the initial amount of money that a buyer submits as “good faith” that they are serious about the purchase. The earnest money amount can vary depending on the offer, but it is typically between 1-5% of the total sales price of the property.
Escrow: Escrow is the process during which a neutral third party or attorney collects money, documents, property, or other items related to the agreement until all of the conditions in the purchase and sale agreement have been met before the seller and buyer move to closing.
Interest: Interest is the money owed to the lender in addition to the loan amount. It’s the cost of borrowing money and is typically a percentage of the total borrowed amount.
Interest rate lock: Interest rate lock is an agreement between a borrower and lender that the specific interest rate offered won’t change for a specific period of time, usually between 30 and 60 days. An interest rate lock protects borrowers from a sudden increase in mortgage interest rates during the application and approval process.
Pre-approval: A pre-approval letter is a document issued by a lender or financial institution that provides proof that a home buyer can afford to buy a property up to a certain amount. The pre-approval is used to reassure the sellers that the buyer’s offer is legitimate financially. It typically outlines an estimated down payment and potential interest rate.
Principal: Principal is the amount of money borrowed on a loan, not including any interest.
Private mortgage insurance (PMI): PMI is insurance that protects the lender in case the borrower defaults on a loan with a down payment of less than 20%.
Refinance: The process of a refinance, or “refi” for short, refers to the process of replacing an existing loan with a new one. A refi is typically done to take advantage of lower interest rates or better terms, saving the borrower money on their monthly payment or overall loan responsibilities.
Settlement statement: A settlement statement is a document that outlines all the costs, fees, or credits associated with a real estate transaction, such as closing costs, loan amount, interest rate and terms, real estate agent commissions, lender fees, and other costs.
Real Estate Terms
HUH? As if tricky real estate vocabulary wasn’t enough, throw in some real estate acronyms, and your head will be spinning! Luckily, we’ve gathered the most frequently used acronyms in one place to get you up to speed.
APR (annual percentage rate): APR refers to the yearly interest generated by a sum charged to borrowers or the broader measure of the cost of borrowing money. It reflects the interest rate, broker fees, and other charges you pay to get a loan. Therefore, it’s typically higher than your interest rate.
ARM (adjustable-rate mortgage): The interest rate of an adjustable-rate mortgage can change over time. For example, the interest rate may fluctuate every five years based on market conditions and inflation. Compared to a fixed-rate mortgage, which does not change for the length of the mortgage, adjustable-rate mortgages can be risky and difficult to budget for over longer periods of time.
CMA (comparative market analysis): A comparative market analysis is performed by an agent to evaluate recent sales of similar properties to establish a price estimate for a particular property being sold. The evaluation is based on current market activity and estimated value. The comparable homes are sometimes referred to as “comps.”
FHA (Federal Housing Administration): The FHA is a government agency that insures home loans made by FHA-approved lenders. Loans issued by the FHA require a lower minimum down payment than many conventional loans and require lower credit scores. These loans are designed to help low- to moderate-income families purchase homes and are popular with first-time home buyers.
FICO (Fair Isaac Corporation): FICO is the company that produces the FICO credit score, used to predict how likely you are to pay back a loan on time. Most lenders use FICO credit scores to determine a loan’s rate, terms, and overall approval.
HOA (homeowner’s association): A homeowner’s association is a group that manages rules and regulations and shared spaces for tenants in a community. This association will elect HOA board members who oversee various shared aspects of the community, such as amenities, landscape maintenance, and social events. Shared communities with an HOA most often have an HOA fee paid yearly or monthly for the upkeep of these services.
LIC (licensee in charge): A licensee in charge is responsible for negotiating a property’s sale on behalf of a property owner. The LIC must hold a valid real estate agent’s license.
MLS (multiple listing service): The Multiple Listing Service is a database that contains all real estate listings in a given area and allows agents and buyers to access information for all properties currently available on the market. The MLS lets you filter specific criteria, so you can search for the right home for you based on how many bedrooms and bathrooms you desire, price, amenities, and more.
PITI (principal, interest, taxes, and insurance): PITI refers to the four basic elements of a monthly mortgage payment: principal, interest, taxes, and insurance.
REO (real estate owned): An REO property refers to a property that is owned by a bank or other lender after a foreclosure. Rather than being listed and sold by the homeowner, it is owned and listed by a business entity such as a bank or lender.VA (Veterans Affairs): The VA is a government agency that offers home loans to eligible service members, veterans, and their families. While VA loans are provided by private lenders, the VA guarantees a portion of the loan so that the lender can provide more favorable terms, such as lower interest rates and closing cost requirements, and sometimes no requirements for a down payment or PMI.
Real Estate Terminology FAQs
Of all the real estate terminology you’ll hear during the home buying and selling process, there are three real estate terms you should make sure you understand clearly.
- Debt-to-income ratio (DTI)
Understanding the most important words in the real estate glossary will help you understand both sides of the purchase process, including what terms you’re agreeing to and what you’re responsible for financially. DTI is important in any real estate glossary, as it sets a home buyer up for a realistic home search based on budget and costs.
There should be a special section for real estate buzzwords in the real estate glossary! Real estate terminology, much like slang, can change depending on what’s in style culturally. Recent real estate terms we consider buzzwords are:
- Energy efficient: An energy-efficient home refers to a house that is equipped with modern systems, appliances, or building practices designed to conserve and reduce energy use. More recently, energy efficiency is an attractive characteristic in a home as it is environmentally friendly and reduces energy costs.
- Move-in ready: A move-in ready home needs no work in order to start living in it. Real estate terms like this are vague because each buyer may have a different idea of what is considered “move-in ready.”
- Open floor plan: An open floor plan, sometimes called an open concept, is a plan that has multiple rooms open to each other without dividing walls between them. The open floor plan has been popular in home building and renovations for years, and is widely considered an attractive feature.
- Updated: When a home is described as “updated” it can often mean recently renovated, or it can mean designed in modern style.
Now that you’re comfortable with the real estate vocabulary basics, you’ll have no problem keeping up in conversation with your real estate agent, broker, and lender. If you find yourself lost in the jargon of real estate terminology, your helpful real estate agent will be more than willing to guide you through any additional home buying terms you’re unfamiliar with—that’s what they’re there for. Now study up, make some flashcards, and impress your real estate team with all of your real estate glossary knowledge!