Glossary

Homebuying glossary

Plain-English definitions for the terms you'll run into on your way to closing — no jargon left unexplained.

A

Adjustable-rate mortgage (ARM): A mortgage with an interest rate that changes periodically based on a market index, typically after an initial fixed period (e.g., 5, 7, or 10 years).
Amortization: The process of paying off a loan through scheduled payments, where each payment covers interest first and principal second, shifting toward more principal over time.
Annual percentage rate (APR): The cost of borrowing expressed as a yearly rate, including the interest rate plus certain fees — useful for comparing loan offers side by side.
Appraisal: A licensed appraiser's independent estimate of a home's market value, required by lenders to confirm the loan amount is justified by the collateral.
Appraisal gap: The difference between a home's appraised value and the agreed purchase price, which the buyer typically has to cover in cash if the appraisal comes in low.

Bridge loan: A short-term loan that lets a buyer tap equity in their current home to fund a down payment before that home sells.

Closing costs: Fees paid at closing beyond the purchase price — typically 2-5% of the loan amount — covering things like title insurance, recording fees, and lender charges.
Closing disclosure: A standardized form lenders must provide at least three business days before closing, detailing final loan terms and costs.
Contingency: A condition that must be met for a contract to become binding, such as financing, inspection, or appraisal contingencies.
Conventional loan: A mortgage not insured or guaranteed by a government agency, typically requiring stronger credit than government-backed loans.
Credit score: A three-digit number summarizing your creditworthiness, used by lenders to set loan terms and interest rates.

Debt-to-income ratio (DTI): Your total monthly debt payments divided by your gross monthly income — a key number lenders use to decide how much you can borrow.
Down payment: The portion of the purchase price you pay upfront, in cash, rather than financing through the loan.
Dual agency: When one agent or brokerage represents both the buyer and seller in the same transaction — legal in some states, restricted or banned in others.

Earnest money: A deposit, typically 1-3% of the purchase price, that demonstrates a buyer's good faith and is held in escrow until closing.
Equity: The portion of your home's value that you actually own — its market value minus what you still owe on the mortgage.
Escrow: A neutral third-party account that holds funds — earnest money, or ongoing tax and insurance payments — until contractual conditions are met.

FHA loan: A mortgage insured by the Federal Housing Administration, allowing lower credit scores and down payments as low as 3.5%.
Fixed-rate mortgage: A mortgage whose interest rate stays the same for the entire loan term, keeping the principal-and-interest payment constant.

Hazard insurance: Coverage for physical damage to the home from events like fire, storms, or wind — usually bundled into a standard homeowners policy.
HOA (homeowners association): An organization that manages shared spaces and enforces community rules, funded by mandatory dues.
Home inspection: A professional, buyer-ordered evaluation of a home's condition, covering structure, systems, and visible defects.

Inspection contingency: A contract clause letting the buyer cancel or renegotiate based on what a home inspection finds.
Interest rate: The percentage charged annually by the lender for borrowing money — narrower than APR, which folds in certain fees.

Jumbo loan: A mortgage that exceeds the conforming loan limit set by federal regulators, usually requiring stronger credit and a larger down payment.

Loan estimate: A standardized form lenders must provide within three days of application, outlining estimated rate, payment, and closing costs.
Loan-to-value ratio (LTV): The loan amount divided by the home's appraised value, expressed as a percentage — a 20% down payment produces an 80% LTV.
Lock-in period: The time during which a lender guarantees a quoted interest rate, regardless of market movement, before closing.

Mortgage insurance (PMI/MIP): Insurance that protects the lender — not you — if you default. Typically required when your down payment is under 20%.
Multiple listing service (MLS): The database real estate agents use to list and search properties for sale in a given area.

Origination fee: A fee a lender charges to process a new loan, often expressed as a percentage of the loan amount.
Owner's title insurance: An optional policy that protects the buyer — rather than the lender — against future claims on the property's title.

PITI: Shorthand for the four components of a typical monthly mortgage payment: principal, interest, taxes, and insurance.
Pre-approval: A lender's conditional commitment to lend a specific amount, based on verified income, assets, and credit.
Pre-qualification: A quick, non-verified estimate of how much you might be able to borrow, based on self-reported information.
Principal: The original amount borrowed, or the remaining balance owed — separate from interest.
Private mortgage insurance (PMI): See mortgage insurance, above.

Rate lock: See lock-in period, above.
Realtor: A real estate agent who is a member of the National Association of Realtors and bound by its code of ethics. Not every licensed agent is a Realtor.
Recording fee: A government fee charged to officially register the deed and mortgage in public land records.

Seller concessions: Costs the seller agrees to cover on the buyer's behalf, such as a portion of closing costs — often negotiated into the offer.
Settlement statement: An itemized list of every fee and credit in a real estate transaction, finalized at closing.

Title insurance: A policy protecting against financial loss from defects in a property's title, such as liens, errors, or competing ownership claims.
Title search: A review of public records to confirm a seller has clear legal ownership and to surface any liens or claims before closing.
Transfer tax: A tax some states and municipalities charge when real estate changes ownership, typically based on the sale price.

Underwriting: The lender's formal review of your full financial file to make a final decision: approve, conditionally approve, or deny the loan.

VA loan: A mortgage guaranteed by the Department of Veterans Affairs for eligible service members and veterans, often requiring no down payment.

This glossary is educational and general in nature. Specific definitions and requirements can vary by lender, loan program, and state.