Real estate can be very confusing to outsiders, with its own language of industry-specific terms and acronyms. From CMA to REALTOR® to zoning and everything in between, it can be easy to get lost in the jargon.
To help you navigate this new vocabulary, we’ve put together a list of terms buyers and sellers come across during a real estate transaction. While this is by no means an exhaustive list, it will help you learn the most commonly used terms in the real estate industry.
A real estate brokerage is a licensed real estate firm that assists clients in the buying and selling of property. Each brokerage is helmed by a managing broker and is required to have Errors and Omissions (E&O) insurance.
Real estate agents are licensed under their broker but they are not employees. Brokerages may also have special departments, such as a relocation or property management department, to further help clients with specific needs.
2. Buyer Representation Agreement
A buyer representation agreement is a contract signed between a prospective home buyer and a real estate brokerage for the right to represent them in a real estate transaction. It will outline the terms of the agreement, including the time frame and the services that the brokerage agrees to render the client during that time, which is typically 3 months by default.
3. Buyer’s Agent
A buyer’s agent is a licensed real estate agent who has signed a buyer's representation agreement with a prospective buyer. They will guide the buyer through the entire transaction, including finding potential properties, offering advice, negotiating on their behalf, and writing and submitting the offer. Simply put, a buyer’s agent is an advocate for the buyer.
A commission is a negotiable fee paid to both listing and buyer’s agents for services rendered during the sale of a property. It is typically 6% of the total cost of the property and split evenly between the agents, but commission splits and fees will vary from transaction to transaction and can be negotiated. Commission funds are disbursed by the title company at the time of closing.
5. Fair Housing Act
Signed in 1968 as part of the historic Civil Rights Act, the Federal Fair Housing Act prohibits discrimination in real estate transactions, including sales, rentals, and financing, based on race, religion, country of origin, sex, handicap, or family status. Discrimination complaints filed under this act are investigated by the Office of Fair Housing and Equal Opportunity (FHEO).
The US Department of Housing and Agriculture (HUD) is a cabinet of the executive branch. Programs within HUD include Fair Lending, Housing Choice Voucher Program (Section 8), economic development programs, and many others.
Short for instant buyer, an iBuyer is a company that will offer to buy a property at fair market value, accept a fee for facilitating the sale, and then resell the house for a profit.
8. Listing Agent
A listing agent is a licensed real estate agent who has signed a listing agreement with a seller and is representing them in the sale of their property. The listing agent will market the property, including adding it to the local multiple listing service (MLS), showing the home to potential buyers, and holding open houses.
They will also help to weigh any offers received, negotiate on the seller’s behalf, write up the contract and assist with any and all paperwork associated with the closing.
9. Listing Agreement
A listing agreement is a contract signed between a property owner and a real estate brokerage for the right to represent them in the sale of their property. It will outline the duties expected of both brokerage and seller, a date of termination for the agreement, and will specify compensation for the brokerage and the real estate agent.
10. Management Agreement
A management agreement is a contract signed between a property owner and a property management company for the right to manage their rental property. The management agreement can include collection of rent and other fees, processing of rental applications, maintenance and repairs, and being a point of contact for renters.
11. Multiple Listing Service
A multiple listing service, or MLS, is a database of available properties in a specific geographic area. They are managed by the local board of REALTORS®. Brokerages and REALTORS® within a given region are members of their MLS and contribute to the database, with larger brokerages belonging to several different MLS in their coverage areas.
12. Property Management
A property management company handles all aspects of the rental process on behalf of a property owner through a management agreement. Property management companies will market available rental properties, vet all rental applications, process the rental contract, collect rent and other fees, perform maintenance and repairs as needed, and act as the primary contact for renters and prospective renters.
Fees for property management vary, but typically start around 5% of total rent revenue. Some real estate brokerages have property management divisions that operate in the same capacity.
13. Real Estate Agent
A real estate agent is a licensed real estate professional who assists in the buying and selling of real estate in exchange for a commission. Real estate licenses are issued on the state level and require yearly continuing education to keep the license in active status. Real estate agents within the state of Texas are licensed by the Texas Real Estate Commission.
14. Real Estate Broker
A broker is a licensed real estate agent who has further completed the education required for a state broker’s license. Think of it as a master’s degree vs a Bachelor’s degree. Brokers are also able to supervise real estate agents licensed under them, as within a brokerage, and are ultimately responsible for all actions taken by those agents, acting as an advisor and mediator as needed.
A REALTOR® is a licensed real estate agent who is also a member of the National Association of Realtors and is bound by their strict code of ethics. REALTORS® also belong to boards on the state and local level, affording them greater access to market data and the multiple listing service (MLS).
16. Relocation Department or Service
A relocation department or service is designed to aid people in relocating to a new area, including assisting in finding a home and acclimating to the new surroundings. This can be a department within a real estate brokerage or an independent service company.
Companies will contract with relocation services to help facilitate the moves of their transferring employees. Military service members who have received new orders can also take advantage of relocation services.
17. Title Company
Title companies are responsible for verifying that a seller has a right to sell the property and then provide title insurance. They also manage the escrow account for the closing. A settlement agent of the title company will facilitate the closing, including disbursement of funds, and transfer of the title from seller to buyer.
A property being sold “as is” will be sold in its current condition, with no repairs, or credits toward repairs, made by the seller before closing. Properties sold “as is” may be sold in the condition they are in, but sellers still have to provide a disclosure of known problems and buyers can still opt for a home inspection, so they know what they may be getting into.
19. Building Code
Building codes are regulations that outline the basic standards for all buildings, including structural, material, electrical, and plumbing regulations to ensure the structure is safe and healthy. All structures, including homes, are subject to the local building code.
20. Building Restrictions
Building restrictions are prohibitions within the building code. They typically focus on appearance (such as height or building materials), location, or size. Building restrictions may be enacted to maintain a specific look in an area or to prevent unsightly structures from being built.
21. Buyer’s Market
The term buyer’s market refers to a real estate market in which there are more available homes for sale than there are prospective buyers. High inventory and low demand means that buyers will have greater negotiating power and sellers will have to price aggressively to make their property attractive.
22. Commercial Property
Commercial property is simply a property that is used for business purposes. It can also be a previously designated residential property that is now in a zoned commercial area. Commercial property is subject to different laws and taxes and requires different financing to purchase.
23. Common Area
A common area is one that is designated for communal use in a multifamily or commercial property, such as an apartment or office building. Including but not limited to hallways, bathrooms, parking lots, patio areas, and pools, they are open for all tenants of the property to use.
24. Comparative Market Analysis
A comparative market analysis, or CMA, is a detailed analysis of a property’s current market value. A licensed real estate agent can prepare a CMA on any home by pulling information on very similar properties using factors such as location, square footage, number of bedrooms, amenities and upgrades, and overall condition.
They will compare the price each comparable sold for or is on the market for and will use that information, along with experience and expertise, to provide an accurate current market value. CMAs are used by sellers to accurately price their homes and are also useful for buyers to ensure they are not overpaying for a property.
A condominium often shortened to condo, is basically an owned apartment. It is a privately owned unit within a larger complex. Most condos, like apartments, enjoy the use of communal spaces, such as pools and picnic areas, and have similar maintenance and utilities. A monthly or yearly service fee is often charged, similar to an HOA fee.
26. Covenants, Conditions and Restrictions
Covenants, conditions and restrictions are the rules set in place by a homeowners association, neighborhood association, or condominium complex and all properties within their jurisdiction are subject to those rules.
The strictness and number of rules vary from association to association, but typically govern the appearance of the property, allowable additions (such as fencing) and lawn maintenance. Stricter associations may have rules governing what gutters you can put on your house or what dog breeds are prohibited. Violating the covenants, conditions, and restrictions can result in fines, revocations of community privileges, and even lawsuits.
27. Days on Market
Days on market refers to the number of days a property has been actively for sale on the real estate market. The National Association of Realtor's measures days on market starting when the property is listed for sale on the local MLS and ending on the date when there is a signed contract for the sale. Days on market is used by sellers to determine how their listing is faring on the market and by buyers to determine negotiating power.
Not to be confused with a title, a deed is actually the physical piece of paper that conveys the title transfer from seller to buyer. The deed will outline the name of the seller, here called the grantor, and the buyer, or grantee, as well as a legal description of the property. In order for a title transfer to be complete, both parties will need to sign the deed.
29. Deed Restriction
A deed restriction is a rule written into the deed of a property that restricts how that property can be used in some way. Some common deed restrictions include prohibiting boats or RVs parked at the property, limiting or prohibiting free standing storage buildings, and prohibiting the keeping of livestock or farm animals. Deed restrictions can be established by builders, HOAs and neighborhood associations and are typically aimed at protecting the property values.
An easement is a right that gives its owner the right to use land that is owned by another person, usually for the purposes of access. Easements are awarded for property access to roads, water features such as public beaches, and utilities. Many utility companies possess easements that allow them to build and maintain utility poles, city sewer pipes, and similar structures on privately owned land for the public good.
An encroachment is something that is built or placed on or over the property line, thus encroaching on the neighbor’s property. An encroachment can be minor, like an overgrown shrub, or it can be major, like the corner of the garage built over the property line.
Encroachments can cause legal issues with the sale of a home, so it’s always important to know exactly where the property line is before building or planting.
Foreclosure occurs when a mortgage lender repossesses a property after the property owner fails to make payments on their mortgage loan. Banks and other lending institutions will foreclose on a property and sell it to recover what is still owed.
33. Ground Lease
A ground lease is a commercial lease agreement whereby a tenant will pay rent on a piece of land but owns any buildings or developments they erect on that property. Most ground leases also require tenants to pay the property taxes and pay for maintenance of the land. Ground leases are always long-term arrangements, usually at least 20 years.
34. Homeowner’s Association
A homeowner’s association, or HOA, is an organization that writes and enforces the covenants, conditions, and restrictions of a community, be it a subdivision, condominium building, or neighborhood.
Membership in the HOA is usually mandatory and members are required to pay monthly or yearly dues. The management of an HOA is usually done by community members in elected positions, but some are professionally managed by outside companies.
A lease is a rental agreement between a property owner and a renter. The lease will designate the duration of the rental agreement, the rights and obligations of both parties, and the agreed-upon monthly payment of the rental fee.
A listing is a property that, through the signing of a listing agreement, is being marketed and sold by a real estate brokerage on behalf of the owner. The brokerage will handle all marketing, negotiations, and paperwork for the seller and will be paid a commission upon the sale of the property.
37. Littoral Rights
Littoral rights guarantee a property owner whose property abuts a static body of water, such as a pond, ocean, or lake, the right to use the shore. These rights typically grant that they own everything on the shoreline up to the high median watermark.
In real estate, the term lot refers to a parcel of land, sometimes also called a tract or a land lot, that is owned or for sale. Lot listings are being sold for the value of the land, rather than anything that might be on it. Additionally, a lot can also refer to the land that a property sits on, as in the description “3 bedroom home on 2+ acre lot”.
39. Market Value
Whatever a property will currently sell for is its market value. Sometimes referred to as “current market value” or “fair market value”, it will fluctuate with the real estate market. Real estate agents will perform a comparative market analysis (CMA) on a new listing to determine its market value and set the sale price.
40. Mineral Rights
Mineral rights concern the ownership of any resources existing under the surface of a property, like minerals, precious metals, or oil. They are separate from the rest of the property ownership and can be sold or retained by the property owner. Only the person who owns the mineral rights owns the minerals, regardless of who owns the property.
41. Party Wall
Though it sounds exciting and fun, a party wall is just a shared wall between two separately owned or rented properties. Apartments, condos, townhouses, and garden homes will usually share at least one party wall with neighbors.
Not to be confused with a lot, a plat refers to the scale-drawn map of a plot of land, or several plots of land, along with streets, easements, and similar features. A plat is drawn for the purposes of a legal description and to show where the property lines are. It is only concerned with the land boundaries and not with any improvements built upon the land.
43. Probate Sale
When a property owner dies without leaving a will, their property can be sold in a probate sale by the court to liquidate the asset. Probate sales are typically priced below market value to sell quickly, but can be tricky to purchase as there are a number of legal hurdles to jump when buying a home in probate.
44. Real-Estate Owned (REO)
A real estate owned, or REO, property is one owned by a mortgage lender after it has been foreclosed on and failed to sell at a foreclosure auction. Once a property becomes designated as REO, it will be put on the market and usually sold as-is and priced to sell quickly.
45. Riparian Rights
Riparian rights concern land that abuts or contains a moving body of water, such as a river or stream. Landowners with riparian rights can use this water for their own purposes, as long as their use does not affect their neighbors upstream or downstream.
46. Seller’s Market
The term seller’s market refers to a real estate market in which there are fewer available homes for sale than there are prospective buyers. When there is a low inventory and high demand, buyers will have to bid competitively as they may end up in a multiple offer situation, with several parties presenting offers to the seller at the same time.
47. Short Sale
If a listing is designated a short sale, it means that the property owner needs to sell the property quickly due to financial need and will sell it for less than they owe on their mortgage. The mortgage lender must also agree to a short sale and all proceeds from the sale of the home will go directly to them.
Similar to a plat, a survey is a scale-drawn diagram of a property. It will include the land and all structures and improvements on it, such as homes, outbuildings, and water features. Some title companies will require a survey before issuing title insurance.
A title, not be confused with the deed, is the concept of owning a property. Specifically, if you own the title to a property, you have the rights of possession, control, exclusion, enjoyment and disposition over it. A deed grants owners the title to their property.
A townhouse is sometimes confused with a condominium, but it is a separate type of real estate. A townhouse is an independently owned property that shares one or two-party walls with neighbors on either side. They are often multi-storied and uniform in design.
51. Trust Sale
When a property owner dies and their estate has been transferred in a trust, their property can be sold in a trust sale. Rather than being administered by the court, as in a probate sale, a designated trustee will oversee the sale of the property and division of assets among survivors. As such, the property can be held in trust and sold once the market is most favorable.
Zoning laws dictate what property uses are allowed within a given area. Residential, commercial, and industrial are three major zone types, but there are also smaller zones within larger designations, such as a residential zone that may have some specific areas zoned for apartments or trailer parks. Zones are designated by local governments to protect property values and quality of life within their communities.
An addendum is a document added to a real estate contract with additional terms. It is considered part of the original contract once all parties have signed.
A seller may add an addendum stating the property is being sold “as is” and they will not agree to any repairs. A buyer may include an addendum that states their purchase of the property is contingent upon the sale of their existing home.
Once a contract has been signed and accepted by both parties, any changes made to it have to be done through amendments.
An amendment is a legal document that amends the terms of a signed contract. If the closing date needs to be moved, the seller agrees to repairs, or if the buyer needs to change the type of mortgage they will be getting, it will require an amendment be written, signed, and added to the contract.
An appraisal is a property valuation conducted by a licensed professional appraiser. Mortgage lenders will require an appraisal be conducted for all transactions they finance, including purchase and refinancing.
56. Backup offer
A backup offer is a legally binding offer made on a property that has already accepted an offer, thereby guaranteeing next-in-line privilege should the first offer fall through. Sellers will accept backup offers if there are concerns about the initial offer failing to close, such as those with a contingency clause written into the offer.
The closing is the final step in purchasing a home, when the mortgage is finalized, all documents are signed and monies are paid, the title is transferred and the keys are handed over. Closings typically happen at the title company and are conducted by a settlement agent. The date of the closing will be written into the contract.
58. Closing Costs
Just as it sounds, closing costs are the processing fees due at the time of closing on a real estate contract. They are usually 3-6% of the loan balance and can include appraisal and inspection fees, taxes, and attorney fees, among others. The buyer and seller will typically both pay closing costs, but that is negotiable as part of the contract.
A contingency is a condition set in the contract that has to be met in order for the sale to close. Common contingencies include financing, title, and inspection, which allow for the buyer to negotiate or terminate the contract if issues arise in any of these areas.
60. Conventional Sale
A conventional sale indicates that the property being sold is owned free and clear by the sellers or that the listing price is less than the remaining balance owed on their mortgage. Most real estate sales will be conventional sales.
61. Due Diligence
Due diligence in real estate refers to the time after the contract is signed when a prospective home buyer can thoroughly review the property. Home inspections and appraisals will typically be conducted, and a title search and survey will be done. If the buyers find a major issue during the due diligence period, they may be allowed to back out of the contract.
62. Earnest Money
Earnest money, also known as a good faith deposit, is a deposit made by a buyer to a seller to show that the offer they’ve submitted was serious. It is typically 1-5% of the amount on the offer, at the buyer’s discretion, and is paid into an escrow account rather than to the seller directly.
In exchange, the seller will take the home off the market and make it available for inspection. If the contract closes, the earnest money will go towards closing costs and downpayment on the home. If the deal does not close, the earnest money may be kept by the seller or returned to the buyer, depending on the circumstances of the termination.
Escrow is the neutral account set up to hold earnest money from the time the offer is submitted until the contract closes. Funds “in escrow” are managed by an escrow officer, usually at the title company, and will be applied towards final costs at closing.
64. Home Sale Contingency
A home sale contingency is a clause included in a sales contract or offer that states that if the buyer cannot find a buyer for their existing home, then the contract or offer will be terminated without any legal consequences. This clause is used when the potential buyer needs to sell their existing home in order to afford to buy a new property.
Home inspections are performed by trained and licensed professional home inspectors, who will go over every detail of a home to look for issues and potential issues. They will check electrical and plumbing, HVAC components, safety features, windows and doors, insulation, and more and then provide a detailed report on the property’s current condition and potential problems that could arise down the road.
Many buyers will write an inspection contingency in their offer to allow them to request repairs or terminate once the inspection report becomes available.
66. Offer/Counter Offer
When a buyer has found the home they wish to purchase, they will submit an offer to the seller to buy that property. The offer is a legal document, usually a residential purchase agreement, and contains the offered sale price, any terms the buyer wishes to stipulate, an estimated date of closing, and the amount of earnest money the buyer will provide, among other details.
If the buyer is represented by a real estate agent, their agent will write up and submit the offer on their behalf. A counteroffer may be then submitted by the seller if they do not like the original offer but wish to further negotiate rather than simply rejecting it.
67. Option Period
In Texas, real estate contracts can contain an option period, which grants the buyer a specified number of days to terminate the contract without loss of earnest money in exchange for a non-refundable option fee paid directly to the seller.
The duration of the option period is agreed upon by both parties and typically lasts 1-10 days, ending at 5PM on the last day. Buyers typically use this time to perform home inspections and to gather estimates on any repairs needed, allowing them to terminate the contract if they aren’t comfortable with the condition of the home.
68. Personal Property
In real estate, personal property refers to any belongings that are moveable and are typically not sold with a home unless otherwise specified in the contract. Potted plants, furniture, rugs, art and even some appliances are considered personal property.
69. Purchase and Sale Agreement
Once an offer has been submitted by a buyer and accepted by a seller, both parties will sign a purchase and sale agreement, sometimes also referred to as a sales contract or purchase agreement.
This legal document will outline all details of the transaction and is proposed by the buyer. The seller can accept, amend, or reject any part of the proposal until all are satisfied. Once the purchase and sale agreement has been signed by both parties, the property is designated as under contract.
70. Rent-Back Agreement
A rent-back agreement affords sellers the ability to sell their home quickly without having to move right away thanks to a clause in the contract that lets them rent their previously owned home for a period of time after the sale. Those taking advantage of the rent back option will be subject to a security deposit and regular rental payments to the new property owners.
71. Right of First Refusal
A right of first refusal is a legal provision that guarantees a certain party the first opportunity to buy a property if and when it comes on the market before the property owner can accept other offers.
It can be written into a lease between tenant and landlord or could be written to allow family members first dibs on the historic family home. Some HOAs even add right of first refusal clauses into their covenants, conditions and restrictions to allow them to vet any potential offers on properties in their community.
72. Seller Concession
If a seller agrees to pay a percentage of closing costs, or specific closing costs for the buyer, those are referred to as seller concessions. They can be requested by the buyer or offered by the seller to make their home more appealing in a buyer’s market.
73. Seller's Disclosure
All single-unit residential sales in Texas are required by law to provide a seller’s disclosure. On this legal document, sellers will detail the current condition of the home, including appliances and systems, any known defects, and past insurance claims or repairs made to the property. The seller’s disclosure will be made available to any potential buyers.
74. Subject to Inspection
The term “subject to inspection” refers to a clause written into a real estate contract that allows the buyer to terminate or negotiate the contract pending the results of the home inspection. This contingency protects the buyer from having to purchase a property with a major issue or allows them to request repairs or concessions before the sale closes.
75. Title Insurance
Title insurance is a policy provided by the title company after a title search is conducted to protect the title owner from any unforeseen legal issues or claims of ownership. The title company will also provide the mortgage lender with a loan policy of title insurance to protect their investment until the loan is paid off. Title insurance is paid for at closing and lasts as long as the current owner retains the title.
76. Title Search
A property title search is conducted by the title company once an offer has been presented and accepted. They will search a variety of sources, including land records, deeds, bankruptcy court records and even divorce court records.
Once the search is complete, an ownership and encumbrance report will be put together to detail the findings and determine if the title is freely owned by the property owner and not subject to lawsuits, liens, or other claims of ownership. Title searches are conducted to ensure that there will be no issues with the transfer of title from seller to buyer.
77. Adjustable-Rate Mortgage
An adjustable-rate mortgage is one that offers an attractive below-market interest rate for an initial time period. Once that time period is up, the interest rate will increase at intervals throughout the life of the loan based on current market rates.
78. Cash Reserves
Cash reserves refer to emergency funds that would be available to continue making mortgage payments should a borrower lose their job or suffer another financial setback. Reserves are calculated by dividing the total funds by all monthly expenses associated with homeownership, including mortgage payments, property tax, homeowners insurance and, if applicable, HOA dues, to determine how many months a borrower can live off their funds.
Lenders of conventional mortgages like to encourage borrowers to have at least 2 months of cash reserves before buying a home.
79. Debt-to-Income Ratio
Just as it sounds, debt-to-income ratio (DTI) is a calculation of monthly debt payments divided by gross monthly income. A DTI of 36% or less is the ideal ratio to have. Debt-to-income ratio is one of the factors used by mortgage lenders to determine the size of the loan a borrower can qualify for.
80. Conventional Loan
A conventional loan refers to any mortgage loan that is not backed or insured by a government agency. They tend to have higher interest rates and credit score requirements than government-guaranteed loans.
Equity is determined by the difference between what a home is worth and what is still owed on the mortgage owned. Equity will increase as mortgage payments are made and can also increase with rising property values. Negative equity occurs when a property’s value drops below what is still owed.
82. Fannie Mae
“Fannie Mae” is a colloquial nickname given to the Federal National Mortgage Association, based on its initials “FNMA”. The Federal National Mortgage Association is a government-sponsored enterprise whose purpose is to provide mortgage-backed securities to strengthen the mortgage market.
83. FHA Loans
An FHA mortgage loan is one insured by the Federal Housing Administration. They require a lower credit score and down payment and are aimed at making homeownership more attainable for everyone. There are a number of requirements to qualify for an FHA loan and there are limits on the mortgage amount that can be borrowed.
84. Fixed-Rate Mortgage
Unlike an adjustable-rate mortgage, a fixed-rate mortgage will charge the same interest rate and monthly payments for the life of the loan, regardless of current market rates. Fixed-rate mortgages can be paid over a 15, 20 or 30-year term.
85. Financing Contingency
A financing contingency, sometimes called a loan contingency, states that an offer is contingent upon the buyer being able to successfully apply for a mortgage for the property. It will be written as a clause into the contract and will allow the buyer to terminate the contract if financing cannot be secured.
86. Freddie Mac
“Freddie Mac” is another colloquial nickname given to the Federal Home Loan Mortgage Corporation (FHLMC). It is a government-sponsored enterprise created to expand the secondary mortgage market, along with Fannie Mae.
87. Ginnie Mae
Another cute nickname, “Ginnie Mae” is a colloquial short name for the Government National Mortgage Association (GNMA), which was created to make affordable housing more available. This program guarantees home loans, bringing in more investors and increasing the pool of available funds for mortgages.
A mortgage is simply a loan borrowed against a property for the purchase of that property. The amount, interest rate and terms of a mortgage are variable and dependent on a number of factors, including the appraised value of the property, financial security of the borrower, and current market interest rates.
89. Mortgage Broker
A mortgage broker is a licensed individual who works with both borrowers and mortgage lenders to secure a mutually beneficial mortgage loan. The mortgage broker will work with the borrower to gather information and determine which type of mortgage loan is best for them. They will then complete all necessary paperwork and submit it to the lender for underwriting and approval.
90. Prepayment Penalty
Mortgage lenders will charge a prepayment penalty to ensure they are properly compensated for a mortgage loan. Written into the mortgage contract, this clause states that penalty fees will be assessed if the mortgage is significantly paid down or paid off during the first five years of the loan.
Prospective homebuyers can get prequalified for a mortgage loan through a mortgage broker or lender. The buyer will complete a mortgage application and provide documentation on income, assets and liabilities, debt-to-income ratio and employment history.
The lender will then take all factors into account and determine if they qualify for pre-approval and how much they would be eligible to borrow. Pre-approval is useful in determining what price range a buyer should be looking in and also provides proof of financing to submit with an offer.
92. Principal and Interest
Each time a borrower makes a mortgage payment they are paying on both principal and interest. Principal payments are made towards the amount borrowed, decreasing the loan amount over time. Interest payments are made as payment to the lender for granting the loan and do not decrease the total loan amount.
93. Private Mortgage Insurance
Mortgage lenders sometimes require borrowers to pay for private mortgage insurance (PMI) if their down payment is less than 20% of the sale price and they have a conventional loan.
Private mortgage insurance protects the lender should a borrower fail to make payments on their loan. The cost can be added in monthly installments to the mortgage payment or paid up-front at closing.
94. Proof of Funds
Proof of funds documentation is prepared by a bank or similar financial institution to show the total funds a buyer has available in liquid assets. A mortgage lender, and sometimes a seller, may request proof of funds to show that a buyer has the required money for the down payment and closing costs.
Refinancing refers to replacing an existing mortgage loan with a new one. Property owners may choose to refinance to lower their interest rate, use the equity in their home to fund a project or to switch mortgage lenders. Just as with any mortgage, refinancing requires a mortgage application, extensive financial documentation, and a property appraisal.
96. VA Loan
A VA loan is a mortgage loan offered to veterans of the US Military and guaranteed the Veterans Administration. VA loans allow for lower credit scores and a higher debt-to-income ratio. They typically have lower interest rates than conventional loans and can offer zero down payment as well.
97. Assessed Value
Assessed value refers to the dollar value amount a property is worth, as decided by the local tax assessor, and is used to bill property taxes. Property values are assessed yearly or biannually, depending on the area, and take many factors into consideration, including the size, age, location and construction type of the property, as well as any exemptions it may qualify for.
98. Home Warranty
A home warranty is a renewable service contract offering protection for a home’s major systems and appliances that fail due to normal wear and tear, just like a warranty on a car.
Basic home warranty plans typically cover kitchen appliances, water heaters, plumbing, electrical, air conditioning and heating systems, ductwork, instant hot water dispensers, whirlpool bath motors and pump assemblies, and a host of other systems within the home. Many homeowners choose to purchase a home warranty at the time of closing.
99. Homeowner’s Insurance
Not to be confused with a home warranty, homeowner’s insurance is a policy that insures a home and all belongings in it against catastrophic destructive events, such as a fire or hail damage. Most policies cover destruction, damage, and loss or theft of property, as well as providing personal liability coverage against harm to others.
100. Homestead Exemption
The homestead exemption is an exemption from property taxes that can be claimed by homeowners on their primary residence. It removes part of a home’s value from taxation, thereby lowering taxes owed. The homestead exemption must be applied for every year unless a homeowner is disabled or 65 or older.
101. Property Tax
Property tax is a tax placed on property owned by an individual or corporation based on assessed values and applicable exemptions. Property taxes are paid either annually or biannually and are used to fund community services such as education, emergency, parks and recreation, transportation, and libraries.
Real estate may seem like a complicated industry, but with a few terms in your back pocket and the guidance of a great REALTOR®, you can navigate your transaction with ease.
If you’re just starting out in your home search, be sure to read our great guide on what to ask your real estate agent when buying a home.