Couple reviewing real estate terms

73 Real Estate Terms To Know In 2023

Victoria Araj
14-Minute Read
Published on November 25, 2021
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Is there a difference between a real estate agent and a real estate broker? What is PITI, and why does real estate vocabulary use so many confusing acronyms? If the world of real estate terms has you scratching your head, don’t worry. We’ve created this helpful guide of the top terms to know.

Whether you’re a first-time home buyer or an agent looking to brush up on your knowledge, you’ll find what you need to know here.

Real Estate Terms Glossary

Click the term you want to learn more about to navigate to the definition.

 

General

 

Addendum

An addendum is an add-on to a contract. In real estate, addendums often clarify offer letters or add a competitive edge. For example, a REALTOR® may use an addendum to make the buyer’s offer contingent on securing a loan.

 

  • Who’s Asking: REALTOR®

Adjustable-Rate Mortgage

Adjustable-rate mortgages (ARM) offer variable interest rates. It usually begins with a lower interest rate than fixed-rate mortgages, but typically changes over time following market rates. If you don’t plan on staying in your home long-term, refinancing to an ARM can sometimes benefit you.

  • Who’s Asking: First-Time Home Buyer

Amortization

Amortization refers to a payment schedule outlining what goes toward principal and interest balances. Typically, payment goes toward interest first and then the principal balance.

  • Who’s Asking: First-Time Home Buyer

Annual Percentage Rate (APR)

APR is the annual cost of a loan expressed as an interest rate. It often includes loan origination fees, most closing costs, mortgage interest and any discount points. 

  • Who’s Asking: First-Time Home Buyer

Appraisal

Appraisals are an expert’s opinion of a home’s market value. Appraisers examine a home’s condition, location and similar properties recently sold. By law, appraisals are done by neutral third parties with no interest in the sale.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Appreciation

Appreciation is a home’s increased value over time. Historically, real estate appreciates from 3% – 5% each year nationally.1

  • Who’s Asking: First-Time Home Buyer, REALTOR®

  1. Million Acres

As-Is

Sometimes a buyer will ask the seller to update the home during the offer process – like adding new carpeting or replacing an old roof. When a seller will not make any changes to a home, the home is being sold as-is.

  • Who’s Asking: First-Time Home Buyer

Assessed Value

Assessed value is a professional estimate of a home’s market price for property tax purposes. Similar properties, the home’s location and its condition are considered when finding assessed value.

  • Who’s Asking: First-Time Home Buyer

Backup Offer

If a buyer wants a home already under contract, they may request to be “next in line” by submitting a backup offer. Backup offers must still be negotiated with any fees – like earnest money – paid. There can legally only be one backup offer on a home at any given time.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Biweekly Mortgage

A biweekly mortgage allows the borrower to make mortgage payments every 2 weeks rather than once a month. The result is 26 half payments, or 13 full payments, over a year rather than 12. The extra payment will help pay off the mortgage faster.

  • Who’s Asking: First-Time Home Buyer

Blanket Mortgage

Blanket mortgages cover more than one plot of land financed by the same borrower. This can help save time and money. For example, a seller ready to buy a second property before their first has sold may use a blanket mortgage to access equity from the first property to put toward the second.

  • Who’s Asking: First-Time Home Buyer

Blind Offer

If you put an offer on a home without seeing it in person, you’re making a blind offer. This may happen when an out-of-state buyer is physically unavailable to see a new listing. It can also happen in highly competitive markets when viewing slots are immediately filled but a buyer still wants to compete.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Borrower

In real estate, you can pay for a home outright with cash or through a loan. When you pay using a loan, you are legally referred to as the borrower.

  • Who’s Asking: First-Time Home Buyer

Bridge Loan

A bridge loan is a temporary loan used while permanent financing is being secured. Bridge loans often have higher interest rates. They are most often used when a seller needs funds for a new property before selling their own home. 

  • Who’s Asking: Home Buyer

Broker

When buying a home, you may work with a REALTOR® or a real estate broker. While these terms sound the same, they are not. A REALTOR® is a real estate professional who is member of the National Association Of REALTORS® and likely works under a broker or brokerage. Real estate brokers are agents who continue their education and receive a broker license. Real estate brokers can work independently and hire other agents to work under their supervision. 

  • Who’s Asking: First-Time Home Buyer

Buydown

A buydown happens when the borrower purchases a lower interest rate by paying a premium called a “point.” If you expect to increase your earnings in the future but want a lower payment now, a buydown may be a helpful option.

  • Who’s Asking: First-Time Home Buyer

Buyer’s Agent/Listing Agent

What’s the difference between a buyer’s agent and a listing agent? A buyer’s agent represents the buyer’s interests – finding a home within budget that matches their preferences. The listing agent represents the seller’s interests – getting a good sale price with a deal likely to close.

  • Who’s Asking: First-Time Home Buyer

Buyer’s Market/Seller’s Market

The real estate market will vary in who it favors: buyers or sellers. In a buyer’s market, conditions favor those looking to purchase real estate. This happens when the supply of homes for sale exceeds purchase demand. The reverse is called a seller’s market and favors those looking to sell real estate.

  • Who’s Asking: First-Time Home Buyer

Cash-Out Refinance

Cash-out refinancing is a way to turn your equity into cash. Let’s say you own a home worth $250,000. You have $100,000 in equity and owe $150,000. You can refinance by setting up a new $200,000 loan with your lender and receive $50,000 cash at closing.

  • Who’s Asking: Home Owner

Chain Of Title

A chain of title is a document containing all previous property owners, listed in chronological order from the first owner to the present owner.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Clear Title

A clear title shows the undisputed, legal property owner. This means there are no liens or levies from creditors or other parties that may cause legal confusion.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Closing

Closing, or settlement, is the final step in the home buying process. This is where closing documents are signed, outstanding funds are paid and the title transfers from seller to buyer.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Co-Borrower

A co-borrower is someone who is financially responsible for paying back a loan, along with the borrower. If a husband and wife take out a home loan together, one may be the primary borrower and the other a co-borrower.

  • Who’s Asking: First-Time Home Buyer

Commission

Commission is payment based on the completion of a sale. REALTORS® or agents work on commission, which means they will receive a portion of the home sale as payment upon closing. 

  • Who’s Asking: First-Time Home Buyer

Comparables

Comparables are recently sold properties that help appraisers determine a home’s fair market value. They are similar to the listed property in size, location and available amenities.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Compound Interest

Compound interest accumulates from both your principal balance and interest owed. On a loan, this means you will progressively owe more interest. On an investment, you will progressively make more money from compounding interest.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Contingency

A contingency is a condition that must be met before the sale is legally binding. For example, a buyer can make their offer contingent on a satisfactory home inspection. If this contingency is not met, the sale may fall through.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Conventional Mortgage

Conventional mortgages are funded by private lenders rather than government-backed agencies. Most often, these loans are then sold to government-sponsored enterprises like Fannie Mae or Freddie Mac to provide liquidity to the nation’s mortgage market.

  • Who’s Asking: First-Time Home Buyer

Cost Of Funds Index (COFI)

Lenders use this index to adjust their interest rates on adjustable-rate mortgages. COFI uses changing economic conditions to provide a statistic on current market interest rates.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Debt-To-Income Ratio

Your debt-to-income ratio is your monthly debts (home, car, credit card, student debt payments, etc.) divided by your monthly gross income. Lenders use this percentage to help determine your ability to repay a potential loan.

  • Who’s Asking: First-Time Home Buyer

Deed

A deed is a legal document showing property ownership. As the buyer, your deed is signed and delivered to you at closing.

  • Who’s Asking: First-Time Home Buyer

Deed In Lieu Of Foreclosure

If a borrower needs relief from mortgage debt, they may choose to do a deed in lieu of foreclosure. This transfers deed ownership to the lender in exchange for debt forgiveness to avoid foreclosure.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Default

Default is when a borrower fails to make several loan payments over a period of time. Lenders and government agencies use set timeframes to decide at what point a loan moves from delinquency to default. For example, a loan is not in default until 270 days of missed payments, according to the Code of Federal Regulations.

  • Who’s Asking: First-Time Home Buyer

Delinquency

Delinquency is even a single missed mortgage payment. If failed payments continue, the loan is at risk of entering default status.

  • Who’s Asking: First-Time Home Buyer

Down Payment

Your down payment is a percentage of the home’s sale price paid upon closing to secure your loan. You can typically avoid private mortgage insurance with a down payment of 20%. However, many lenders allow loans with smaller down payments.

  • Who’s Asking: First-Time Home Buyer

Due Diligence

Due diligence is the period of time when a buyer examines a home’s condition and contract terms before becoming legally obligated to purchase. Due diligence is your time to discover and consider any financial risk associated with investing in a home.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Earnest Money

Earnest money is part of your down payment paid before closing to show you are serious about purchasing a home. It is also known as a good faith deposit.

  • Who’s Asking: First-Time Home Buyer

Eminent Domain

The government retains the right to take private property and convert it for public use if it compensates the owner fairly. This right is known as eminent domain.

  • Who’s Asking: First-Time Home Buyer

Equal Credit Opportunity Act (ECOA)

This act prevents creditors from discriminating against applicants because of their:

 

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Equity

Equity is how much of a home’s value can be attributed to the owner. It’s calculated by subtracting the amount owed from the home’s market value. So, if your home is worth $250,000 today, but you still owe $150,000, your equity in the home is $100,000. 

  • Who’s Asking: First-Time Home Buyer

Escrow

Escrow is a legal arrangement where a third party holds large funds until terms of an agreement are met. In real estate, you’ll set up an escrow account to hold funds for taxes or insurance throughout the life of your mortgage.

  • Who’s Asking: First-Time Home Buyer

Exclusive Listing

An exclusive listing occurs when a seller contractually agrees to work with only one broker. In contrast, an open listing means the seller may allow multiple brokers to list the home for sale and offer representation.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) protects consumers’ privacy and dictates how credit bureaus are allowed to collect and distribute information. Your lender is allowed to request your credit report during your mortgage application under the FCRA.

  • Who’s Asking: First-Time Home Buyer

Fannie Mae

The Federal National Mortgage Association, commonly known as Fannie Mae, is a government-sponsored corporation that helps provide affordable housing. Fannie Mae purchases loans from origininating lenders and sells them to private investors. This helps free lenders from financial burden so they can continue to offer loans to new borrowers.

  • Who’s Asking: First-Time Home Buyer

FHA Loan

The Federal Housing Administration (FHA) insures these loans to help provide more affordable housing, especially to first-time home buyers. FHA loans often offer lower down payments, closing costs and credit requirements.

  • Who’s Asking: First-Time Home Buyer

FICO Score

A FICO score is the most common credit score report used by lenders. Developed by the Fair Isaac Corporation (FICO®), this report generates a number based on:

  • Your payment history
  • Owed debts
  • Credit history length
  • Types of credit currently in use
  • How much new credit you have

When considering a FICO® Score, lenders associate a higher number with a person less likely to default on their loan.

 

  • Who’s Asking: First-Time Home Buyer

Fixed-Rate Mortgage

This mortgage guarantees one interest rate for the duration of your loan. With a fixed-rate mortgage, your monthly principal and interest payment never changes.

  • Who’s Asking: First-Time Home Buyer

Foreclosure

When a borrower fails to make agreed-upon payments to the lender, the lender can take possession of the home in a legal process called foreclosure. The lender may then sell the property on the market to pay off the defaulted loan.  

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Freddie Mac

Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, is a government-sponsored corporation that helps provide affordable housing. Freddie Mac purchases loans from original lenders and sells them to private investors. This helps free lenders from financial burden so they can continue to offer loans to new borrowers.

  • Who’s Asking: First-Time Home Buyer

Grace Period

If you submit your monthly mortgage payment late, you may incur late fees. However, many loans offer a grace period where late payments do not incur fees. For example, your loan may specify a 2-week grace period, so you could submit your payment up to 2 weeks late without incurring fees.

  • Who’s Asking: First-Time Home Buyer

Home Equity Line of Credit (HELOC)

A home equity line of credit is a loan where you can borrow money against your home’s equity when you want it, not as a lump sum. This loan has an agreed-upon maximum borrowing amount in an agreed-upon time period.

  • Who’s Asking: Home Owner

Homeowners Insurance

Homeowners insurance protects your home from damages covered in your policy. Not sure what your policy covers? You can find out by checking your declaration page. Homeowners insurance is required by mortgage lenders, and you must purchase a policy before closing on your home.

  • Who’s Asking: First-Time Home Buyer

Inspection

A home inspection examines a home’s condition to find any major safety or structural issues. Inspections usually look at a home’s exterior, electrical system, roof, plumbing, water and HVAC systems.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Jumbo Loan

Every year in January, government-sponsored corporations Fannie Mae and Freddie Mac set conventional loan limits. Loans that exceed these limits are nonconforming jumbo loans.

  • Who’s Asking: First-Time Home Buyer

Lender

A lender is a financial institution that offers home loans or other credit lines.

  • Who’s Asking: First-Time Home Buyer

Lien

A lien secures payment by giving the lien holder a legal claim to the property. A mortgage is a type of lien because your lender can legally repossess your property if you fail to make payments.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Mortgage

A loan to purchase or refinance a home is called a mortgage. Mortgage can also refer to the legal document pledging the property as collateral on the loan.

  • Who’s Asking: First-Time Home Buyer

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Offer/Counteroffer 

An offer is a buyer’s legal proposal to purchase a home under a certain set of conditions. A counteroffer is a seller’s response – typically agreeing to the offer with one or two changes.

  • Who’s Asking: First-Time Home Buyer

Pending

When a seller accepts a buyer’s offer, the home becomes pending. Sellers usually cannot consider new offers once the sale is pending, but you may be able to submit a backup offer.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

PITI (Principal, Interest, Tax, Insurance)

PITI is an acronym used to show the four elements of your monthly mortgage payment: principal, interest, tax and insurance.

  • Who’s Asking: First-Time Home Buyer

Private Mortgage Insurance (PMI)

Private mortgage insurance is a policy that protects your lender in case you default on your loan. Usually, if your down payment is less than 20% on a conventional loan, you will also need to pay for PMI.

  • Who’s Asking: First-Time Home Buyer

Preapproval

Preapproval is the process of establishing what a borrower can reasonably afford when taking out a loan. Lenders will look at your income, debts, assets, credit and other information during the preapproval process.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Principal

Principal is the amount owed to the lender outside of interest.

  • Who’s Asking: First-Time Home Buyer

Purchase Agreement

A purchase agreement is a contract between a buyer and seller stating the terms of the home sale. It may stipulate conditions like sale price, what appliances will stay in the home and when the buyer will move in.

  • Who’s Asking: First-Time Home Buyer

Real Estate Agent

A real estate agent is someone licensed to represent a buyer or seller in a real estate transaction. Most real estate agents work under a licensed broker or REALTOR®.

  • Who’s Asking: First-Time Home Buyer

REALTOR®

A REALTOR® is a real estate agent who is also a National Association of REALTORS® member.

  • Who’s Asking: First-Time Home Buyer

Refinance

Refinancing is obtaining a new loan to pay off an original loan on the same home. Often this is done to get better loan conditions, like a lower interest rate. 

  • Who’s Asking: First-Time Home Buyer

Second Mortgage

A second mortgage is another loan taken out using your home as collateral. A HELOC is a common type of second mortgage.

  • Who’s Asking: First-Time Home Buyer

Seller’s Disclosure

A Seller’s Disclosure is a legal document sellers must fill out stating any home defects that may affect its value. Requirements on what must be disclosed vary by state.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Title

A title shows ownership of a property. It differs from a deed in that a deed is a physical document and a title is not. Title represents the concept of ownership, and can apply to a home, car, boat, etc.

  • Who’s Asking: First-Time Home Buyer

Under Contract

When a buyer and seller agree on a purchase agreement, the home moves to “under contract” status. This means both parties are legally obligated to proceed with the sale so long as conditions are met.

  • Who’s Asking: First-Time Home Buyer, REALTOR®

Underwriting

Underwriting is the process used to determine loan conditions and protect lenders from financial risk. Underwriters may look at a borrower’s credit, employment history and debt, as well as the property’s condition, to determine loan eligibility. 

  • Who’s Asking: First-Time Home Buyer

VA Loan

A VA loan is guaranteed by the U.S. Department of Veterans Affairs. It is a top benefit of military service for veterans, active-duty military, reservists and qualified surviving spouses. Under a VA loan, you usually don’t need a down payment and will avoid paying PMI.

  • Who’s Asking: First-Time Home Buyer

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.