The Complete Guide to Real Estate Terms

If you're in the middle of a real estate transaction, you're probably used to hearing a lot of words you don't know. And while you may have learned the meaning of a few of them, we know there are plenty of other real estate terms that are important to understand. So, we've put together a handy real estate glossary for you to keep on hand during your transaction. Whether you're buying or selling your home, this guide should help keep you informed throughout the entire process. (You can also read more in our blog on new homeowner tips.)

Property Terms

A real estate dictionary wouldn't be complete without covering the words and phrases that relate directly to the home you're buying or selling. Let's start with these.

Appraisal

The appraisal is an evaluation conducted by a licensed appraiser that determines the value of the property.

Note: Appraisal and inspection are NOT the same.

Fair Market Value

The fair market value of a home is calculated by averaging the value of three or more comparable properties in the same area that have sold recently.

Homeowners Association (HOA)

An HOA is an organization formed by residents of a community, or by the developers, to manage and maintain common areas and enforce established rules and fees. If you’re considering buying a home that is part of an HOA, it’s important to review the HOA’s covenants, conditions, and restrictions (CC&Rs) to ensure they are acceptable to you.

Homeowners Insurance

Homeowners insurance protects you from things like accidents, severe weather, and even theft. It protects your home and its contents and provides liability protection in case anything happens on your property.

What's the difference between homeowners insurance and home warranty?

Inspection

A home inspection is performed by a licensed home inspector (different from an appraiser). It evaluates the condition of a property and identifies any defects or issues with the property that may need to be repaired or may affect the value of the property.

Planned Unit Development (PUD)

A PUD is a planned community similar to a self-contained town and may include a mix of single-family homes, townhomes, and condos. PUDs also typically include common areas and shared amenities like pools, gyms, and clubhouses.

Transactional Terms

Amortization

Amortization refers to the process of paying off your debt through regular installments that include interest and principal. The amortization schedule is the schedule of payments on your loan.

Annual Percentage Rate (APR)

APR measures the overall cost of borrowing money over the life of the loan. It reflects not just the interest rate, but also any other fees and charges due over the course of your mortgage.

Broker (Real Estate)

A real estate broker is a licensed agent who can work independently of a company or brokerage. They typically have a more advanced license than a real estate agent.

Chain of Title

The chain of title is the historical record of ownership of the home. It shows any transfers of property and documents the complete history of the property.

Clear Title

A clear title indicates there are no liens, claims, or other issues that could stop the sale of a property.

Closing

Closing is the final step in a real estate transaction. During this step, you'll sign all your paperwork and pay closing fees like your down payment, earnest money, and title fees before taking ownership of the home.

Related: How Much are Closing Costs for Home Buyers?

Contingency

A contingency is a condition specified in your contract that must be met to complete the sale. These are often things like inspections and financing.

Deed

This is a legal document that shows the transfer of ownership of property from one person to another. It includes a description of the property and is signed by both buyer and seller — kind of like a car title. It confirms your ownership of the property.

Down Payment

The initial payment you make when purchasing a property is called the down payment. It's typically a set percentage of the total purchase price, depending on what type of loan you have.

Earnest Money

Earnest money is a deposit made by the buyer to show their commitment to a home purchase before the paperwork is complete.

Related: How to know when you're ready to buy a home

Equal Credit Opportunity Act (ECOA)

ECOA is a federal law that prohibits discrimination in lending practices based on factors like race, religion, sex, and marital status.

Equity

Equity is the percentage of your home's market value that you own. It's calculated by subtracting the outstanding balance on the mortgage from the current market value of the home.

Escrow or Impound Account

In an escrow account, a third party (like your loan servicer) holds and manages funds during a real estate transaction. This can include expenses like homeowners insurance, mortgage insurance, and more.

Fair Credit Reporting Act (FCRA)

A federal law that regulates how consumer credit information is collected, used, and shared by credit reporting agencies, ensuring credit scores are calculated equally.

For Sale by Owner (FSBO)

A property being sold directly by the owner without using a real estate agent.

Lender

Another name for a mortgage company, ‘lender,’ is a commonly used term since your mortgage is essentially money that is being lent to you.

Lien

A lien is a legal claim on a property that serves as collateral for debt, such as unpaid taxes. It can affect the property's ability to be sold or even refinanced.

Loan Servicer

A loan servicer is responsible for collecting loan payments and managing borrower accounts on behalf of the lender or mortgage company.

Mortgage Broker

A broker is a licensed professional who connects borrowers with lenders to help find suitable loans.

Mortgage Insurance

Mortgage insurance policies protect the lender in case a borrower defaults on a loan. It's required by many lenders, especially when the down payment on your loan is less than 20%.

Origination Fee

Many lenders charge origination fees for processing a mortgage application and beginning the loan.

Per Diem

Per diem (Latin for ‘by the day’) is the rate that is used to calculate fees owed on a daily basis.

Pre-Approval

Pre-approval is a conditional commitment from a lender to provide a specific loan amount, pending underwriting and verification of your finances.

Pre-Qualification

Pre-qualification is an informal assessment by a lender to estimate how much house you can afford based on your financial information. It is NOT a commitment to lend a borrower money.

Principal

The original amount of money borrowed in a loan before interest and other charges are applied.

Principal, Interest, Taxes, and Insurance (PITI)

PITI represents the four components of a typical monthly mortgage payment. However, if you do not elect to have an impound account and/or do not need to carry mortgage insurance, then your mortgage payment will not include property taxes and/or insurance.

Mortgage Types

Adjustable Rate (ARM)

An adjustable-rate mortgage has an interest rate that can fluctuate based on market conditions. Most ARM loans start off with an initial fixed-rate period of a few years and then begin to adjust based on the terms of the loan.

Assumable Mortgage

An assumable mortgage allows a buyer to take over the existing mortgage from the seller.

Conventional Mortgage

A conventional mortgage is a home loan not insured or guaranteed by a government agency. It typically requires a higher credit score and larger down payment than other loan types.

FHA Mortgage

FHA mortgages are insured by the Federal Housing Administration. They allow people with lower credit scores and smaller down payments to qualify for a mortgage and are often used by first-time homebuyers.

Fixed-Rate

A fixed-rate mortgage is a loan with a set interest rate that won't change over the life of the loan, providing predictable monthly payments.

Jumbo Loan

Any loan that exceeds the conforming loan limits set by the Federal Housing Finance Agency is considered a jumbo loan. They're often used to finance expensive properties.

VA Mortgage

A VA mortgage is a home loan backed by the Department of Veterans Affairs. These loans are available to eligible veterans and active-duty military personnel.

What is a Home Warranty?

A home warranty is a protection plan for your home's systems and appliances. It's one of the important real estate terms to know when negotiating your purchase or sale. As a buyer, it can be valuable to have coverage starting on Day 1 of homeownership to protect your budget from unforeseen repairs or replacements on covered household items. Learn more about our home warranty coverage and the many benefits it provides. You can also get a personalized home warranty quote.

The contents of this article are provided for general guidance only. First American Home Warranty does not assume any responsibility for losses or damages as a result of using this information.