Real Estate Glossary
Plain-English definitions for common mortgage and real estate terms
Buying a home comes with a lot of unfamiliar terminology. Use this glossary to understand the terms you'll encounter throughout the mortgage process.
A
Amortization
The process of paying off a loan through regular payments over time. Each payment covers both interest and principal, with the balance gradually decreasing until the loan is paid in full.
APR (Annual Percentage Rate)
The total yearly cost of a loan, expressed as a percentage. APR includes the interest rate plus fees and other costs, making it a more complete measure of loan cost than the interest rate alone.
Appraisal
A professional assessment of a property's market value, conducted by a licensed appraiser. Lenders require appraisals to ensure the property is worth the loan amount.
C
Closing Costs
Fees and expenses paid at the closing of a real estate transaction, typically ranging from 2–5% of the loan amount. These include lender fees, title insurance, appraisal, and prepaid items.
Conventional Loan
A mortgage not insured or guaranteed by the federal government. Conventional loans typically require higher credit scores and down payments than government-backed loans.
D
Debt-to-Income Ratio (DTI)
A measure of your monthly debt payments compared to your gross monthly income. Lenders use DTI to assess your ability to manage monthly payments and repay debts.
Down Payment
The upfront cash payment made by the buyer toward the purchase price of a home. The remainder is financed through a mortgage loan.
E
Earnest Money
A deposit made by the buyer to demonstrate serious intent to purchase a property. It is typically held in escrow and applied toward the down payment or closing costs at closing.
Escrow
A neutral third-party account that holds funds during a real estate transaction. Escrow accounts are also used by lenders to collect and pay property taxes and insurance on behalf of borrowers.
F
FHA Loan
A mortgage insured by the Federal Housing Administration. FHA loans allow lower down payments and more flexible credit requirements, making them popular with first-time homebuyers.
Fixed-Rate Mortgage
A mortgage with an interest rate that remains constant for the life of the loan. Monthly principal and interest payments never change, providing predictability for budgeting.
H
Home Equity
The portion of your home's value that you own outright — the difference between the home's market value and the outstanding mortgage balance.
I
Interest Rate
The percentage charged by a lender for borrowing money, expressed as an annual rate. The interest rate does not include fees, unlike APR.
J
Jumbo Loan
A mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. Jumbo loans are used for higher-priced properties and typically require stronger credit and larger down payments.
L
Loan-to-Value Ratio (LTV)
The ratio of the loan amount to the appraised value of the property, expressed as a percentage. A lower LTV generally means better loan terms and may eliminate the need for private mortgage insurance.
M
Mortgage Broker
A licensed professional who works with multiple lenders to find the best mortgage product for a borrower. Unlike bank loan officers, brokers are not tied to a single lender's products.
N
NMLS
Nationwide Multistate Licensing System. A database that tracks mortgage professionals and their licenses. Borrowers can verify a broker's or loan officer's credentials at nmlsconsumeraccess.org.
P
Pre-Approval
A lender's conditional commitment to provide a mortgage up to a specified amount, based on a review of the borrower's credit, income, and assets. Stronger than pre-qualification.
Pre-Qualification
An initial assessment of a borrower's ability to obtain a mortgage, based on self-reported financial information. Less rigorous than pre-approval.
Private Mortgage Insurance (PMI)
Insurance required by lenders when a borrower's down payment is less than 20% of the home's value. PMI protects the lender if the borrower defaults.
R
Rate Lock
A lender's guarantee that a specific interest rate will be held for a set period while the loan is processed. Protects the borrower from rate increases before closing.
Refinancing
The process of replacing an existing mortgage with a new loan, typically to obtain a lower interest rate, reduce monthly payments, or access home equity.
T
Title Insurance
Insurance that protects the buyer and lender against claims or disputes over property ownership. Required by most lenders and typically purchased at closing.
U
Underwriting
The process by which a lender evaluates the risk of a loan application. The underwriter reviews the borrower's credit, income, assets, and the property to determine loan approval.
V
VA Loan
A mortgage guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty service members, and surviving spouses. Offers no down payment and no PMI.