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Real Estate & Mortgage Terms: Complete Glossary for Home Buyers (2026)

•offer.guide Team

📚 Part of the First-Time Home Buyer Series:

Real Estate & Mortgage Terms: Complete Glossary for Home Buyers (2026)

Buying a home comes with its own language. Buying your first home comes with a whole new vocabulary. This glossary defines every term you'll encounter as a first-time home buyer, from APR to zoning. Use this as your reference guide throughout the home buying process. Your agent throws around terms like "earnest money" and "title insurance." Your lender mentions "points" and "PMI." The seller's paperwork references "contingencies" and "escrow."

If you don't know what these terms mean, you're negotiating blind.

This complete glossary explains every real estate and mortgage term you'll encounter during the home buying process—in plain English, with real examples.

Bookmark this page. You'll reference it constantly.

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<a name="offer-negotiation"></a>

Offer & Negotiation Terms

Asking Price

The price the seller is requesting for their home. Not necessarily what the home is worth or what you should offer.

Example: House listed at $450k (asking price), but comparable homes sold for $425k-435k. Fair market value is likely closer to $430k.

Earnest Money

A deposit you make with your offer to show you're serious about buying. Typically 1-3% of purchase price. Held in escrow and applied to your down payment at closing.

Example: You offer $400k with 2% earnest money = $8,000 deposit when offer is accepted.

What happens to it:

  • Deal closes? Goes toward your down payment
  • You back out with valid contingency? You get it back
  • You back out without valid reason? Seller keeps it

Contingency

A condition in your offer that must be met or you can back out without penalty. Protects you from losing earnest money.

Common contingencies:

  • Financing contingency: Can back out if you can't get a loan
  • Inspection contingency: Can back out if inspection reveals major issues
  • Appraisal contingency: Can back out if home appraises below offer price
  • Home sale contingency: Can back out if you can't sell your current home

Example: "This offer is contingent upon a satisfactory home inspection within 10 days."

Counteroffer

Seller's response to your offer with different terms (usually higher price or different conditions).

Example:

  • You offer: $420k with 3% closing cost credit
  • Seller counters: $435k with 1% closing cost credit
  • You can accept, decline, or counter again

Multiple Offer Situation

When a seller receives offers from several buyers at once. Usually happens in hot markets or with desirable properties.

What it means for you:

  • Need stronger offer (higher price, fewer contingencies, larger earnest money)
  • Less negotiating power
  • May need "escalation clause" to compete

Escalation Clause

Agreement that your offer will automatically increase by a set amount to beat competing offers, up to a maximum.

Example: "I offer $400k, but will escalate by $2,000 above any competing offer up to $425k max."

Pros: Ensures you don't overpay if there aren't other offers
Cons: Shows your max price, seller might use it against you

Seller Concessions

When seller agrees to pay some of your costs. Can include closing costs, repairs, rate buy-down, or credits.

Example: Seller agrees to pay $5,000 toward your closing costs, effectively lowering your out-of-pocket expense.

Typical range: 3-6% of purchase price depending on loan type

As-Is Sale

Seller won't make any repairs or credits. You're buying the property in its current condition.

What it means:

  • You still get an inspection
  • But seller won't negotiate repairs
  • Usually means lower price to compensate

Example: House needs new roof ($12k). Seller lists as-is at $380k instead of $395k fixed.

<a name="mortgage-financing"></a>

Mortgage & Financing Terms

Pre-Qualification vs. Pre-Approval

Pre-qualification: Lender estimates how much you might borrow based on info you provide (no verification). Not worth much.

Pre-approval: Lender verifies your income, credit, and assets, then commits in writing to lend you a specific amount. This is what you need.

Example: Pre-qualified for "around $400k" vs. Pre-approved for "$385,000 with 5% down at 6.5% interest."

Down Payment

The cash you pay upfront toward the home price. Rest is financed with your mortgage.

Common amounts:

  • 20%: Avoids PMI, best rates, strongest offers
  • 10%: Acceptable, but need PMI
  • 5%: Minimum for conventional loans
  • 3.5%: FHA loan minimum
  • 0%: VA loans (veterans) or USDA loans (rural areas)

Example: $400k house with 20% down = $80,000 cash + $320,000 mortgage

APR (Annual Percentage Rate)

The true cost of your loan including interest rate PLUS fees (origination, points, etc.). More accurate than just interest rate.

Example:

  • Interest rate: 6.5%
  • APR: 6.72% (includes $3,000 in fees)

Always compare APRs, not just interest rates. If you're confused by APR and other mortgage terms, this glossary is your resource throughout your home buying journey.

Points (Discount Points)

Fees you pay upfront to lower your interest rate. One point = 1% of loan amount.

Example:

  • Loan: $300,000
  • Pay 1 point ($3,000) upfront
  • Rate drops from 6.5% to 6.25%
  • Saves ~$50/month ($600/year)
  • Breaks even in 5 years

Worth it if: You plan to stay 5+ years
Not worth it if: You'll refinance or move soon

PMI (Private Mortgage Insurance)

Insurance you pay if you put down less than 20%. Protects the lender (not you) if you default.

Cost: Usually 0.5-1.5% of loan amount per year

Example:

  • $300,000 loan with 10% down
  • PMI = $2,250/year = $187/month extra
  • Can be removed once you reach 20% equity

How to avoid: Put down 20% or use piggyback loan (80-10-10)

Learn more about how PMI works and strategies to avoid it including how to remove it and when you can remove it. Understanding PMI costs is essential for calculating your true monthly payment.

DTI (Debt-to-Income Ratio)

Your monthly debt payments divided by gross monthly income. Lenders use this to decide if you qualify.

Formula: (Monthly debts ÷ Gross monthly income) × 100

Example:

  • Income: $8,000/month
  • Debts: $2,000/month (mortgage) + $400 (car) + $200 (student loans) = $2,600
  • DTI: 32.5%

Limits:

  • Conventional loans: Usually 43% max
  • FHA loans: Up to 50% in some cases

DTI is critical for determining how much house you can afford. Most lenders want to see DTI below 43%.

LTV (Loan-to-Value Ratio)

The loan amount divided by the home's value. Determines whether you need PMI and affects your interest rate.

Formula: (Loan Amount ÷ Home Value) × 100

Example:

  • Home value: $400,000
  • Loan: $320,000
  • LTV: 80%

Why it matters:

  • LTV above 80% = PMI required
  • Lower LTV = better rates
  • Used to determine when PMI can be removed

Amortization

How your loan gets paid off over time. Early payments are mostly interest, later payments are mostly principal.

Example on $300k loan at 6.5% for 30 years:

  • Month 1: $1,896 payment = $1,625 interest + $271 principal
  • Month 180: $1,896 payment = $1,212 interest + $684 principal
  • Month 360: $1,896 payment = $10 interest + $1,886 principal

ARM (Adjustable-Rate Mortgage)

Interest rate that changes over time based on market conditions. Lower initial rate than fixed, but risky.

Example: 5/1 ARM

  • Fixed at 5.5% for first 5 years
  • Then adjusts annually based on index
  • Could go to 7%, 8%, or higher

Good for: People who know they'll sell/refinance within 5 years
Risky for: Long-term owners in rising rate environment

Conventional Loan

Standard mortgage not backed by government. Requires higher credit score and typically 5-20% down.

Pros:

  • No upfront funding fee
  • Can remove PMI once you hit 20% equity
  • More flexible property types

Cons:

  • Stricter credit requirements (usually 620+ credit score)
  • Higher down payment than FHA

Your credit score significantly affects the rates you'll get on conventional loans - borrowers with 760+ scores can save tens of thousands over the life of the loan.

FHA Loan

Government-backed loan with lower down payment (3.5%) and easier credit requirements.

Pros:

  • Only 3.5% down required
  • Lower credit scores accepted (580+)
  • Good for first-time buyers

Cons:

  • Upfront mortgage insurance (1.75% of loan)
  • Ongoing PMI for life of loan (can't be removed)
  • Loan limits based on county

VA Loan

Available only to military veterans, active duty, and some spouses. Best loan terms available.

Pros:

  • 0% down payment
  • No PMI
  • Lower interest rates
  • More lenient credit requirements

Cons:

  • Funding fee (1.4-3.6% depending on circumstances)
  • Limited to eligible veterans

Rate Lock

Agreement with lender to hold your interest rate for a certain period (usually 30-60 days) while you complete the purchase.

Example: You lock 6.25% rate on January 15 for 45 days. Even if rates jump to 7% by February, you still get 6.25%.

Cost: Sometimes free, sometimes costs 0.25-0.5% of loan amount

<a name="inspection-appraisal"></a>

Inspection & Appraisal Terms

Home Inspection

Professional examination of the property's condition. Checks structure, systems, roof, foundation, plumbing, electrical, HVAC, etc.

Cost: $300-600 depending on size and location
Time: 2-4 hours, you should attend

What happens after:

  • Inspector provides detailed report
  • You can request repairs, credits, or back out
  • Negotiate with seller on findings

Appraisal

Lender-required assessment of the home's market value by a licensed appraiser. Protects lender from over-lending.

Cost: $400-800 (you pay)
What they look at:

  • Recent comparable sales
  • Property condition
  • Location and amenities
  • Market trends

Example problem:

  • You offer $450k
  • Appraises at $430k
  • Bank will only lend on $430k
  • You need extra $20k cash OR seller lowers price

Comparable Sales (Comps)

Recently sold homes similar to the one you're buying. Used to determine fair market value.

What makes a good comp:

  • Within 1 mile (closer is better)
  • Sold within last 3-6 months (more recent is better)
  • Similar size (within 10-15% square footage)
  • Same number of beds/baths
  • Similar condition and features

Example: Your target home is 2,000 sq ft, 3 bed/2 bath, built 2005. Good comps are homes matching those specs that sold nearby recently.

Radon

Radioactive gas that comes from soil. Odorless and colorless. Can cause lung cancer with long-term exposure.

Testing: $150-300
Acceptable level: Below 4.0 pCi/L
If high: Mitigation system costs $800-1,500

Termite Inspection (WDO)

Wood-Destroying Organism inspection. Checks for termites, carpenter ants, wood rot, etc.

Cost: $75-150
Required: Usually required by lender
If found: Seller typically pays for treatment

Survey

Map showing property boundaries, easements, and structures. Ensures you're buying what you think you're buying.

Cost: $300-600
When needed: Usually required by lender or title company

<a name="closing-legal"></a>

Closing & Legal Terms

Closing

The final step where ownership transfers from seller to you. Sign documents, pay remaining costs, get keys.

What happens:

  • Sign mortgage documents
  • Sign deed
  • Pay closing costs
  • Get title insurance
  • Receive keys

Time: 1-2 hours of signing documents

Closing Costs

Fees associated with finalizing your home purchase. Typically 2-5% of purchase price.

Includes:

  • Lender fees (origination, underwriting, processing)
  • Title company fees (title search, title insurance)
  • Government fees (recording, transfer taxes)
  • Prepaid items (property taxes, insurance, HOA)
  • Escrow setup

Example: $400k purchase = $8,000-20,000 in closing costs

Escrow (Two Meanings)

1. During purchase: Neutral third party holds your earnest money and manages document/money exchange.

2. After purchase: Portion of your monthly mortgage payment set aside for property taxes and insurance. Lender pays these on your behalf.

Example monthly payment breakdown:

  • Principal & Interest: $1,500
  • Escrow for taxes: $350
  • Escrow for insurance: $150
  • Total payment: $2,000

Title

Legal ownership of the property. When you "have title," you own it.

Clean title: No liens, claims, or issues
Clouded title: Has legal problems that need resolving

Title Search

Investigation of public records to ensure seller legally owns the property and there are no liens, claims, or issues.

Looks for:

  • Previous ownership transfers
  • Outstanding mortgages
  • Tax liens
  • Judgments
  • Easements
  • Restrictions

Cost: Usually included in title insurance

Title Insurance

One-time insurance policy protecting you from title defects discovered after purchase.

Two types:

  • Lender's policy: Protects lender (required, you pay)
  • Owner's policy: Protects you (optional, highly recommended)

Cost: $1,000-4,000 depending on price
Protects against: Fraud, forgery, unknown heirs, recording errors, liens

Deed

Legal document transferring property ownership from seller to buyer.

Types:

  • Warranty Deed: Seller guarantees clear title (best)
  • Quitclaim Deed: Seller transfers whatever rights they have (risky)

HOA (Homeowners Association)

Organization that makes rules and maintains common areas in planned communities, condos, or townhomes.

HOA fees: $100-800/month typically
Covers: Landscaping, pool, clubhouse, exterior maintenance, trash
Rules: Can regulate paint colors, landscaping, parking, rentals, etc.

Important: Get HOA documents before buying. Read the rules and budget.

PITI

Principal, Interest, Taxes, and Insurance—the four components of your monthly mortgage payment.

Example:

  • Principal & Interest: $1,500
  • Property Taxes: $350
  • Homeowners Insurance: $150
  • Total PITI: $2,000/month

<a name="property-market"></a>

Property & Market Terms

MLS (Multiple Listing Service)

Database where real estate agents list properties for sale. The source of truth for what's on the market.

Access: Only licensed agents have full access
Public sites: Zillow, Redfin, Realtor.com pull from MLS (sometimes delayed)

Days on Market (DOM)

How long a property has been listed for sale.

What it tells you:

  • 0-14 days: Hot property, may have multiple offers
  • 15-30 days: Normal market pace
  • 31-60 days: Sitting longer, may have negotiating room
  • 60+ days: Something's wrong (price, condition, or market)

Negotiating tip: Higher DOM = more leverage for you

Seller's Market

More buyers than available homes. Homes sell quickly, often above asking price. Sellers have advantage.

Signs:

  • Low inventory
  • Multiple offers common
  • Quick sales (under 2 weeks)
  • Prices rising

Buyer's Market

More homes than buyers. Homes sit longer, sellers more willing to negotiate. Buyers have advantage.

Signs:

  • High inventory
  • Homes sitting 30-60+ days
  • Price reductions common
  • Sellers accepting below asking

Square Footage

Total livable area of a home in square feet. Does NOT include garage, unfinished basement, or unfinished attic.

Example:

  • Main floor: 1,200 sq ft
  • Second floor: 800 sq ft
  • Finished basement: 400 sq ft
  • Listed as: 2,000 sq ft (basement might not count depending on area)

Why it matters: Price per square foot comparisons

Price Per Square Foot

Home price divided by square footage. Useful for comparing similar homes.

Example:

  • House A: $400k, 2,000 sq ft = $200/sq ft
  • House B: $420k, 2,400 sq ft = $175/sq ft
  • House B is better value if otherwise similar

Zoning

Local laws governing how property can be used (residential, commercial, agricultural, etc.).

Why it matters:

  • Can you run a business from home?
  • Can you build an addition?
  • Can you have chickens?
  • Will neighbor's land become commercial?

Check: Call city planning department before buying

Easement

Legal right for someone else to use part of your property for specific purpose.

Common types:

  • Utility easement (power/gas/water lines)
  • Access easement (neighbor crosses your land to reach theirs)
  • Drainage easement

Example: Electric company can access power lines in your backyard. You still own the land but can't build there.

<a name="insurance-protection"></a>

Insurance & Protection Terms

Homeowners Insurance

Insurance covering your home and belongings against damage, theft, and liability.

Typically covers:

  • Fire, wind, hail damage
  • Theft and vandalism
  • Personal liability (someone hurt on your property)
  • Temporary living expenses if home uninhabitable

Doesn't cover:

  • Floods (need separate policy)
  • Earthquakes (need separate policy)
  • Normal wear and tear
  • Maintenance issues

Cost: $1,000-3,000/year depending on location and coverage

Flood Insurance

Separate policy covering flood damage. Required if you're in a flood zone.

Cost: $400-2,000/year
Covers: Damage from rising water, not leaks/burst pipes

Check: FEMA flood maps to see if you're in flood zone

Umbrella Insurance

Extra liability coverage beyond your homeowners policy. Protects your assets if you're sued.

Example: Someone seriously injured on your property sues for $1 million. Homeowners covers $300k, umbrella covers the rest.

Cost: $200-400/year for $1 million coverage

Home Warranty

Service contract covering repair/replacement of major systems and appliances.

Typically covers:

  • HVAC
  • Water heater
  • Appliances
  • Electrical/plumbing

Cost: $400-800/year + service fee per call
Worth it: Debatable. Do the math on your appliances' ages.

Gap Insurance

Protection if appraisal comes in below offer price. Rare, but some sellers or builders offer it.

Example: You offer $450k, appraises at $430k. Gap insurance covers the $20k difference.

Bonus: Common Acronyms

  • ARM: Adjustable-Rate Mortgage
  • APR: Annual Percentage Rate
  • CMA: Comparative Market Analysis
  • DOM: Days on Market
  • DTI: Debt-to-Income Ratio
  • FHA: Federal Housing Administration
  • HOA: Homeowners Association
  • HVAC: Heating, Ventilation, Air Conditioning
  • LTV: Loan-to-Value Ratio
  • MLS: Multiple Listing Service
  • PITI: Principal, Interest, Taxes, Insurance
  • PMI: Private Mortgage Insurance
  • POA: Power of Attorney
  • REO: Real Estate Owned (bank-owned property)
  • USDA: United States Department of Agriculture (rural loans)
  • VA: Veterans Affairs
  • WDO: Wood-Destroying Organism

How to Use This Glossary

Before making offers: Review Offer & Negotiation Terms
When getting pre-approved: Review Mortgage & Financing Terms
During inspection period: Review Inspection & Appraisal Terms
Before closing: Review Closing & Legal Terms
Always: Bookmark this page and reference it whenever you encounter unfamiliar terms

Ready to Put This Knowledge to Use?

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  • Two offer strategies with pros/cons
  • How to structure earnest money and contingencies
  • Negotiation tactics specific to your situation
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