Adjustable-rate mortgage (ARM)
A loan whose interest rate can change after an initial period. Read the adjustment schedule, index, margin, caps and worst-case payment—not only the introductory rate.
ESSENTIAL DEFINITIONS
U.S. real-estate language, explained plainly.
Definitions for reading a listing, offer, loan estimate or closing package with more confidence.
72 TERMS TO KNOW
A term never replaces verification.
Legal effect and process differ by state and contract. Use this glossary to prepare questions, then confirm material details locally.
Amortization
The scheduled repayment of principal over time. Early payments on many mortgages contain more interest than principal.
Appraisal
An opinion of value prepared for a lender or another intended user. It is not a structural inspection or a guarantee of resale price.
APR
Annual percentage rate: a broader cost measure than the note rate, designed to include certain finance charges. Compare the same loan type and assumptions.
Closing Disclosure
The federal form that presents final loan terms and closing costs for many consumer mortgages. Compare it with the earlier Loan Estimate.
Comparable sale
A recent, genuinely similar closed sale used to support a pricing opinion. Location, condition, date and features matter.
Contingency
A contract condition that can allow a buyer or seller to proceed, renegotiate or exit if a defined event occurs within a deadline.
Debt-to-income ratio (DTI)
Monthly debt payments divided by qualifying gross monthly income. Lenders may calculate it differently depending on the product.
Deed
The legal instrument used to transfer an ownership interest. Its effect and recording rules are determined locally.
Earnest money
Money placed under the contract to demonstrate good faith. Who holds it, when it is refundable and dispute rules depend on the agreement and local law.
Escrow
A neutral holding arrangement for funds or documents; it may also describe a lender-managed account for taxes and insurance.
FICO score
One common credit-score model. A score is not the whole underwriting file, and the score version used may differ by loan program.
FIRPTA
A federal withholding regime that can apply when a foreign person sells U.S. real property. Obtain qualified tax advice early.
Homeowners association (HOA)
An association that may impose dues, rules, assessments and use restrictions. Read its governing documents and finances before committing.
Loan Estimate
A standardized estimate of loan terms and costs for many mortgages. Use it to compare written offers made on the same assumptions.
Mortgage insurance
Insurance that may protect a lender or loan program if the borrower defaults. It is distinct from homeowners insurance.
Preapproval
A lender’s preliminary assessment based on submitted information and documentation. It is not an unconditional final approval.
Principal
The original amount borrowed or the unpaid balance, excluding future interest. Each amortizing payment generally reduces it.
Property tax
A recurring local tax assessed against real property. Assessment methods, exemptions, bills and appeals vary by jurisdiction.
Title
The collection of legal rights and interests in a property. A title search and title insurance address different risks; neither replaces due diligence.
Underwriting
The lender’s verification and risk-review process before final loan approval. New debts, job changes or large unexplained deposits can matter.
Zoning
Local land-use rules that affect what may be built or operated on a site. Confirm the exact parcel, use and permit history with the authority.
Assessed value
The value assigned by a local assessing authority for property-tax purposes. It may differ from market value, purchase price and appraised value.
Balloon payment
A large payment due at the end of a loan that does not fully amortize during its term. Confirm the amount, due date and refinancing risk.
Cash to close
The verified funds a buyer must bring to closing after credits, deposits and financing are applied. It is broader than the down payment alone.
Chain of title
The sequence of recorded ownership and transfers affecting a property. Gaps, competing interests or recording errors may require further review.
Conforming loan
A mortgage structured to meet applicable Fannie Mae or Freddie Mac purchase criteria, including annual loan limits. It is not a guarantee of approval.
Easement
A legal right allowing someone to use part of another property for a stated purpose, such as access or utilities. Review location, scope and maintenance duties.
Encumbrance
A claim, restriction or right that affects title or use, including liens, easements and restrictive covenants. Its practical effect depends on the document and local law.
Floodplain
An area mapped or regulated for potential flooding. A map zone is one input; investigate elevation, prior events, drainage and insurance for the exact property.
Home inspection
A visual, noninvasive review of accessible systems and components at a point in time. Scope and licensing vary, and specialist evaluations may still be needed.
Lien
A legal claim against property that may secure payment of a debt or obligation. Confirm status, priority and release requirements through title and public records.
Loan-to-value ratio (LTV)
The loan amount divided by the property value used by the lender. The selected value and combined liens affect the result and related requirements.
Origination fee
A charge associated with processing or originating a mortgage. Compare it together with rate, APR, points and all other lender costs.
Points
Upfront charges expressed as a percentage of the loan amount; discount points may reduce the interest rate. Calculate the break-even period rather than assuming value.
Private mortgage insurance (PMI)
Coverage that may be required on certain conventional mortgages and generally protects the lender, not the borrower. Cancellation rules depend on the loan and law.
Reserve study
An analysis of an association’s major components, remaining useful lives and projected funding needs. Compare it with budgets, balances, projects and assessments.
Special assessment
A charge imposed by an association or authority beyond regular dues or taxes, often for a specific project or shortfall. Confirm approved and discussed assessments.
Survey
A professional depiction of boundaries, improvements and selected site features. The needed survey type and reliance rights depend on the transaction and jurisdiction.
Final walk-through
A pre-closing check that the property condition and agreed repairs are consistent with the contract. It is not a substitute for an inspection.
Rate lock
A lender agreement that generally holds a mortgage interest rate for a stated period under defined conditions. Record its expiration and extension terms.
Flood Insurance Rate Map (FIRM)
A FEMA map used to show mapped flood hazard areas and support certain insurance and lending decisions. Check its panel, effective date and revisions for the exact address.
School attendance boundary
The geographic area a school district currently uses to assign some students to a school. Assignment and enrollment rules can differ and boundaries may change.
Home energy assessment
A review of a home’s energy-related systems and building envelope, sometimes using tests such as a blower door or infrared scan. Scope and methods should be documented.
Blower-door test
A measured test that uses a temporary fan to estimate building air leakage under controlled pressure. Results need interpretation alongside ventilation and moisture conditions.
Insurance effective date
The date coverage starts under the issued policy. Confirm it separately from quote, payment and closing dates, including any applicable waiting period.
Insurance claims history
Available records of reported insurance losses. They are not a complete building-condition history or proof that repairs were completed.
Replacement reserve
Money planned for major replacements such as roofs or equipment. Track separately from routine operating costs and disclose how it is treated in a return calculation.
Final inspection record
A building authority’s record of a final inspection within a defined permit scope. Confirm the parcel, work, outcome and any outstanding conditions.
Bound insurance coverage
Coverage confirmed by the insurer or its authorized representative under stated terms. An indicative quote alone does not establish that coverage is in force.
Escrow shortage
An escrow analysis finding that funds are below the required target balance. Separate its repayment from the regular deposit for future tax and insurance bills.
Forgivable assistance loan
Assistance debt whose balance may be forgiven under stated conditions and timing. Read occupancy, sale, refinance and repayment triggers before treating it as a grant.
Deferred assistance loan
A loan with payments postponed until a specified event or date. Deferral does not by itself cancel the debt or any accrued interest.
Reasonable accommodation
A disability-related change to a housing rule, policy, practice or service under applicable law. Distinguish it from a physical modification and check the relevant official guidance.
Reasonable modification
A disability-related physical alteration to housing or common areas under applicable law. Permission, cost and restoration responsibilities depend on the circumstances.
Refinance break-even
A simple cash-flow screen dividing net refinancing costs by positive monthly savings. It does not account for every change in outstanding debt, term or risk.
County equivalent
A geographic unit treated as a county for Census statistics, such as a Louisiana parish, independent city or Connecticut planning region. It may differ from the authority that keeps property records.
Adverse action notice
A notice explaining that information in a consumer report contributed to a denial or less favorable rental terms, with details of the reporting company and dispute rights.
Appraisal gap
The amount by which an agreed purchase price exceeds the lender’s appraised value. The contract determines whether either party can renegotiate or exit.
Binder
Evidence that an insurance arrangement is in place or being issued, subject to its stated terms. Confirm effective date, limits and lender acceptance.
Capital expenditure
A major replacement or improvement with benefit beyond routine maintenance, such as a roof or HVAC system. Investors should reserve for these costs separately.
Deductible
The amount the policyholder typically bears before insurance pays on a covered claim. Some policies set different deductibles for wind or other hazards.
Discount point
An upfront mortgage charge commonly calculated as a share of principal in exchange for a lower quoted rate; compare its cost with expected time in the loan.
Due diligence period
A contract-defined window for inspections, document review and other investigations. Rights and notice requirements depend on the actual agreement.
Flood insurance
Separate coverage for specified flood losses, often outside a standard homeowners policy. Check eligibility, waiting period, limits and exclusions for the address.
Lead-based paint disclosure
The federally required information package for most covered pre-1978 residential sales or leases, including known hazards and available records. It is not proof of absence.
Mitigation
Work intended to reduce a hazard, such as a radon-reduction system or drainage improvement. Verify scope, qualified installer and post-work result.
Power purchase agreement (PPA)
An arrangement to buy electricity generated by a system generally owned by a third party. Review price changes, transfer approval and obligations at sale.
Prepaid expense
A cost collected at closing for a future ownership period, such as insurance or prepaid interest. It differs from a lender origination charge.
Radon
A naturally occurring radioactive gas that can accumulate indoors. Only a properly conducted test establishes the level in a particular home.
Tenant-screening report
A consumer report used in rental decisions that may combine credit, rental and other background data. Applicants can seek a copy and dispute inaccuracies under applicable law.
Wire fraud
A scheme that redirects a legitimate payment to a fraudulent account, often through impersonated closing instructions. Independently verify the recipient and account before sending.