The glossary
Glossary
A plain-language reference for the terms that come up when buying or selling residential real estate. Each entry is short, structured, and links to the relevant calculators and longer-form articles.
The glossary is a starting point. Most terms are covered in more depth in the buying and selling articles, the entries cross-link to those longer treatments.
Glossary entries
A
- Adjustable-rate mortgage (ARM)A residential mortgage with an interest rate that's fixed for an initial period (typically 5, 7, or 10 years), then adjusts periodically against a published index for the rest of the term.
- AmortizationThe process by which a fixed monthly mortgage payment gradually shifts from being mostly interest to being mostly principal over the life of the loan, and the schedule that documents the month-by-month split.
- Annual percentage rate (APR)The total cost of a mortgage expressed as a single annual rate, including the interest rate plus most lender fees and points, designed to make different loan offers comparable.
- AppraisalAn independent estimate of a property's market value, performed by a licensed appraiser at the lender's request, used to verify that the loan amount is appropriate for the collateral.
C
- Capital gainsThe profit realized when selling an asset for more than its adjusted basis. On a primary residence, the § 121 exclusion can shield up to $250k single / $500k MFJ from federal tax.
- Closing costsThe fees and charges paid at the closing of a real estate transaction, separate from the down payment and the property price itself. Typically 2–5% of home price for buyers and 6–10% for sellers.
- Closing DisclosureA federally-required three-page disclosure showing the final terms of a mortgage and the actual closing costs, sent at least three business days before closing.
- Comparative market analysis (CMA)A real estate agent's analysis of recent sales of comparable properties used to estimate a target property's market value. The starting point for both pricing decisions and offer strategy.
- ContingencyA condition in a real estate purchase contract that, if not met, allows one or both parties to terminate the deal without penalty.
- Conventional loanAny residential mortgage not insured or guaranteed by a federal program, typically conforming to Fannie Mae or Freddie Mac standards for sale on the secondary mortgage market.
D
- Days on market (DOM)The number of days a listing has been actively for sale, calculated from listing date to current date or to the contract acceptance date. A common signal of listing performance and pricing accuracy.
- Debt-to-income ratio (DTI)The percentage of gross monthly income that goes to monthly debt payments, including the proposed mortgage payment, used by lenders to determine loan eligibility.
- Depreciation recaptureThe federal tax on depreciation deductions previously claimed against rental income, applied at sale of an investment or formerly-rented property at a 25% rate. Separate from regular long-term capital gains rates.
- Dual agencyA situation where the same real estate agent or brokerage represents both the buyer and the seller in the same transaction. Subject to state-specific rules and disclosure requirements; prohibited in some states.
E
- Earnest moneyA deposit a buyer makes when a purchase contract is signed, typically 1–3% of the purchase price, to signal commitment to the deal.
- Escalation clauseA clause in a buyer's offer that automatically increases the offer price in fixed increments above any competing bona fide offer, up to a stated cap. Used in competitive multi-offer situations.
- EscrowA neutral third party that holds funds or documents during a real estate transaction, releasing them only when specified conditions are met.
H
- Home inspectionA visual, non-invasive examination of a home's major systems and structural components, performed by a licensed inspector during the under-contract period.
- Homeowners association (HOA)A private organization governing a community of properties, charging dues for shared maintenance and amenities and enforcing rules about property use. Common in condominiums, townhomes, and many planned developments.
- Homestead exemptionA state-level reduction in property tax (and sometimes assessment value) for primary residences, requiring an application by the homeowner. Specific rules and dollar amounts vary widely by state.
L
- Listing agreementThe contract between a seller and a real estate brokerage that authorizes the brokerage to market the home and specifies the listing-side compensation, duration, and exclusivity terms.
- Loan EstimateA federally-required three-page disclosure that summarizes a mortgage offer, sent within three business days of a complete loan application. Designed to make different lender offers comparable.
- Loan-to-value ratio (LTV)The loan amount divided by the home's value, expressed as a percentage. LTV drives PMI requirements, interest rate pricing, and many program-specific eligibility rules.
M
- Mansion taxAn additional transfer tax that kicks in above a price threshold, typically applying to the entire sale price (cliff structure) rather than just the amount above the threshold. New York and New Jersey both have versions.
- Mortgage insurance premium (MIP)The mortgage insurance charged on FHA loans. Has both an upfront component (1.75% rolled into the loan) and a monthly component, and may stay for the life of the loan depending on the original LTV.
- Mortgage preapprovalA lender's conditional approval letter based on a credit pull and reviewed documentation, signaling that the borrower can likely qualify for a mortgage up to a stated amount.
- Mortgage prequalificationAn informal lender estimate of how much a borrower might qualify for, based on self-reported income and debt without verification, meaningfully weaker than preapproval.
- Mortgage taxA tax imposed in some states on the recording of a mortgage, calculated as a percentage of the loan amount and typically paid by the buyer at closing.
- Multiple Listing Service (MLS)A regional database of properties listed for sale by member brokerages, used by real estate agents to share listings, comparable sales data, and transaction history.
P
- PITIThe four standard components of a monthly mortgage payment (principal, interest, property taxes, and homeowners insurance) sometimes extended to include PMI/MIP and HOA dues.
- PointsAn upfront fee paid at closing, equal to 1% of the loan amount per point, in exchange for a lower interest rate over the life of the loan.
- Private mortgage insurance (PMI)Insurance that protects the lender (not the borrower) when a conventional loan has less than 20% down, paid by the borrower until the loan-to-value ratio drops to 78% on the original schedule.
- Property tax prorationAn adjustment at closing that divides the year's property tax between buyer and seller based on the closing date and whether the jurisdiction pays in arrears or in advance.
R
- Rate lockAn agreement between the borrower and lender to fix the mortgage interest rate for a set period (typically 30 to 90 days), protecting the borrower from rate movement before closing.
- RefinanceA new mortgage that pays off an existing one, typically to capture a lower rate, change the loan term, or extract home equity as cash. Closing costs apply.
S
- SALT capThe $10,000 limit on the federal deduction for state and local taxes (income, property, and sales tax combined), introduced by the 2017 Tax Cuts and Jobs Act. Affects high-tax-state homeowners who itemize.
- Section 121 exclusionThe federal tax provision that lets a primary-residence seller exclude up to $250,000 of capital gain from federal tax ($500,000 if married filing jointly), provided ownership and use tests are met.
- Seller concessionsClosing costs that the seller agrees to pay on the buyer's behalf, typically as a negotiated term in the purchase contract, often used to cover repairs identified at inspection or to make the deal close.
- Seller disclosureA state-required statement from the seller listing known material defects in the property, provided to the buyer before contract or during the inspection period. Specific contents vary by state.
- Settlement statementThe closing document that itemizes all the credits, debits, and charges in a real estate transaction for both buyer and seller, showing the final cash flows at closing.
T
- Title insuranceInsurance that protects against title defects existing at the time of sale but not discovered during the title search. Comes in two policies, lender's (required) and owner's (optional but customary).
- Title searchA pre-closing review of public records to confirm the seller has the legal right to transfer ownership and that there are no outstanding liens or claims against the property.
- Transfer taxA tax imposed by the state, county, or city on the transfer of real property from seller to buyer, calculated as a percentage of sale price. Rates and customary payer vary widely by jurisdiction.
U
- UnderwritingThe lender's process for verifying a borrower's eligibility and the property's value before funding the loan, examining credit, capacity, collateral, and cash.
- Upfront mortgage insurance premium (UFMIP)The one-time mortgage insurance fee charged on FHA loans at closing, equal to 1.75% of the base loan amount, typically rolled into the financed balance rather than paid in cash.
V
- VA funding feeThe one-time fee charged on VA loans, ranging from 1.25% to 3.30% of the loan amount, typically rolled into the financed balance rather than paid in cash. Waived entirely for service-connected disability cases.
- VA loanA residential mortgage guaranteed by the Department of Veterans Affairs, available to qualifying service members and veterans, with no down payment requirement and no monthly mortgage insurance.