35 Essential Terms Every Homeowner Should Know

If you’re considering purchasing or selling real estate, you’re about to enter a world of jargon—terminology that can, at times, be complex, confusing, and unwieldy, especially if you’re learning as you go.

Head into your dealings with lenders and real estate agents prepared by learning key terms ahead of time. You’ll de-complicate your conversations and be able to make more informed decisions. Here’s our ultimate guide to the 35 essential terms that any homebuyer or seller should know.

Financing and mortgage terms

When you find your dream home or are selling your starter property to purchase a new one, you’ll likely have to take out a mortgage loan or interact with a buyer trying to get this type of loan. Understanding common financing and mortgage terms can help you navigate the home sale process—whether you find yourself on the buying or selling end.

1. Mortgage

A mortgage is a loan that aspiring property owners can take out to purchase a home, piece of land, or other real estate asset. These loans leverage the property as security (collateral), meaning that if a borrower defaults on a payment, the mortgage lender can foreclose (taking the property back). Interest on a mortgage may be fixed or adjustable, and standard repayment amortization (monthly payment plans) can range from 15 to 30 years.

2. Down payment

A down payment is a lump sum borrowers pay upfront on a large purchase, like a home. This out-of-pocket payment is taken off the top of the total amount owed. So, if a buyer makes a $50,000 down payment on a $400,000 home, the remaining $350,000 will be financed by the mortgage. Down payments generally range from 5 to 20 percent of the property value.

3. Assumable mortgage

An assumable mortgage is a debt transfer between a home seller and buyer. The buyer assumes the terms and amount of the mortgage on the home they purchase from the seller. Assumable mortgages can have lower interest rates than the ones available at the time of a sale since the seller acquired the mortgage in the past when there were different rates.

4. Loan underwriting

Loan underwriting is part of the borrower vetting process, in which the lender assesses the risk level and creditworthiness of the borrower. The lender may consider the borrower’s paystubs, bank statements, and other financial information to determine that the borrower has sufficient funds (and the ability to earn them) to repay the loan.

5. Pre-underwriting

Pre-underwriting is a non-guaranteed, pre-approval process for a loan. Just like in the traditional underwriting process, a lender assesses a potential buyer’s financial data to ensure their creditworthiness. The lender determines an amount they’d be willing to loan to the buyer without giving an official commitment, which the lender will provide when the buyer is ready to purchase a property. 

6.  Pre-approval

A pre-approval is a non-guaranteed document that presents the mortgage terms a lender would hypothetically offer a buyer. This document includes lending fees, the purchase price of the potential property, and the projected interest rate, providing a clear idea of what buying a home will cost the buyer. 

7.  Pre-qualification

A pre-qualification letter is a precursor to a pre-approval and tentatively determines how much a lender could finance for a buyer. This letter gives a buyer an idea of how much they can potentially spend on a home so they can approach the market with this figure in mind. However, the amounts paid out in a pre-qualification letter are not guaranteed.

8.  Bridge loan

Bridge loans provide cash flow to borrowers while they wait for a more permanent financing arrangement on a big purchase. These loans, also known as interim financing, gap financing, or swing loans, are often a short-term solution as they have higher interest rates than other financing options. A buyer might use a bridge loan to put a down payment on a property while they wait for their home to sell and can take out a mortgage on the new house.

9. Proof of funds (POF)

A proof of funds is a statement that demonstrates a person’s financial status. For example, a bank statement provides proof of funds. A lender can use a proof of funds, in part, to determine whether a borrower could repay a loan.

10. Appraisal contingency

An appraisal contingency allows a buyer to back out of a potential home purchase, should they find that the property is not worth the stated value. After having the property appraised, a buyer can ask for a price drop on a property that’s been overvalued or pull out of the sale entirely (getting back any deposits previously made).

11. Appraisal gap

An appraisal gap is the difference between the actual value of a property (after having undergone an appraisal) and the agreed-upon purchase price. A large appraisal gap can signal that the agreed-upon purchase price is significantly over- or under-valued. 

12. Co-borrower

A co-borrower is a joint applicant for a loan. A co-borrower assumes partial responsibility for repaying the loan and for the ownership of the property acquired. Having a co-borrower can be wise for loan applicants who want to improve their chances of getting financing since the lender also takes into account the co-borrower’s assets and financial wellness when determining loan amounts and interest rates.

Property types

While it may be easy to determine whether a property is a house, condo, or apartment, other distinctions are trickier to define. Here are the ins and outs of unique property types and what sets them apart.

1.  Single-family home

A single-family home is a standalone property, like a house, that is not shared with other residents (as in an apartment building). The term “single-family homes” implies that one “household” lives in the property, which could be an individual, couple, or family. And the term “standalone” doesn’t necessarily imply that the house isn’t attached to others, as, especially in urban areas, a single-family home might be physically up against other properties (as is the case with a townhouse).   

2. Townhome

A townhome is a type of single-family occupancy home that is physically attached to the property(ies) next to it. Generally, townhouses are in urban environments, contain multiple levels, and have a small front or back yard. Townhomes feature separate entrances and are considered single-family properties. 

3.  Modular homes

A modular home is a prefabricated home (prefab) whose parts are constructed in a factory and transported to the piece of land where it will be put together and installed. “Prefabricated” doesn’t imply that the home’s layout is completely pre-determined; homeowners can customize these properties or choose from ready-made plans.

4. Manufactured homes

Manufactured homes are built in factories, generally on top of a metal chassis, and transported whole to the plot where they’ll be installed. 

Buying and selling processes

No matter the industry, contracts are full of legal jargon that requires that signers do some research. The following definitions of buying and selling terms will give you a better handle on determining the nature of a purchase or sale.

1.  Home statuses

In the buying and selling process, properties fall into the following status categories: 

• Under contract: The buyer and seller have reached a sale agreement and contract terms, and the buyer has deposited earnest money, which is a good faith deposit demonstrating serious intent to purchase. 

• Contingent: An offer has been made but with certain contingencies, like having an appraisal or inspection done. 

• Pending: An offer has been accepted, the property has been taken off the market, and all contingencies have been fulfilled or waived.

• Closed: Closing is the last part of the home sale process, in which the property's title officially transfers to the new owner and their mortgage takes effect.

2. No contingency

No contingency means that there are no additional requirements necessary before a sale, unlike when the home’s status is contingent (i.e., dependent on an inspection, etc.)

3. Purchase agreement

A purchase agreement is a binding contract that stipulates a property’s sales terms. This legal document includes details like the location of the property, the selling price, and any contingencies. 

4. Seller's disclosures

Seller's disclosures are points that homeowners must mention to potential buyers. There are differing local laws on what must be disclosed, but these points generally include if there was a death in the home, if the property requires repairs (say, for water damage or roofing shingles) or presents hazards (like asbestos or lead-based paint), or if the neighborhood implies nuisances. 

5.  Escalation clause

An escalation clause is a stipulation on an offer. Escalations automatically increase a buyer’s offer to beat competing ones, up to a certain amount. 

6.  Sale-leaseback

In a sale-leaseback, an investor purchases a seller’s property and the seller leases it from that investor. The seller can, therefore, continue to live in their property while liquefying their asset to have more available funds.

7. Seller concessions

With seller concessions, a buyer assumes some closing costs or other fees upfront on the seller’s behalf. The buyer is alleviated of these fees, and the seller, therefore, makes their home a more attractive purchase.

8. Kick-out clause

A kick-out clause is a stipulation that benefits a home seller, allowing them to “kick out” a contingent offer already made on their property if a better one (without or with fewer contingencies) comes along.

Real estate market and listings

You needn’t have a real estate license to understand the listing process. But a thesaurus to key terms can help you feel confident dealing with a realtor. Here are four phrases anyone putting their home on the market or purchasing one should know.

1. Pocket listings or off-market listings

A pocket (or off-market) listing isn’t offered on public platforms, like the multiple listing service (MLS), and is only carried by one agent. Should this agent sell the property, they keep all of the commission, instead of sharing it with other agents who might have helped move a publicly-listed property. A pocket listing benefits the seller, too. They get to be more selective about who views the home, and if they fail to sell, this won’t be reflected on the market.

2. Comparables 

Real estate comparables (or comps for short) are similar properties that help determine the price of one entering the market. A comps assessment determines market value by considering factors like the age and state of a property, its size, and any drawbacks.

3. Turnkey home

A turnkey home is a property that’s move-in ready. These homes require no further work or aesthetic upgrades, having recently been built or renovated.  

4. 1031 Exchange

A 1031 exchange is a property swap that helps an investor lessen tax burdens. When a person exchanges a property instead of selling it, there is no visible capital gain before the IRS that can be taxed. If money is exchanged during the swap, it must be held by an intermediary so that these funds never enter the account of the seller, who is technically bartering, not effecting a sale.

Professionals

When you sell or buy a home, you’ll have the help of a lender, a real estate agent, and maybe, a lawyer. But you’ll also likely need the assistance of a home inspector or appraiser. Here’s what these two professionals do.

1. Home inspector

A home inspector performs a visual inspection of a property, reviewing thousands of key points, from structural elements to HVAC air conditioning and heating units to plumbing.

2. Home appraiser

An appraiser determines the worth of a property based on home inspection data, aspects of the home (like its size and condition), and comparables on the market. 

Special circumstances

When you buy or sell a home, there’s always some fine print. If you’re a mortgage borrower, that fine print often refers to the special (and undesirable) circumstances of failure to pay. Here are two key terms any borrower should know and what the consequences of these special circumstances imply.

1. Foreclosure

Mortgages use the financed property as collateral, and in a foreclosure, the lender recoups the property when a borrower defaults on payments. In theory, the lender could sell the repossessed property and cover the debt the borrower defaulted on. 

2. Pre-forclosure

Pre-foreclosure is a warning of potential foreclosure. A borrower who has defaulted will generally receive a default letter 90 days after failing to make mortgage payments and will have 30 more to settle or negotiate a solution in order to avoid foreclosure. 

Communities

In life, communities are what we make them. But in real estate, communities are often defined by rules, boards, and other limits. Here are three key real estate community terms you’ll likely encounter on the journey to landing your next home. 

1. Homeowners association

A homeowners association (HOA) is a body that governs property owners who live in a shared neighborhood or community and who abide by certain rules and regulations on properties (i.e. maintenance) and participant behaviors (i.e. limiting noise, being neighborly). HOAs are generally run by a volunteer board of people who live in the community and vote on rules or upgrades (like building a new clubhouse) that affect everyone. HOAs often charge homeowners fees and offer amenities in return, like a communal swimming pool or parking areas. 

2. Condominium association 

Like an HOA, a condominium association sets rules and guidelines for condo inhabitants. Condo associations are governed by a volunteer board of community members who vote to implement changes. These associations can also charge fees in return for installing and maintaining common areas. 

3. Bedroom community

A bedroom community is a residential area, also known as a commuter town, largely limited to living (with little to no business activity). Bedroom communities might have some entertainment or shopping options, like a convenience store primarily used by those who live there.

Learn more by working with a realtor

The best sources of real estate information are professionals: agents who know the ins and outs of the industry, understand financing and legal issues, and are experts at breaking down tricky terminology.

Partner with one of the most talented agents in the game through Titus. Titus only works with the best realtors, with the experience and know-how to help homeowners sell their properties fast. Plus, Titus-affiliated agents have access to a unique financing tool: closing lines of credit (CLoCs), funds home sellers can use to upgrade their property to maximize their sale.