Buying a home involves its own language. Here’s a guide to the terms you may encounter.
LR — Living room
W/D — Washer dryer
Active — A property that is on the market and available for sale. It may have received offers but none have been accepted.
ARM — Adjustable-Rate Mortgage. A mortgage loan with a fluctuating interest rate.
APR — Annual Percentage Rate. APR is a broader measure of the cost of borrowing money. It reflects not only the interest rate but also points, fees and other charges paid to obtain a loan.
Appraisal — An estimate of the market value of a property based on comparable recent sales of homes nearby. It is done by a licensed appraiser for a lender.
Arms-length transaction — Both parties to a transaction are acting in their own self-interest. Neither party is pressured by or acts in connection with the other to assure the fair market value of the property.
Assessment — An estimate of the home’s value for property tax purposes.
Closing costs — The expenses and fees associated with the purchase and sale of a home, such as taxes, title insurance, appraisal fees and lender fees.
Closing Disclosure — A final statement of loan terms and closing costs. The buyer must receive it three business days before closing. Replaced the old HUD-1 form.
Commission — A fee charged by a real estate agent for his services. In many cases, the seller pays the commission to his agent as well as the buyer’s agent.
Contingency — A condition that must be met before a sale can close. Common contingencies include home inspection, financing and home appraisal.
DTI — Debt-to-Income. The total percent of a borrower’s income that is paid toward debt each month calculated as a ratio of a borrower’s gross monthly income over his debts including car payments, student loans and credit card bills. A borrower’s DTI affects his credit rating.
Deed — A legal document filed with the county that records homeownership.
Down payment — The amount of money a buyer pays at closing toward a home purchase.
Earnest money deposit — A partial payment by a buyer when submitting a contract that demonstrates the buyer’s commitment to the deal. The money, which is held in an escrow account, goes toward closing costs.
Equity — The amount remaining after subtracting the amount of a mortgage loan from the sales price of the home.
Escalation clause — A tool used by buyers to outbid competitors for a property. In the contract offer submitted by the buyer to the seller, the buyer states he will increase his offer by a certain amount if the seller receives offers higher than his.
Escrow — A neutral or third party who handles the exchange of money and documents on behalf of two other parties before the closing of a sale.
Fixed-rate mortgage — A mortgage loan with an interest rate that won’t change during the length of the loan.
FSBO — For Sale By Owner. The owner of the property is selling without a real estate agent.
Listing — Property for sale that is listed on the multiple listing service. A FSBO is not a listing.
LTV — Loan-to-Value. The ratio of the amount of money borrowed over the appraised value of the home. It is a key risk factor that lenders consider when evaluating a loan application.
MLS — Multiple Listing Service. A local or regional real estate service that compiles available properties for sale submitted by real estate brokers and agents. An MLS can only be accessed by real estate brokers and agents.
Pending — An offer has been accepted, a contract has been executed and the contingencies have been met.
Points — A one-time fee paid to a lender equal to 1 percent of the loan amount to reduce the interest rate.
Preapproved — A buyer completes an application, pays a fee and supplies the necessary documentation to the lender who performs an extensive financial background check. The lender will issue a conditional commitment in writing for an exact loan amount. Preapproval does not guarantee a loan.
Prequalified — An informal estimate of how much a buyer can afford to borrow for a mortgage. It does not include an analysis of a buyer’s credit report or an in-depth look at his ability to purchase a home.
PITI — Principal, Interest, Taxes and Insurance. The major homeownership costs included in many monthly mortgage payments.
PMI — Private Mortgage Insurance. Insurance that protects a lender against loss if a borrower defaults on a loan. PMI is required for conventional loans that have less than a 20 percent down payment.
Rate lock — An agreement between a borrower and a lender that allows the borrower to lock in an interest rate on a mortgage for a specified period of time.
Title insurance — Compensates the buyer or lender if title defects, liens or competing claims of ownership on a property arise after closing.
Under contract — A seller has accepted the buyer’s offer but any contingencies have yet to be met.
Sources: Realtor.com; Nolo.com; Redfin