Buying a home or investing in real estate comes with a lot of unfamiliar terms. To make things simpler, we’ve put together a clear, easy-to-use glossary of key mortgage and real estate phrases you’ll likely come across.
Table of Contents
A
Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage is a home loan where the interest rate stays the same for an initial period (like 5 or 7 years) and then changes periodically based on a financial index. This means your monthly payment can go up or down after the fixed-rate period.
Example: If you borrow $200,000 with a 5/1 ARM at 3% interest, your monthly payment is $843 for the first 5 years. After that, the rate could change, and your payment might go up to $954 if the rate rises to 4%.
After Repair Value (ARV)
After repair value is the estimated worth of a property after renovations or improvements. It’s used to evaluate potential profits for real estate investors.
Example: You buy a home for $100,000 and spend $30,000 on renovations. If homes in the area sell for $180,000 in similar condition, the ARV is $180,000.
Alternative Credit Data
Alternative credit data is non-traditional financial information like rent payments or utility bills that shows your financial reliability when you don’t have a US credit history.
Example: A foreign national shows 12 months of on-time rent payments to qualify for a loan.
Amortization
Amortization is the process of paying off a loan with monthly payments that cover both the loan amount (principal) and interest. Over time, more of your payment goes toward the principal.
Example: A $300,000 loan at 4% for 30 years has monthly payments of $1,432. Initially, most of the payment covers interest, but by the end, most goes to the loan balance.
Amortization Schedule
An amortization schedule is a table showing how each loan payment is divided between principal and interest, as well as the remaining balance after each payment.
Example: For a $200,000 loan:
| Month | Principal | Interest | Balance Remaining |
| 1 | $300 | $700 | $199,700 |
| 2 | $302 | $698 | $199,398 |
Appraisal
An appraisal is a professional estimate of a property’s market value, often required by lenders to ensure the property is worth the loan amount.
Example: A buyer offers $250,000 for a house, but the appraisal values it at $240,000. The lender bases the loan on the lower value, so the buyer might need to pay the difference.
Assessed Value
The assessed value is the value assigned to a property by the local government for tax purposes. It’s usually lower than the market value.
Example: If a home is worth $300,000 on the market but assessed at $270,000, the property tax is based on $270,000.
Asset Qualification Loan
An asset qualification loan is a loan where approval depends on your savings, investments, or other assets instead of regular income.
Example: A retiree with $1,000,000 in savings but no steady income qualifies for a $500,000 loan because their assets demonstrate repayment ability.
B
Bank Reference Letter
A bank reference letter is a document from your bank that confirms your financial standing and history, often required for foreign buyers.
Example: A foreign borrower provides a letter showing their account balance and payment reliability.
Borrower’s Income
Borrower’s income is the money earned by a borrower, including salary, bonuses, or investments, used to determine loan eligibility.
Example: A borrower earns $75,000 annually, which helps them qualify for a mortgage.
Bridge Loan
A bridge loan is a short-term loan that helps cover the gap between buying a new property and selling an old one.
Example: You want to buy a $500,000 home but haven’t sold your current home. A bridge loan helps cover the down payment temporarily.
Building Equity
Building equity is the process of increasing the portion of the property you own outright by paying down the loan or through property appreciation.
Example: If your home is worth $300,000 and your loan balance is $200,000, you have $100,000 in equity.
Buyer’s Agent
A buyer’s agent is a real estate professional who helps you find and negotiate the purchase of a home.
Example: A buyer’s agent helps you find a $350,000 home, negotiate the price down to $340,000, and navigate the paperwork.
C
Cash Flow
Cash flow is the net income a property generates after covering all expenses, including mortgage payments, taxes, and maintenance. It’s a critical metric for real estate investors.
Example: If a rental property earns $2,000 per month and expenses total $1,500, the cash flow is $500 per month.
Cash-Out Refinance
A cash-out refinance is when you replace your current mortgage with a new one for a higher amount and take the difference as cash. It’s often used to fund renovations or consolidate debt.
Example: If you owe $150,000 on your home valued at $300,000, you could refinance for $200,000 and take $50,000 in cash.
Certified International Property Specialist (CIPS)
A certified international property specialist is a real estate professional with expertise in helping international clients buy and sell property.
Example: CIPS-certified real estate agent Michele Lawrie at HomeAbroad helped a global investor purchase a rental property in Florida.
Closing Costs
Closing costs are the fees and expenses you pay to finalize a home purchase or refinance. These typically include appraisal fees, title insurance, and attorney fees.
Example: On a $300,000 home, closing costs might range from $6,000 to $12,000.
Closing Disclosure
A closing disclosure is a document that outlines the final terms, costs, and details of your loan. It must be provided to you at least three days before closing.
Example: The closing disclosure lists your $1,200 monthly payment, $10,000 down payment, and $8,000 closing costs.
Collateral
Collateral is an asset, like a house, that you pledge to secure a loan. If you fail to repay, the lender can take the collateral.
Example: When you get a mortgage, your home serves as collateral for the loan.
Comparable Sales (Comps)
Comparable sales are recent sales of similar properties in the same area, used to estimate a property’s value.
Example: A 3-bedroom home sells for $350,000, and a similar home nearby sells for $355,000. These are comps for appraising another 3-bedroom property.
Concierge Service
A concierge service provides personalized assistance throughout the home-buying or mortgage process.
Example: HomeAbroad’s concierge service helps foreign buyers find properties, connect with experts, and close loans seamlessly.
Construction Loan
A construction loan is a short-term loan used to finance building a new home or renovating an existing one.
Example: A borrower takes out a $300,000 construction loan to build a house, paying interest only during construction.
Conventional Loan
A conventional loan is a mortgage that isn’t backed by the government (like FHA or VA loans) and typically requires a higher credit score and down payment.
Example: A borrower with good credit makes a 20% down payment on a $400,000 home and qualifies for a conventional loan.
Credit Report
A credit report is a document that shows your financial history, including loans, credit card payments, and any defaults. Lenders use it to assess your creditworthiness.
Example: A borrower with a credit report showing on-time payments and low debt is likely to get a lower interest rate.
Credit Score
A credit score is a number (typically between 300 and 850) that represents your creditworthiness based on your credit history.
Example: A borrower with a credit score of 750 may qualify for a lower interest rate than someone with a score of 650.
Creditworthiness Assessment
A creditworthiness assessment is the process lenders use to evaluate how likely you are to repay a loan. It considers your income, assets, and credit history.
D
Debt Service
Debt service refers to the total amount of money required to cover the repayment of a loan, including principal and interest.
Example: If your monthly mortgage payment is $1,500, your annual debt service is $18,000.
Debt-Service Coverage Ratio (DSCR)
The debt-service coverage ratio measures how well a property’s income can cover its debt payments. It’s used for investment property loans.
Example: If a rental property earns $5,000 per month and the mortgage payment is $4,000, the DSCR is 1.25 ($5,000 ÷ $4,000).
Debt-to-Income Ratio (DTI)
The debt-to-income ratio is the percentage of your monthly income used to pay debts, including your mortgage. Lenders use it to assess affordability.
Example: If you earn $6,000 monthly and your debts total $2,000, your DTI is 33% ($2,000 ÷ $6,000).
Deed
A deed is a legal document that transfers property ownership from one person to another. This means that when you buy a home, the seller signs a deed transferring ownership to you.
Down Payment
A down payment is the upfront cash you pay toward buying a home. Most lenders require at least 3–20% of the home’s price.
Example: On a $400,000 home, a 20% down payment would be $80,000.
Draw Schedule
A draw schedule is a plan for disbursing funds from a construction loan as different building phases are completed.
Example: A builder receives $50,000 after completing the foundation, then $100,000 after framing the structure.
Due Diligence
Due diligence is the process of thoroughly reviewing a property before finalizing a purchase to ensure there are no hidden issues.
E
Earnest Money Deposit
An earnest money deposit is a payment made by a buyer to show they are serious about purchasing a home. This deposit is typically held in escrow and applied toward the purchase at closing. If the deal falls through due to the buyer, the seller may keep this money.
Example: A buyer offers $300,000 for a home and includes a $5,000 earnest money deposit to demonstrate their commitment.
Easement
An easement is a legal right for someone to use another person’s property for a specific purpose, such as accessing a road or utility lines.
Employment Verification
Employment verification is the process of confirming a borrower’s job status, income, and length of employment to ensure they can repay the loan.
Example: A lender calls a borrower’s employer to confirm they earn $75,000 per year and have been employed for 3 years.
Equity
Equity is the difference between the value of your home and what you owe on your mortgage. It represents your ownership in the property.
Example: If your home is worth $300,000 and your mortgage balance is $200,000, you have $100,000 in equity.
Escrow
Escrow is a financial arrangement where a third party holds funds or property until certain conditions are met, such as completing a home sale.
Exchange Rate
An exchange rate is the value of one currency compared to another, which is crucial for foreign buyers who need to convert funds to purchase US property.
Example: If the exchange rate is 1 USD = 0.85 EUR, a $300,000 home would cost €255,000.
Exit Strategy
An exit strategy is a borrower’s plan to repay a short-term loan, such as selling the property or refinancing into a long-term loan.
F
Fair Market Value (FMV)
Fair market value is the price a property would sell for on the open market, considering factors like location, condition, and recent sales of similar properties.
Example: A home in a desirable neighborhood with similar homes selling for $400,000 would likely have an FMV of $400,000.
Fixed-Rate Mortgage
A fixed-rate mortgage is a home loan where the interest rate stays the same for the entire loan term, providing consistent monthly payments.
Example: A 30-year fixed-rate mortgage at 4% for $250,000 means you’ll pay $1,194 per month for the life of the loan.
Flip Property
A flip property is a home bought at a lower price, renovated, and sold quickly for profit. This is common in real estate investing.
Example: A house purchased for $120,000 is renovated with $30,000 in upgrades and sold for $200,000, netting $50,000 in profit.
Foreign Income
Foreign income refers to earnings from outside the US, which can be used by foreign buyers to qualify for a mortgage, depending on the lender’s policies.
Example: A foreign investor earning €100,000 annually uses this income to qualify for a US mortgage.
Foreign National Mortgage
A foreign national loan is a mortgage designed for non-US residents who want to buy property in the United States. These loans often don’t require a US credit score or income.
Foreclosure
Foreclosure occurs when a borrower fails to make mortgage payments, and the lender takes legal action to seize and sell the property to recover the loan amount.
Example: A homeowner stops paying their $200,000 mortgage. The bank forecloses and sells the home for $180,000 to recover some of the debt.
G
Gift Funds
Gift funds are money given by a family member or friend to help with the down payment or closing costs for a home purchase. Lenders typically require documentation confirming the funds are a gift, not a loan.
Example: A borrower’s parents give them $20,000 to help buy a $300,000 home.
Gross Rental Income
Gross rental income is the total amount of money a property generates from rent before expenses like taxes and maintenance.
Example: A property rented for $2,500 per month generates $30,000 in gross rental income annually.
Ground-Up Construction Loan
A ground-up construction loan is a loan specifically for building a property from scratch, covering land purchase, materials, and labor.
Example: A borrower takes a $400,000 construction loan to build a custom home on a vacant lot.
Grant Deed
A grant deed is a legal document that transfers property ownership from one person to another, guaranteeing the title is free of claims.
H
Home Appraisal
A home appraisal is a professional evaluation of a property’s market value, often required by lenders to ensure the loan amount is appropriate for the property value.
Home Equity Line of Credit (HELOC)
A HELOC is a revolving line of credit secured by the equity in your home. You can borrow as needed up to a set limit and pay interest only on the amount borrowed.
Example: If your home is worth $300,000 and your mortgage balance is $200,000, you have $100,000 in equity. A lender might approve a HELOC for $80,000.
Home Inspection
A home inspection is a professional examination of a property’s condition to identify potential issues, like structural problems or needed repairs, before purchase.
Homeowners Association (HOA)
An HOA is an organization that manages and enforces rules for properties within a community. Owners in an HOA community pay fees for shared amenities and maintenance.
Homeowners Insurance
Homeowners insurance protects your property and belongings against damage or theft. Most lenders require it to protect their investment.
Housing Inventory
Housing inventory refers to the total number of homes available for sale in a given market.
I
Income Verification
Income verification involves providing documentation, such as pay stubs or tax returns, to prove your earnings when applying for a loan.
Interest Rate
The interest rate is the percentage a lender charges for borrowing money, expressed annually.
Example: For a $200,000 loan at a 4% interest rate, the monthly payment for principal and interest is approximately $955 on a 30-year term.
Interest-Only Payments
Interest-only payments allow borrowers to pay just the interest on a loan for a set period, keeping monthly payments lower temporarily.
Example: On a $200,000 loan with a 4% interest rate, an interest-only payment would be $667 per month during the interest-only period.
International Credit Report
An international credit report assesses a borrower’s creditworthiness based on their financial history in their home country, helping foreign nationals qualify for US loans.
Investment Property
An investment property is real estate purchased to generate income through renting or selling for a profit.
Investor Cash Flow Loan
An investor cash flow loan bases approval on a property’s rental income rather than the borrower’s personal income.
J
Jumbo Loan
A jumbo loan is a mortgage that exceeds the conforming loan limit set by the Federal Housing Finance Agency (FHFA). These loans often have stricter requirements.
Example: In 2023, the conforming loan limit is $726,200. A $1,000,000 mortgage would require a jumbo loan.
L
Lease Agreement
A lease agreement is a contract between a property owner and a tenant outlining the rental terms, including payment and duration.
Loan Estimate
A loan estimate is a document provided by the lender detailing the loan terms, including estimated interest rate, monthly payment, and closing costs.
Loan Term
The loan term is the length of time a borrower has to repay a loan. Common terms are 15 or 30 years for mortgages.
Loan-to-After-Repair Value (LTARV)
Loan-to-after-repair value is the ratio of the loan amount to the estimated value of a property after renovations.
Example: A property has an ARV of $200,000, and the loan is $150,000. The LTARV is 75% ($150,000 ÷ $200,000).
Loan-To-Cost (LTC)
Loan-to-cost is the ratio of the loan amount to the total cost of purchasing and renovating a property.
Example: If the total project cost is $250,000 and the loan is $200,000, the LTC is 80% ($200,000 ÷ $250,000).
Loan-To-Value (LTV)
Loan-to-value is the ratio of the loan amount to the property’s appraised value.
Example: If a home is appraised at $400,000 and the loan amount is $320,000, the LTV is 80% ($320,000 ÷ $400,000).
M
Market Rent Analysis
Market rent analysis determines the rental value of a property based on similar properties in the area.
Market Value
Market value is the estimated price a property would sell for on the open market.
Mortgage Insurance
Mortgage insurance protects the lender if the borrower defaults on the loan, often required for loans with less than a 20% down payment.
Mortgage Note
A mortgage note is a legal document outlining the terms of the loan, including the repayment schedule and interest rate.
Mortgage Points
Mortgage points are fees paid to the lender to lower the interest rate. One point equals 1% of the loan amount.
Example: On a $200,000 loan, one point costs $2,000 and might reduce the interest rate from 4% to 3.75%.
Multi-Family Properties
Multi-family properties are buildings with multiple separate units, such as duplexes or apartment complexes.
N
Non-Owner-Occupied Property
A non-owner-occupied property is real estate purchased as an investment, not as a primary residence.
Non-Permanent Resident Alien Mortgage
A non-permanent resident alien mortgage is a loan available to individuals living in the US on temporary visas, like work or study visas.
Non-QM Loan
A non-QM (non-qualified mortgage) loan is a flexible loan option for borrowers who don’t meet traditional mortgage requirements, such as self-employed individuals or those with non-traditional income sources.
Note Rate
The note rate is the interest rate stated on the mortgage note, which determines the borrower’s monthly payment.
No-Ratio DSCR Loan
A no-ratio DSCR loan allows approval without calculating the borrower’s personal income ratio, focusing instead on the property’s rental income.
O
Origination Fee
An origination fee is a charge by the lender for processing your loan application, typically a percentage of the loan amount.
Example: For a $300,000 loan with a 1% origination fee, the cost is $3,000.
Owner-Occupied Property
An owner-occupied property is a home that the buyer lives in as their primary residence.
P
PITIA (Principal, Interest, Taxes, Insurance, Association Dues)
PITIA is the total monthly cost of owning a property, including the loan payment (principal and interest), property taxes, homeowners insurance, and association fees.
Points (Discount Points)
Points, or discount points, are fees paid upfront to reduce your mortgage interest rate. One point equals 1% of the loan amount.
Example: Paying $3,000 for one point on a $300,000 loan might lower the rate from 4% to 3.75%.
Power of Attorney (POA)
Power of attorney allows someone to act on your behalf in legal or financial matters, such as signing documents for a property purchase.
Pre-Approval
Pre-approval is when a lender evaluates your financial information and determines the loan amount you qualify for before house hunting.
Prepayment Penalty
A prepayment penalty is a fee some lenders charge if you pay off your loan early.
Example: A lender imposes a 2% penalty for early repayment on a $200,000 loan, resulting in a $4,000 fee.
Principal
Principal is the original loan amount or the remaining balance on the loan that you must repay, excluding interest.
Private Mortgage Insurance (PMI)
PMI is insurance that protects the lender if the borrower defaults on the loan. It’s typically required if the down payment is less than 20%.
Example: For a $300,000 loan with 10% down, PMI might cost $150 per month.
Proof of Funds
Proof of funds is documentation, like bank statements, showing you have enough money to cover the down payment and closing costs.
Property Appraisal
A property appraisal is a professional estimate of a home’s value, required by lenders to ensure the loan amount matches the property’s worth.
Property Equity
Property equity is the difference between the value of your property and the amount you owe on it.
Example: If your home is worth $400,000 and your mortgage balance is $250,000, your equity is $150,000.
Property Taxes
Property taxes are annual taxes paid to local governments based on the assessed value of your property.
Example: If your home’s assessed value is $300,000 and the tax rate is 1.5%, you’ll pay $4,500 annually.
Purchase Agreement
A purchase agreement is a contract between the buyer and seller outlining the terms of the property sale.
R
Rate Lock
A rate lock guarantees a specific mortgage interest rate for a set period, protecting you from market rate increases during the loan process.
Real Estate Owned (REO)
Real estate owned refers to properties owned by a lender, typically acquired through foreclosure.
Refinancing
Refinancing involves replacing an existing mortgage with a new one, often to get a lower interest rate or better terms.
Example: Refinancing a $300,000 loan from 5% to 3.5% saves approximately $263 per month in payments.
Reserve Requirements
Reserve requirements are the funds a borrower must have in savings to cover future loan payments, typically expressed in months of mortgage payments.
Example: If a lender requires 6 months of reserves for a $1,500 monthly payment, you must have $9,000 in savings.
Rehabilitation Loan
A rehabilitation loan is used to finance both the purchase and renovation of a property.
S
Section 8 Housing
Section 8 housing is a government program that helps low-income tenants afford rent, often appealing to investors as it guarantees a portion of the rent is paid by the government.
Second Home
A second home is a property you purchase for personal use, such as a vacation home, and not as a primary residence.
Settlement Statement
A settlement statement is a document listing all the costs and fees involved in a real estate transaction.
Short Sale
A short sale is when a property is sold for less than the amount owed on the mortgage, requiring lender approval.
Single-Family Residence (SFR)
A single-family residence is a standalone home designed for one family.
Special Warranty Deed
A special warranty deed guarantees that the seller has not incurred any title issues during their ownership of the property.
T
Tax Lien
A tax lien is a legal claim by the government on a property due to unpaid taxes.
Tax Returns
Tax returns are documents filed with the IRS showing your income and expenses, often required for loan applications.
Title Insurance
Title insurance protects buyers and lenders from financial loss due to title defects or disputes.
Title Report
A title report is a document showing the history of ownership and any existing liens or claims on a property.
Title Search
A title search is the process of reviewing public records to verify a property’s ownership and identify potential issues.
Trust Deed
A trust deed is a document used in some states instead of a mortgage, transferring legal title to a trustee until the loan is repaid.
U
Underwriting
Underwriting is the process lenders use to evaluate a borrower’s risk and decide whether to approve a loan.
USDA Loan
A USDA loan is a mortgage backed by the US Department of Agriculture for rural homebuyers, often requiring no down payment.
V
Vacancy Factor
Vacancy factor is an allowance for the time a rental property might be empty, used when estimating potential income.
Variable Interest Rate
A variable interest rate changes over time based on market conditions.
Vesting
Vesting refers to how property ownership is held, such as by an individual or jointly with others.
W
Walkthrough
A walkthrough is the final inspection of a property before closing to ensure it’s in the expected condition.
Warranty Deed
A warranty deed guarantees that the seller holds clear title to the property and has the right to sell it.
