17 Real Estate Words Every Buyer and Seller Should Know

Buying or selling a home is not easy. There are a lot of technical financial terms that your realtor and banker will use frequently.

Here are 17 real estate words every buyer and seller should now before going into a deal.

Starter home

According to housing experts, entry-level or “starter” homes typically cost less than $250,000 and are 1,400 square feet or less.

Balloon mortgage

A balloon mortgage stays level for a short period, typically five to seven years, at a low-interest rate, and then has a final, large “balloon payment” that you can either pay off in full or refinance.

Adjustable-rate mortgage

An adjustable-rate mortgage (ARM) will have interest payments and rates that change over the life of the loan from time to time. When you apply for an ARM, you will be informed when, why, and how the rates change.

Balloon payment

A balloon payment is usually the last scheduled payment on a secured loan greater than any previous payment. Many lenders do this to make scheduled monthly payments more affordable for buyers. You should carefully check any lending agreements to make sure you can afford to make any balloon payments.

Buyer’s market

A buyer’s market is a market that has more than six months’ inventory of available homes.

Seller’s market

There are less than six months of available inventory of homes in a seller’s market.

Balanced market

A balanced market is when a housing market favors neither sellers nor buyers and usually has available inventory for about six months. You can independently determine available inventory by taking the number of homes currently for sale and dividing it by the total sales over the past 30 days.

Credit report

A credit report is a record of your credit history. Reports are compiled by credit reporting agencies and credit bureaus and are based on public records and information submitted by lenders. Credit reports contain extensive information on your personal credit history and are likely the most crucial document creditors use when deciding whether to grant you credit.

Down payment

A down payment is a portion or percentage of the home sales price that you pay to the seller at the close of the sale. The understanding is that the loan balance will be paid at settlement.

The amount is the difference between the sales price of the property and the mortgage amount.

Earnest money

Earnest money is a deposit paid by the buyer to the seller to show good intentions and faith in getting a mortgage to buy the property. Depending on the circumstances of the sale, you may or may not be able to be refunded this money if you decide not to go forward with the purchase.


Escrow is money given to a third party for “safeguarding” during a real estate purchase. The buyer is often required to place a portion of their down payment into an escrow account, which is held until the sale’s closing. Following the home purchase, a part of each mortgage payment is typically kept in an “escrow” account to pay for the property’s insurance and taxes.

Debt-to-income ratio

A buyer’s debt-to-income ratio compares monthly income to your monthly debt payments and is widely used to measure creditworthiness. You can compute your debt-to-income ratio by your minimum monthly debt payments, including your mortgage or rent, by monthly take-home pay.

Fixed interest rate

A fixed interest rate does not change over the life of the loan. For example, if you have a fixed-rate, 15-year mortgage, you will pay the same interest rate for the entirety of the 15-year repayment schedule. The same goes for 30-year mortgages.

Jumbo loan

The value of a jumbo mortgage varies by state and often even by county. The baseline limit is usually around 150% of the loan for counties with higher home values.

Private mortgage insurance (PMI)

Private mortgage insurance, or PMI, is a type of insurance that borrowers may be required to buy as a set condition of conventional mortgage loans. Most lenders require that buyers have PMI when a buyer makes a down payment that amounts to less than 20% of the home’s purchase price.

Variable interest rate

A variable interest rate is usually adjusted quarterly based on an economic indicator. Rates are frequently based on a financial index like the prime interest rate, Federal Funds rate, or Treasury Bill rate.


A pre-approval is a written agreement from a mortgage lender to grant a buyer a loan for a home purchase. Pre-qualification is based on the potential homebuyer’s credit history, income, personal assets, employment history, and debts. The pre-approval assures the seller that the valid has a valid offer.