A Guide to Commonly Used Real Estate Terms

As with many industries, real estate has its own language, which can make it difficult for the average person to navigate the home buying or selling process. Here is a guide to commonly used terms to help you be better prepared to buy or sell a home.

Mortgage Types

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage is a home loan with an interest rate that changes periodically. This means monthly payments can fluctuate. Initial interest rates are generally lower with an ARM than a fixed-rate mortgage.

The most common type is the 5/1 ARM. Its introductory rate lasts five years and after this period, the interest rate can change annually. Whether the rate increases or decreases depends on:

  • Indexes – ARMs are tied to an index of interest rates, such as the London Interbank Offered Rate (LIBOR).

  • Margins – The margin is established at the time of loan approval and remains fixed for the life of the loan. For example, a margin can be set at five percent, so the interest rate can be as much as five percent higher than the index.

  • Caps – ARMs typically have a lifetime cap that establishes a maximum interest rate and a periodic cap that limits how much the interest rate can fluctuate in any adjustment period.

Some lenders offer 3/1, 7/1 and 10/1 ARMs.

Fixed-Rate Mortgage

A fixed-rate mortgage has an interest rate that remains the same for the life of the loan. Your monthly principal and interest payments will not change, but interest rates tend to be higher than with ARMs. This is the most popular form of financing because it offers budget stability and there’s no risk of the interest rate increasing.

Fixed-rate mortgages usually come in two term lengths:

  • 15-year – You will pay less total interest with this shorter loan term and interest rates tend to be lower, but monthly payments are higher. This option is ideal for home buyers who have adequate cash flow and want to pay off the loan sooner.

  • 30-year – Monthly payments are lower than with a shorter-term mortgage, but you pay more total interest and rates are higher. Borrowers who are saving up for other investments may prefer this term length.

Conventional Mortgage

Conventional mortgages are not guaranteed or insured by the federal government. These home loans typically require down payments of at least three percent. Borrowers who put down 20 percent or more do not have to pay mortgage insurance premiums (MIPs).

This type of financing is usually reserved for borrowers with good credit. Requirements vary by lender, but 620 is the minimum score needed to obtain a conventional loan, and 740 is the threshold for a low interest rate.

FHA Loans

FHA loans are backed by the Federal Housing Administration. They are popular with first-time home buyers who have little savings or damaged credit as they only require a 3.5 percent minimum down payment for borrowers with a credit score above 580.

VA Loans

VA loans are guaranteed by the Department of Veterans Affairs and available through private lenders. They aim to help servicemembers, veterans and eligible surviving spouses become homeowners.

Home Buying Process


An appraisal determines a property’s market value. This information must be obtained by a licensed appraiser. Your lender will use this report to decide whether to let you take out a loan.

Closing Costs

Closing costs are paid when the title is transferred from the seller to the buyer. These costs cover all the fees incurred during the buying and selling process, such as the home inspection and appraisal. You can expect to pay about two to five percent of the purchase price in closing costs.


The buyer must complete specific requirements to move forward with the sale. Common contingencies include waiting for an inspection and the buyer needing to sell their current home.


A disclosure means a seller must inform potential buyers of problems that may affect the home’s value, such as renovations, pest issues and appliance malfunctions. They are required by law.

Due Diligence

It is important to fully understand the home you are interested in before buying it. This includes obtaining insurance, reviewing documents carefully and touring the property.


Escrow is a neutral third party that handles transactions throughout the buying and selling process. They hold all documents and funds until the day of the sale.

Earnest money is typically held in an escrow account and represents your commitment to buying a house you have made an offer on. It is usually one to three percent of the asking price.

Inspection Report

An inspection report is required in every home purchase. The report details a property’s condition, from the foundation to the roof. During an inspection, the appliances, plumbing, electrical work and HVAC systems are tested. This helps home buyers determine whether they want to make the investment.

Title Insurance

Title insurance protects home buyers and lenders from problems with a title when property ownership is transferred. If a title dispute arises during a sale, the insurance company may be responsible for paying legal damages.

Buyers typically need two title insurance policies – owner’s and lender’s.

You can research the history of a home by performing a title search, which will reveal any issues with the title.

Find Your Dream Home With Perfect House Realty

Home buying and selling is a complicated process that requires the expertise of a qualified professional to navigate. The team at Perfect House Realty is committed to helping buyers and sellers in the Charlotte, North Carolina area understand their options.

Call us at 833-704-HOME or find your dream home online.