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Common Real Estate Terms Every Buyer Should Know
- 4 days ago
- 8 min read
Buying a home involves far more than simply finding a property and signing paperwork. Real estate transactions include legal terminology, financing language, industry jargon, and contract provisions that can feel overwhelming, especially for first-time buyers.
Understanding these terms before entering the market can help buyers make more informed decisions, avoid unnecessary surprises, and navigate negotiations with greater confidence. In today’s competitive housing environment across New Hampshire, Maine, and Northern Massachusetts, buyers who understand the process are often better positioned to move quickly and strategically.
This real estate glossary breaks down many of the most common terms buyers will encounter during the home buying process.
What Are the Most Important Mortgage and Financing Terms?
Appraisal
An appraisal is an expert estimate of the value of a property. Lenders use appraisals to ensure the loan amount being issued is supported by the property's value.
An appraised value is not the same as:
Tax assessed value
Market value
Online estimated value
The appraisal is performed by a licensed third-party professional chosen by the lender.
Helpful article about appraisals:
Appraisal Gap
An appraisal gap refers to the difference between a property's appraised value and the agreed-upon purchase price.
For example, if a home is under contract for $500,000 but appraises at $475,000, there is a $25,000 appraisal gap.
This matters because lenders generally finance based on the appraised value, not the contract price.
Buyers may need to:
Pay the difference out of pocket
Renegotiate the purchase price
Restructure financing terms
Appraisal gaps became increasingly common during highly competitive seller markets.
Helpful video about appraisal gaps:
Amortization
Amortization is the process of paying off a loan through scheduled monthly payments over time.
Each payment typically includes:
Principal
Interest
Taxes
Insurance
In the early years of most mortgages, a larger percentage of the payment goes toward interest rather than principal.
Conventional Loan
A conventional loan is a mortgage that is not insured or guaranteed by the federal government.
These loans are typically offered through:
Banks
Credit unions
Mortgage lenders
Conventional financing is often considered one of the strongest loan types in competitive situations because it may involve:
Higher credit standards
Larger down payments
Fewer property condition restrictions
Debt-to-Income Ratio (DTI)
Debt-to-income ratio compares a borrower’s monthly debt obligations to their gross monthly income.
Lenders use DTI to evaluate a borrower’s ability to manage monthly mortgage payments alongside existing debts.
A lower DTI generally improves financing eligibility.
Down Payment
A down payment is the upfront amount paid toward the purchase of a home as part of the financing process.
The down payment is not the same as an earnest money deposit.
Down payment requirements vary depending on:
Loan type
Credit profile
Property type
Occupancy status
Helpful articles about down payment options:
FHA Loan
An FHA loan is a mortgage insured by the Federal Housing Administration.
FHA loans are commonly used by:
First-time buyers
Buyers with lower down payments
Buyers with moderate credit scores
These loans currently allow minimum down payments as low as 3.5% for qualified borrowers.
Interest Rate
An interest rate is the percentage charged by a lender for borrowing money.
Even small interest rate changes can significantly affect:
Monthly payments
Buying power
Long-term borrowing costs
Helpful article about interest rates:
Loan Estimate
A Loan Estimate is a document provided by the lender outlining estimated:
Closing costs
Interest rate
Loan terms
Monthly payments
Federal law generally requires lenders to provide this document shortly after a mortgage application is submitted.
Loan Officer
A loan officer is a lending professional who helps borrowers apply for mortgage financing.
Loan officers guide buyers through:
Loan applications
Documentation requirements
Credit evaluations
Financing options
Loan approval timelines
They often serve as the primary point of contact throughout the financing process.
Helpful podcast episode with Ben Delorge, Loan Officer:
Loan-to-Value Ratio (LTV)
Loan-to-value ratio compares the mortgage amount to the value of the property.
For example:
A $400,000 home with a $320,000 mortgage has an 80% LTV ratio.
Higher LTV ratios may increase lender risk and can affect mortgage insurance requirements.
Mortgage
A mortgage is a loan specifically used to purchase real estate.
The borrower agrees to repay the lender over time according to the terms outlined in the loan agreement.
Helpful article about mortgages:
Mortgage Broker
A mortgage broker is an individual or company that connects borrowers with multiple lenders.
Mortgage brokers help buyers compare:
Interest rates
Loan products
Lending guidelines
Financing options
Mortgage Insurance
Mortgage insurance protects the lender if the borrower defaults on the loan.
The cost is often included in the borrower’s monthly mortgage payment.
Pre-Approval
A pre-approval is a lender’s conditional commitment indicating how much a buyer may qualify to borrow.
Pre-approvals strengthen offers because they demonstrate that a buyer has already undergone preliminary financial review.
Helpful article about pre-approval vs. pre-qualified:
Principal
Principal is the original amount borrowed before interest is added.
As mortgage payments are made, the principal balance gradually decreases.
Private Mortgage Insurance (PMI)
Private Mortgage Insurance, commonly called PMI, is typically required when a buyer puts down less than 20%.
PMI protects the lender, not the borrower, and is usually added to the monthly mortgage payment.
Helpful article about PMI:
Rate Lock
A rate lock is a lender’s guarantee to honor a specific interest rate for a designated period of time.
Rate locks help protect buyers from market fluctuations during the loan process.
Helpful article about rate locks:
Refinancing
Refinancing involves replacing an existing mortgage with a new loan that has different terms.
Homeowners may refinance to:
Lower interest rates
Reduce monthly payments
Change loan terms
Access home equity
Underwriting
Underwriting is the lender’s process of evaluating risk before approving a mortgage.
Underwriters review:
Income
Assets
Credit history
Employment
Property information
Final loan approval occurs after underwriting is completed successfully.
VA Loan
A VA loan is a mortgage program backed by the U.S. Department of Veterans Affairs.
VA loans are available to eligible:
Veterans
Active-duty military members
Certain surviving spouses
These loans often include favorable terms such as low or no down payment requirements.
Helpful article about VA Loans:
What Are the Most Important Real Estate Contract Terms?
Closing
Closing is the final stage of a real estate transaction where ownership officially transfers from seller to buyer.
Documents are signed, funds are transferred, and the deed is recorded.
Closing Costs
Closing costs are expenses associated with transferring property ownership.
These costs may include:
Attorney fees
Lender fees
Title insurance
Recording fees
Transfer taxes
Prepaid taxes and insurance
Closing costs vary depending on location, loan type, and transaction details.
Due Diligence
Due diligence is the process of evaluating a property before finalizing the purchase.
This may include:
Inspections
Permit reviews
Title review
HOA document review
Zoning verification
Due diligence is primarily the buyer’s responsibility.
Earnest Money Deposit
An earnest money deposit is money submitted with an offer to demonstrate a buyer’s serious intent to purchase.
The deposit may:
Be credited back at closing
Be refunded under certain contingencies
Be forfeited if contractual obligations are not met
Escalation Clause
An escalation clause allows a buyer’s offer to automatically increase if competing offers are received.
The clause typically specifies:
The amount the offer may increase by
A maximum purchase limit
Escalation clauses are most common in competitive markets.
Escrow
Escrow is a financial arrangement where a neutral third party temporarily holds funds or documents until contractual conditions are met.
Earnest money deposits are commonly held in escrow accounts.
Helpful article about escrow:
Inspection Contingency
An inspection contingency allows buyers to inspect the property and potentially:
Request repairs
Renegotiate terms
Withdraw from the transaction
This contingency helps protect buyers from unexpected property defects.
Short Sale
A short sale occurs when a property is sold for less than the amount owed on the mortgage.
The lender must approve the transaction.
Short sales can involve longer timelines and more complex negotiations.
What Are the Most Important Property Ownership Terms?
Equity
Equity is the difference between a property’s market value and the remaining mortgage balance.
As property values rise and mortgage balances decrease, equity generally increases.
Helpful articles about equity:
Foreclosure
Foreclosure is the legal process through which a lender takes possession of a property after missed mortgage payments.
State foreclosure procedures vary significantly.
Home Inspection
A home inspection is an evaluation of a property’s condition conducted by a licensed professional.
Inspectors commonly review:
Roof systems
Plumbing
Electrical systems
Heating and cooling systems
Structural components
Helpful article about home inspections:
Homeowners Association (HOA)
A homeowners association manages rules and common areas within certain residential communities.
HOAs may regulate:
Exterior appearance
Rental restrictions
Parking
Pets
Landscaping
Owners usually pay monthly or annual HOA fees.
Survey
A survey is a drawing showing a property’s:
Boundaries
Measurements
Easements
Encroachments
Surveys help confirm legal property lines.
Title
Title refers to the legal ownership rights to a property.
Clear title is necessary for a property sale to proceed.
Title Insurance
Title insurance protects against financial loss caused by title defects, liens, or ownership disputes.
Lenders generally require lender’s title insurance, while buyers may purchase owner’s title insurance for additional protection.
Title Search
A title search reviews public records to confirm:
Legal ownership
Existing liens
Judgments
Easements
Claims against the property
Helpful article about title searches:
Zoning Laws
Zoning laws regulate how land may be used within specific geographic areas.
Zoning classifications may affect:
Residential use
Commercial use
Building size
Property density
Accessory dwelling units
Short-term rentals
What Other Real Estate Terms Should Buyers Know?
Contingency
A contingency is a contractual condition that must be satisfied before a transaction becomes binding.
Common contingencies include:
Financing contingency
Inspection contingency
Appraisal contingency
Home sale contingency
Comparative Market Analysis (CMA)
A comparative market analysis is a report prepared by a real estate professional estimating a property’s value based on comparable recent sales.
A CMA differs from a formal appraisal.
Deed
A deed is the legal document used to transfer ownership of real estate property from one party to another.
State Transfer Taxes
State transfer taxes are one-time taxes imposed on real estate transfers.
These taxes may be:
Paid by the buyer
Paid by the seller
Split between parties
In New Hampshire, Maine, and Massachusetts, transfer taxes are commonly shared unless otherwise negotiated.
Final Thoughts
Real estate transactions involve legal contracts, financing terminology, inspections, negotiations, and timelines that can feel complex without proper guidance. Understanding these common terms can help buyers make more informed decisions and feel more confident throughout the process.
If you are planning to buy, sell, or invest in real estate throughout New Hampshire, Maine, or Northern Massachusetts, reach out to me, Hunter Letendre, REALTOR® with Berkshire Hathaway HomeServices Verani Realty. From helping buyers understand financing and contingencies to navigating negotiations and market conditions, I provide clear guidance and local market expertise designed to help clients make confident real estate decisions at every stage of the process.
Hunter Letendre, REALTOR®
Berkshire Hathaway HomeServices Verani Realty
This article is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Market conditions and regulations vary and may change. Readers should always consult qualified professionals regarding their specific situation.
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