Posted in: Buying a home, First time homebuyer tips, Getting a mortgage

Homebuyer dictionary: Every term you need to know

Homebuyer dictionary

Buying a home is one of the biggest investments an individual can make. Whether you’re a first-time homebuyer or you’re preparing to re-enter the home buying market, there are many real estate terms to know.

For help keeping it all straight, refer to our homebuyer dictionary throughout your home buying journey.

Adjustable-rate mortgage (ARM)

Most homebuyers take out loans when purchasing a home. An adjustable-rate mortgage (ARM), typically has a lower interest rate at the beginning of the loan period. Depending on your specific loan, the initial rate can be locked in for a specific period of time. Then, once the introductory period is complete, the loan will readjust annually based on the market index.

Closing costs

Homebuyers and sellers both pay closing costs at the time of sale. For a buyer, closing costs usually include fees associated with the home loan, inspection, appraisal, taxes, homeowner’s insurance and title insurance. Buyer-related closing costs can range from 2 to 5% of the total home price.

In certain cases, a buyer may ask the seller to pay for some or all of their closing costs during the negotiation of the home sale.


Comparable sales, or “comps,” is a term used to describe homes of similar condition to the home you wish to buy. When you are determining how much to offer on a home, your REALTOR® may provide you with comps to help you determine a fair offer. Homes that are included in your comps will be nearby and of similar size and condition.

Conforming loan

A conforming loan is meant to meet (or conform to) standards that are established by Fannie Mae and Freddie Mac, which are two government-sponsored institutions that purchase and sell mortgages on the second market.

Conforming loans limit the borrowing amount a buyer can borrow. In Minnesota and Wisconsin, a single-family home loan must be under $484,350 to be considered a conforming loan. Multi-unit properties may have higher borrowing limits.

Conventional loan

Conventional loans are not guaranteed or insured by the federal government, and lenders minimize their risk by having more stringent standards for conventional loan borrowers. Buyers are encouraged to make a down payment of 20% if they are able, however the minimum for a conventional loan can be lower. There are two types of conventional loans, conforming loans and non-conforming loans..


When searching for homes to buy, you may find some listed as contingent. A contingent property is under contract with another buyer. However, the final sale of the house is dependent, or contingent, on certain conditions that must be met. If the conditions (including inspection, the buyer’s ability to obtain financing, appraisal) are not met, the home may come back on the market.

Credit score

Lenders evaluate the likelihood that you will repay your mortgage loan based partially on your credit score. A credit score is determined by your payment history, amount of debt, length of credit history and a variety of other factors. In general, a higher credit score will increase your chances at scoring the best loan terms.

Down payment

The down payment is a lump sum of money that buyers are required to pay when purchasing a home. It is a portion of the total home sale price that is paid out-of-pocket to seal the deal. Down payments typically range up to 20%, or more, of the total selling price.

Down payment assistance programs

Down payment assistance programs may be available through some lenders and state programs to help individuals as they purchase a home. Various down payment programs exist, and each has different qualification guidelines. Typically, these programs include loan assistance, closing cost coverage and other financial support.


Escrow is when a neutral third-party holds onto something of value for a predetermined amount of time. In Minnesota and Wisconsin, escrow is only used after you have purchased your home. If you financed your home, you will begin sending monthly payments to your lender. Your lender will collect your mortgage premium and interest, but they will also collect money to be paid out for your property taxes, homeowner’s insurance and mortgage insurance. Your lender will keep the extra money “in escrow” until the payments become due, then they will make these payments on your behalf. In addition, if there is work that needs to be done on the property (like the replacement of a roof), funds may be held in escrow to ensure that the work gets done.

FHA loan

The Federal Housing Administration grants FHA loans, or “helper” loans, for buyers who can afford a monthly mortgage payment but may struggle with other aspects of getting approved for a loan or who have limited funds to make a down payment. For this reason, FHA loans are great for first-time buyers. Keep in mind, FHA loans are a bit riskier for lenders to take on, so FHA borrowers will have extra expenses like mortgage insurance.

First-time homebuyer savings account

A first-time homebuyer savings account offers a tax incentive to individuals who are saving for a home purchase. In addition to the homebuyers, other people (like parents and grandparents) can contribute to the home savings account.

Fixed-rate mortgage

With a fixed-rate mortgage, your initial interest rate will not change over the life of the loan. This type of loan offers predictable monthly payments of principal and interest.

Homeowner’s insurance

Homeowner's insurance helps protect your property from natural disasters, theft and other unexpected circumstances. In most cases, your homeowners insurance premium will become a part of your monthly mortgage payment, along with your principal, interest and taxes.

Interest rate

Your interest rate is the monthly interest charged on your home mortgage loan. Interest is calculated as a percentage of your total loan balance. Depending on what kind of loan you have — fixed-rate mortgage or adjustable-rate mortgage (ARM) — your interest rate may stay the same or change over time.


When searching for a home to buy, your real estate agent may tell you that they are taking you to see a few listings. Listing is just another name for a home that’s been “listed” for sale and is available on the market.

Multiple listing service

Real estate agents post their active properties on the multiple listing service (MLS). This online resource allows agents to publish their active property listings so they can be found by other real estate agents and potential buyers. MLS listings offer information such as home prices, property details and photos.

When you search for homes on Edina Realty, you’ll see the most accurate search of active, available for-sale homes in Minnesota and western Wisconsin.


A mortgage is a document, signed by a borrower, that gives the lender a security interest in the property. The mortgage is recorded against the title to the property. If the borrower fails to make mortgage payments, the bank may foreclose on the mortgage and take ownership of the property.

Mortgage loan

A home mortgage loan is the amount of money you have borrowed from the bank to purchase your home. Typically, mortgage loans are paid back in 15 or 30-year terms.

The mortgage loan is primarily made up of principal and interest. In short, principal is the total balance of the loan and interest is the percentage of the loan that a homeowner pays their lender in exchange for borrowing money. Homeowners contribute monthly payments to pay off their mortgage loan.

Mortgage gift funds

A mortgage gift fund, also known as a down payment gift, is monetary help that close family and friends may offer homebuyers to afford the down payment of their home. Depending on the size of the mortgage gift fund, the money must be closely recorded and tracked throughout the home loan process.

Mortgage insurance

When buying a home, your lender may request that you pay mortgage insurance as part of your loan terms. This insurance protects the lender if for some reason you become unable to pay your monthly mortgage payment.


After most of the contingencies have been removed from a homebuyer’s initial offer, the home’s status will update to pending. A pending property indicates that the sale is moving forward toward closing. Usually, a pending sale only requires a financial contingency, title sign-off and final walk-through to be considered complete.


When buying a home, you will need to submit an official mortgage application and documented financial history to your home loan lender. After the home loan lender validates your information, you will be pre-approved for a mortgage. With your pre-approval notice, you’ll also receive an estimate of the loan amount that you’ll be approved for, along with potential interest rates.


For a rough estimate of home loan options, buyers may choose to get pre-qualified for a loan. This is a less official step in comparison to pre-approval. However, you can get an idea of your buying power with a pre-qualification via automated online or phone questionnaires. Pre-qualification provides a general idea of what your home loan could be, and it should only be used for personal reference.


Your home mortgage loan is primarily made up of principal and interest. Principal is the outstanding balance of your mortgage. In other words, principal is the total amount of your home sale price, minus any payments you have made on its balance. This is separate from the interest you pay on your mortgage, which is a percentage paid in addition to the principal of your loan.


When purchasing a home, you will likely work with a Realtor to find your ideal property. Realtors have even more qualifications than real estate agents. Realtors have pledged to follow the code of ethics established by the National Association of Realtors. This pledge is a strict commitment, indicating that the needs of the client will be put first. All Edina Realty agents are Realtors.

VA loan

VA loans are available to many military, veterans, reservists and National Guard members. Additionally, spouses of military members who died on active duty, or due to a disability or injury from military service, are also eligible to apply for VA loans. VA loans may provide short-term advantages and benefits for the entire life of the loan.

Ready to buy?

By now, you’re well-versed in buying terms. For additional help in the home purchase process, reach out to Edina Realty or one of our agents today.

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Status Definitions

For sale: Properties which are available for showings and purchase

Active contingent: Properties which are available for showing but are under contract with another buyer

Pending: Properties which are under contract with a buyer and are no longer available for showings

Sold: Properties on which the sale has closed.

Coming soon: Properties which will be on the market soon and are not available for showings.

Contingent and Pending statuses may not be available for all listings