Real Estate Glossary
A helpful guide to common real estate terms, loan types, and financing concepts to support you on your homebuying journey.
Conventional Loan
A mortgage not insured or guaranteed by a government agency, backed by private lenders and typically sold to Fannie Mae or Freddie Mac. Generally requires a minimum credit score of 680 and down payments ranging from 3-20%. Offers competitive interest rates and no upfront mortgage insurance. PMI is required if the down payment is less than 20% but can be removed once 20% equity is reached.
FHA Loan
A mortgage insured by the Federal Housing Administration, designed to help first-time and credit-challenged buyers achieve homeownership. While FHA guidelines allow credit scores as low as 580 with a 3.5% down payment, most lenders require a minimum score of 620 for approval. Requires both an upfront mortgage insurance premium (1.75% of the loan amount) and an annual premium (0.55-1.05%) for the life of most FHA loans.
VA Loan
A mortgage guaranteed by the Department of Veterans Affairs, available to eligible veterans, active-duty service members, and surviving spouses. Offers 0% down payment, no private mortgage insurance, and competitive interest rates. A VA funding fee (typically 2.15% for first-time use with no down payment) helps sustain the program and can be financed into the loan. Disabled veterans may be exempt from the funding fee.
USDA Loan
A mortgage backed by the U.S. Department of Agriculture for buyers in eligible rural and suburban areas. Offers 0% down payment with household income limits (typically 115% of area median income). Requires a guarantee fee (1% upfront, 0.35% annually). Property must be in a USDA-eligible location, which can include many suburban communities.
Jumbo Loan
A mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA), which are adjusted annually. Typically requires credit scores of 700 or higher, down payments of 10-20%, and significant cash reserves. Because these loans cannot be purchased by Fannie Mae or Freddie Mac, they carry slightly higher interest rates.
ARM (Adjustable Rate Mortgage)
A mortgage with an interest rate that adjusts periodically after an initial fixed-rate period, based on a market index plus a margin. Common structures include 5/1 ARM (fixed for 5 years, adjusts annually), 7/1 ARM, and 10/1 ARM. Initial rates are typically lower than comparable fixed-rate mortgages. Rate caps limit how much the rate can change per adjustment and over the life of the loan.
HELOC (Home Equity Line of Credit)
A revolving line of credit secured by your home equity, functioning similarly to a credit card. Typically allows borrowing up to 80-85% of your home's value minus what you owe. Features a draw period (usually 10 years) where you can borrow and repay, followed by a repayment period (usually 20 years). Interest rates are usually variable and may be tax-deductible. Commonly used for home improvements, debt consolidation, or major expenses.
HECM (Home Equity Conversion Mortgage)
A reverse mortgage insured by the FHA for homeowners aged 62 and older. Allows borrowing against home equity without making monthly mortgage payments. The loan balance grows over time and is repaid when the borrower sells the home, moves out permanently, or passes away. Requires HUD-approved counseling before closing.
Energy Efficient Mortgage (EEM)
A mortgage that allows borrowers to finance energy-efficient improvements into their home loan without increasing the down payment. Available through FHA, VA, and conventional programs. The cost of improvements is added to the loan based on an energy audit showing projected savings.
Good Neighbor Next Door
A HUD program offering 50% discounts on the list price of homes in designated revitalization areas for eligible law enforcement officers, pre-K through 12th grade teachers, firefighters, and emergency medical technicians. Requires a 36-month owner-occupancy commitment.
LTV (Loan-to-Value Ratio)
The loan amount divided by the appraised property value or purchase price, whichever is lower. A key factor in loan approval and pricing. An LTV above 80% on conventional loans typically requires private mortgage insurance (PMI). Lower LTV generally means better rates and terms.
DTI (Debt-to-Income Ratio)
Total monthly debt payments divided by gross monthly income. Front-end DTI (housing ratio) includes only housing costs and is typically capped at 28-31%. Back-end DTI includes all recurring debts and most lenders require it to be under 43%, though some loan programs allow up to 50% with compensating factors.
PMI (Private Mortgage Insurance)
Insurance required on conventional loans when the down payment is less than 20%. Protects the lender — not the borrower — in case of default. Monthly cost ranges from 0.3-1.5% of the original loan amount annually, depending on credit score and LTV. Can be removed once the loan balance reaches 80% of the original appraised value.
MIP (Mortgage Insurance Premium)
The FHA equivalent of PMI. Includes an upfront premium of 1.75% of the loan amount (typically financed into the loan) and an annual premium of 0.55-1.05% depending on loan amount, LTV, and term. Required for the life of most FHA loans originated after June 2013, unless refinanced into a conventional loan.
VA Funding Fee
A one-time fee paid to the Department of Veterans Affairs to sustain the VA loan program. Ranges from 1.25% to 3.3% of the loan amount depending on the down payment size, type of service, and whether it is a first or subsequent use. Can be financed into the loan. Veterans with service-connected disabilities are exempt.
Discount Points
Prepaid interest paid at closing to reduce ("buy down") the mortgage interest rate. One discount point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%. Buying points can be beneficial if you plan to hold the loan long enough to recoup the upfront cost through lower monthly payments.
Origination Fee
A fee charged by the lender for processing and underwriting the loan application. Typically ranges from 0.5-1% of the loan amount. Covers the administrative costs of evaluating, preparing, and funding the mortgage.
Escrow
An account held by the mortgage servicer to pay property taxes and homeowners insurance on your behalf. A portion of each monthly mortgage payment is deposited into escrow, and the servicer disburses payments when they are due. Protects both the lender and borrower from missed tax or insurance payments.
APR (Annual Percentage Rate)
The total annual cost of borrowing expressed as a percentage, including the interest rate plus lender fees, discount points, mortgage insurance, and other loan costs. APR is always equal to or higher than the stated interest rate because it reflects the true cost of the loan. Required by the Truth in Lending Act (TILA) to be disclosed to borrowers, making it the best single number for comparing loan offers from different lenders. A lower APR means lower overall borrowing cost.
Interest Rate
The percentage charged by a lender on the principal balance of a mortgage, determining the cost of borrowing the money itself. Unlike APR, the interest rate does not include fees or other loan costs — it only reflects the rate applied to calculate your monthly principal and interest payment. Rates can be fixed (locked for the life of the loan) or adjustable (changing periodically based on a market index). Even a small difference in interest rate — as little as 0.25% — can translate to tens of thousands of dollars over a 30-year mortgage.
Documentary Stamps (Doc Stamps)
A transfer tax imposed by the State of Florida when real property changes hands. The rate is $0.70 per $100 of the sale price (or $0.60 per $100 in Miami-Dade County). Customarily paid by the seller in most Florida counties.
Title Insurance
A one-time insurance policy protecting against financial loss from defects in title such as undisclosed liens, boundary disputes, forgery, or ownership claims. An owner's policy protects the buyer's equity; a lender's policy (required by most lenders) protects the mortgage holder. In Florida, the party who pays for title insurance varies by county custom.
Earnest Money Deposit (EMD)
A good-faith deposit submitted with an offer to demonstrate the buyer's serious intent to purchase. In Florida, typically 1-3% of the purchase price. Held in an escrow account by the listing brokerage, title company, or attorney. Applied toward closing costs or down payment at closing.
Prorations
The equitable division of ongoing property expenses — such as property taxes, HOA dues, and prepaid rent — between buyer and seller at closing based on the closing date. Ensures each party pays only for the period during which they own or will own the property.
Fee Simple
The most complete and absolute form of property ownership recognized by law. The owner holds full rights to use, lease, sell, gift, or bequeath the property, subject only to government restrictions (zoning, taxation, eminent domain) and any recorded encumbrances.
Tenancy in Common
A form of co-ownership where two or more individuals each hold an undivided interest in the property, which may be equal or unequal. Each owner may independently sell, transfer, or encumber their share. There is no right of survivorship — a deceased owner's share passes to their heirs or estate.
Joint Tenancy with Right of Survivorship
A form of co-ownership where all owners hold equal, undivided interests. The defining feature is the right of survivorship: when one owner dies, their share automatically passes to the surviving owner(s), bypassing probate entirely.
Leasehold Interest
The right to use and occupy property for a specified period under the terms of a lease agreement. The tenant (lessee) holds the leasehold interest while the landlord (lessor) retains the fee simple ownership.
CDD (Community Development District)
A special-purpose taxing district established under Florida law (Chapter 190) to finance and manage infrastructure improvements for new communities — including roads, water, sewer, and amenities. CDD assessments appear as an additional line item on your annual property tax bill and are separate from HOA dues.
HOA (Homeowners Association)
A governing organization within a planned community, subdivision, or condominium that establishes and enforces rules (CC&Rs), maintains common areas and amenities, and collects periodic dues from homeowners to fund operations, maintenance, and reserves.
Last Will & Testament
A legal document that directs how your assets are distributed after death, names a personal representative (executor) to administer your estate, and can nominate guardians for minor children. A will generally passes through probate and must be executed according to your state's witnessing rules to be valid. Educational only — have a licensed attorney prepare and formally execute your will.
Living Will / Advance Directive
A document that states your health-care and end-of-life treatment preferences for situations where you are alive but unable to communicate (for example, life-prolonging procedures or nutrition). It typically works alongside the naming of a health-care surrogate. Unlike a Last Will, it operates during your lifetime, not after death.
Revocable Living Trust
A trust you create and control during your lifetime and can amend or revoke at any time. Assets properly titled into the trust avoid probate and transfer privately at death, and a successor trustee can manage them if you become incapacitated. It provides no asset protection or tax benefit while you are alive because the assets are still considered yours.
Irrevocable Trust
A trust that generally cannot be changed after it is created; you give up ownership and control of the assets placed inside. Used for estate-tax planning, creditor protection, or special-needs planning because assets (and their future growth) can be removed from your taxable estate — in exchange for giving up access and control.
Probate
The court-supervised legal process of validating a will, paying debts and taxes, and distributing a deceased person's assets. Probate is a matter of public record and can take months. Assets held in a living trust or passing by beneficiary designation or right of survivorship generally bypass probate.
Personal Representative (Executor)
The person or institution named in a will (or appointed by the court) to administer an estate — gathering assets, paying valid debts and taxes, and distributing what remains to beneficiaries according to the will and state law. In Florida this role is called the "personal representative."
Power of Attorney
A document authorizing someone you trust (your "agent" or "attorney-in-fact") to act on your behalf. A durable power of attorney remains effective if you become incapacitated and is commonly used for financial and property matters, separate from health-care decisions.
Health-Care Surrogate
A person you designate to make medical decisions for you if you are unable to make them yourself. Often paired with a living will so your surrogate can act consistently with your stated treatment wishes.
Beneficiary Designation
An instruction on accounts such as life insurance, retirement plans, or payable-on-death accounts naming who receives the asset at your death. These designations pass outside of your will and generally override it — which is why keeping them current is a core part of estate planning.
Guardianship
A court-recognized arrangement giving a person legal authority and responsibility to care for a minor child or an incapacitated adult. Parents commonly nominate a guardian for minor children in their will; the court ultimately confirms the appointment.
Important Disclaimer
RJ Island Realty is a licensed real estate brokerage, not a mortgage lender, bank, or financial institution. The loan program descriptions, credit score requirements, and financing terms provided in this glossary are for general educational purposes only and may not reflect the specific guidelines, overlays, or requirements of individual lenders. Loan eligibility, interest rates, and terms are determined by the lender based on your individual financial situation. For personalized mortgage advice, please consult directly with a licensed mortgage lender or loan originator. Information is believed to be accurate as of the date published but is subject to change without notice.