Owning a home is a big step—the biggest investment most people will ever make.
The homebuying process is confusing. The terms are complicated. To help you in this process, we've compiled a list of common terms and their meanings. And never be afraid to ask for help!
The final step in the homebuying process, when money and ownership of the property are exchanged. Once you close on a home, it's yours.
A condition that must be met before a home sale is finalized. Common contingencies include home inspections and financial considerations. For example, an appraisal contingency allows you to renegotiate with the seller, bring extra cash to closing, or walk away if the home's appraised value comes in lower than your offer price.
A document that transfers ownership of a property. When you buy a home, you receive the deed as proof of the sale.
A private agreement that limits how a property can be used. Common restrictions involve what you can build or renovate on the property or what you'd need to do before selling it.
Twin Cities Habitat uses deed restrictions as part of its Long-Term Affordability model to ensure homes remain affordable for future buyers while still allowing current homeowners to build wealth.
A savings account set up to pay taxes and insurance yearly on your behalf. Escrow accounts can also hold money set aside at closing for any needed improvements or changes to the home after closing. Your lender might use an escrow account.
A financial claim against a property. If you get a mortgage, your lender will have a lien on your house until the mortgage is paid off.
The legal term for your home, provided you live there for the majority of the year and can prove it.
A document that proves you own a property. Before closing, a title company will examine the title to make sure no one else can claim they own your home and that there are no outstanding liens or legal issues.
An insurance policy that protects homeowners and lenders from potential mistakes or omissions in a property title. This means that no one else can try to claim that they own your home because of a title error.
Most home loans have a fixed interest rate (does not change) for the entire loan period. An ARM may start with low (or no) interest, but after a set number of years, the lender can increase the rate to reflect the current interest rate, which could be lower or higher.
In the housing market, this is the gap between the median household income in an area and the income required to buy a median-priced home in that area. A wide gap means that most prospective buyers can't afford homes in that area.
The yearly interest rate on your home loan, plus certain additional fees. An APR shows the total cost of borrowing money to buy your home.
Fees associated with the purchase of your home, listed on the closing disclosure and loan estimate documents. Closing costs typically include real estate agent fees and taxes. Prepare to pay around 3-6% of the home's total price in closing costs. You'll receive a Closing Disclosure at least three days before closing that breaks down all costs.
Any type of home loan that isn't insured by the U.S. government. Most banks, credit unions, and private lenders offer conventional loans.
A summary of your credit history that lenders use to decide if they'll approve your home loan. Most credit reports list a summary of debts (such as credit cards and car loans), your payment history, any bills referred to a collection agency, public record information (such as a bankruptcy or tax lien), and inquiries from third parties about your credit.
This ratio equals a buyer's total debt divided by their gross (total) monthly income. For example, if you pay $1,500 a month for rent, $200 for a car loan, and $300 for other debts, your monthly debt amounts to $2,000. If your gross monthly income is $6,000, then your debt-to-income ratio is 33%. Many lenders prefer a ratio ranging between the 30s to the low 40s.
The portion of the sales price you must pay upfront to buy a home. Some loan programs require between 10% and 20%, while others require only 3.5% (or even no down payment at all).
A second loan or grant that makes up for money a homebuyer would otherwise have to pay to purchase the home. These programs help make homeownership more accessible for buyers who may not have enough saved for a traditional down payment.
A deposit you pay along with your offer to the seller, typically between 1-3% of the purchase price. If you buy the home, the earnest money goes toward the purchase price or closing costs. If not, it may be returned to you.
The portion of the home you actually own, calculated by taking the home's current market value and subtracting the current balance of your mortgage. If the number is negative, that means you have no equity and are considered "underwater" on the loan.
A type of home loan insured by the Federal Housing Administration. You might qualify for an FHA loan if you wouldn't qualify for a conventional loan.
The fee charged by a lender to make a home loan. A higher credit score typically results in a lower interest rate, which saves you money over the life of your loan.
A bank, credit union, government agency, or other entity that makes home loans. Twin Cities Habitat's nonprofit mortgage subsidiary, TCHFH Lending, Inc., offers TruePath Mortgage—an affordable loan option for first-time homebuyers in the Twin Cities metro area.
The LTV contains the risk factor of a home loan. To calculate the LTV, the loan amount is divided by a home's value (determined by an appraiser).
A financing model that ensures that housing remains affordable for low- and moderate-income households.
A loan used to purchase a home.
Additional requirements within the mortgage that the buyer must accept. Often include financial and operational requirements.
A detailed financial process to help lenders decide if they will approve your home loan. Getting pre-approval (before you make an offer on a home) can speed up the process. During pre-approval, you'll provide documents like pay stubs, tax returns, W-2 forms, and proof of your debts and assets.
An initial estimate of how much you might be able to borrow based on basic financial information you provide. Unlike pre-approval, pre-qualification doesn't verify your finances and won't carry much weight with sellers. You'll still need to get pre-approved and formally approved for your loan to move forward.
The amount of money still owed on the home after paying the down payment. This does not include any interest that you'll need to pay for the length of the mortgage.
Another term for down payment assistance that helps make housing more affordable for low-income individuals and families.
A type of loan insured by the Department of Veterans Affairs. Available for veterans, service members, and their survivors.
An estimate of a property's value, provided by a licensed appraiser. Appraisals protect the lender, so they aren't lending on a home that isn't worth what the buyer is willing to pay for it.
A professional evaluation of a home's condition. Most lenders require an inspection to check for any structural issues or problems with the home's systems before you close. If the inspector finds issues, you may be able to negotiate to have the seller fix them.
The bid you present to a seller, showing how much you're willing to pay. This may lead to a negotiation.
A licensed professional who helps sellers and buyers make homebuying deals. Some specialize in working with first-time homebuyers. A Realtor® is a real estate agent who belongs to the National Association of REALTORS®.
Buying your first home is exciting, but there is so much to learn before you get to that point. Twin Cities Habitat for Humanity offers a wide range of resources to help first-time homebuyers build their future.
If you're just starting to explore homeownership or you're ready to begin your home search, we have the tools and support to help you succeed.
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Twin Cities Habitat for Humanity : 9:27 AM on September 2, 2025
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Twin Cities Habitat for Humanity : 12:00 PM on June 14, 2023
Editor's note: The following information was updated in 2023 to include additional homebuyer resources.
Twin Cities Habitat for Humanity