Whether you're ready to buy your first home or just need an acronym refresher, keep this glossary handy. You don’t need a real estate license to find your dream home, but it does help to become familiar with real estate jargon you might encounter during the process. When searching for a home or applying for a mortgage, you may hear your real estate agent or lender use any of the terms or acronyms below. Keep this four-part guide handy — you’ll be fluent in the language of home buying before you know it.When you’re searching for a home
- Buyers market: Market conditions that exist when homes for sale outnumber buyers. Homes sit on the market a long time, and prices drop.
- Comparative market analysis (CMA): An in-depth analysis, prepared by a real estate agent, that determines the estimated value of a home based on recently sold homes of similar condition, size, features and age that are located in the same area.
- Comps: Or comparable sales, are homes in a given area that have sold within the past six months that a real estate agent uses to determine a home’s value.
- Days on market (DOM): The number of days a property listing is considered active.
- List price: The price of a home, as set by the seller.
- Multiple listing service (MLS®): A database where real estate agents list properties for sale.
- Sellers market: Market conditions that exist when buyers outnumber homes for sale. Bidding wars are common.
- Financial institution: Banks, credit unions, and alternative lenders. These institutions underwrite as well as set home loan pricing in-house.
- Gross Debt Service (GDS): One of two debt-to-income ratios that a lender analyzes to determine a borrower’s eligibility for a mortgage. The ratio is calculated by dividing total housing costs by your gross income, then multiplying by 100. A general guideline is to keep GDS below 32%. CMHC restricts GDS to a maximum of 39% .
- Total Debt Service (TDS): One of two debt-to-income ratios that a lender analyzes to determine a borrower’s eligibility for a mortgage. The ratio is calculated by dividing total housing costs (principal, interest, taxes, heat) and other debt obligations by your total income, then multiplying by 100. CMHC restricts TDS to a maximum of 44%.
- Loan estimate: The document includes loan terms, monthly payment and closing costs.
- Loan-to-value ratio (LTV): The amount of the loan divided by the price of the house. .
- Origination fee: A fee that may be charged by a broker or lender to cover the cost of processing and funding your mortgage.
- Pre-approval: A thorough assessment of a borrower’s income, assets, liabilities, credit score and other data to determine a loan amount they would qualify for. A good real estate agent should request a pre-approval letter before showing a buyer a home.
- Pre-qualification: A basic assessment of income, assets and credit score to determine what, if any, loan programs a borrower might qualify for. A pre-qualification is a starting point to determine how much home you might be able to afford.
- Underwriting: A process a lender follows to assess a home loan applicant’s income, assets and credit, and the risk involved in offering the applicant a mortgage.
When you’re shopping for a mortgage
- Conventional loan: a mortgage for which you've made a minimum down payment of 20%.
- Canada Mortgage and Housing Corporation (CMHC): established in 1946, CMHC makes housing affordable by providing mortgage insurance for mortgages with less than 20% down or mortgage insurance for insurable mortgages.
- Down payment: A certain portion of the home’s purchase price that a buyer must pay. A minimum requirement is often dictated by the loan type.
- Foreclosure: A property repossessed by a lender when the owner fails to make mortgage payments.
- Mortgage broker: A licensed professional who works on behalf of the buyer to secure financing through a bank or other lending institution.
- Mortgage insurance: A fee charged to borrowers who make a down payment that is less than 20% of the home’s value. The fee varies based on the size of the downpayment and can cost between 2.8% to 4% of the mortgage.
- Mortgage interest rate: The price of borrowing money. In Canada, the base rate is set by the Bank of Canada for variable rate mortgages and for fixed-rate mortgages, by the performance of the bond market. Interst rates are then customized per borrower, based on credit score, down payment, and property type.
- Principal, interest, property taxes and homeowners insurance (PITI): The components of a monthly mortgage payment.
- Mortgage insurance: A fee charged to borrowers who make a down payment that is less than 20% of the home’s value. The fee, 0.3% to 1.5% of the yearly loan amount, can be canceled in certain circumstances when the borrower reaches 20% equity.
- Canadian Association of Home and Property Inspectors (CAHPI): A not-for-profit professional association that sets and promotes standards for property inspections. Look for this accreditation or something similar when shopping for a home inspector.
- Closing costs: Fees associated with the purchase of a home. Fees may include land transfer tax, lawyer and legal fees, property survey, property appraisal fee, title insurance, government registration fees, and more. Buyers should budget for an amount that is 3% to 4% of the home’s purchase price.
- Contingencies: Conditions written into a home purchase contract that protect the buyer should issues arise with financing, the home inspection, etc.
- Deposit / earnest money: A security deposit made by the buyer to assure the seller of his or her intent to purchase.
- Home inspection: A nondestructive visual look at the systems in a building. Inspection occurs when the home is under contract or in escrow.
- Homeowners insurance: A policy that protects the structure of the home, its contents, injury to others and living expenses should damage occur.
- International Association of Certified Home Inspectors® (InterNACHI®): A not-for-profit professional association that sets and promotes standards for property inspections. Look for this accreditation or something similar when shopping for a home inspector.
- Pending / under contract / in escrow: A period of time after a buyer has made an offer on a home and a seller has accepted wherein the conditions of the purchase contract (i.e. home inspection, financing, sale of buyer's property) are completed.
- Title insurance: Insurance that protects the buyer and lender should an individual or entity step forward with a claim that was attached to the property before the seller transferred legal ownership of the property or “title” to the buyer.
- Transfer taxes: Fees imposed by the Province on transfer of title.
- Walkthrough: A buyer’s final inspection of a home before closing.
When you own a home
- Equity: A percentage of the home’s value owned by the homeowner.
- Homeowners association (HOA): The governing body of a housing development, condo or townhome complex that sets rules and regulations. They charge dues used to maintain common areas.
- Property tax exemption: A reduction in taxes based on specific criteria, such as installation of a renewable energy system or rehabilitation of a historic home.
- Tax notification: The government’s legal claim against property when the homeowner neglects or fails to pay a tax debt.