Home Buyers Dictionary

You’d have to be a cryptologist to figure out some of the terms buyers encounter during the home buying process. Doing research on how to buy a house before beginning the process can greatly improve your experience and prepare you for the exciting course ahead. And with this glossary of home buying terms at your side, you can rest easy that your new home won’t get lost in translation.

A B C D E F G H I L M N O P R S T V W Z

Adjustable Mortgage Interest Rate - both the interest rate and the mortgage payment vary, based on market conditions. 

Agreement of Purchase and Sale - a legal agreement that offers a certain price for a home. The offer may be firm (no conditions attached), or conditional (certain conditions must be fulfilled before the deal can be closed).

Amortization - a payment plan by which a borrower reduces a debt gradually through monthly payments of principal and interest.

Amortization Period - the time over which all regular payments would pay off the mortgage. The maximum mortgage amortization period for federally insured residential mortgages is 25 years. 

Appraisal - an evaluation to determine what a piece of property would sell for in the marketplace.

Appreciation - the increase in the value of a property.

Assessment - a tax levied on a property or a value placed on the worth of property by a taxing authority.

Assumption Agreement - a legal document signed by the buyer of a home to assume responsibility for an existing loan on the home instead of getting a new loan.

Blended Payment - a principal and interest mortgage payment that is paid regularly (ie. weekly, biweekly, semi-monthly or monthly) during the term of the mortgage. The payment total remains the same although the principal portion increases over time and the interest portion decreases.

Certificate of Location/Land Survey - a document that shows property boundaries and measurements, specifies the location of buildings on the property and states easements or encroachments.

Certificate of Occupancy - a document from an official agency stating that the property meets the requirements of local codes, ordinances, and regulations.

Certificate of Search/Abstract of Title - a document setting out instruments registered against the title to the property, e.g. deed, mortgages, etc.

Closed Mortgage - cannot be prepaid, renegotiated or refinanced, before the end of its term. 

Closing/Settlement - a meeting to sign documents which transfer property from a seller to a buyer. 

Closing Costs - various expenses associated with purchasing a home. These costs can include, but are not limited to, legal/notary fees and disbursements, property land transfer taxes, as well as adjustments for prepaid property taxes or condominium common expenses, if any.

Closing Date - the date on which the sale of a property becomes final and the new owner usually takes possession.

Commitment Letter/Mortgage Approval - a formal written communication by a lender, to the buyer that approves the advancement of a specific amount of mortgage funds under specific conditions.

Compound Interest - interest calculated on both the principal and the accrued interest.

Conditional Offer - an offer to purchase that is subject to specified conditions. These conditions may relate to financing, or the sale of an existing home. There is usually a stipulated time limit within which the specific conditions must be met.

Conditions, Covenants, and Restrictions - the standards that define how a property may be used and the protections the developer has made for the benefit of all owners in a subdivision.

Condominium/Strata - a home usually in a highrise or lowrise, or a townhouse; each purchaser owns an individual unit, and all the purchasers jointly own the common areas, such as the surrounding land, corridors and facilities such as a swimming pool & recreation rooms. Condominium owners together control the common areas through an owners’ association. The association makes decision about using and maintaining the common space.

Contractor - a person responsible for overall construction of a home, including buying, scheduling, workmanship, and management of subcontractors and suppliers.

Conventional Mortgage - a mortgage loan up to a maximum of 80% of the purchase price of the home. Typically, the lending value is the lesser of the purchase price and market value of the property. Mortgage insurance is usually not required for this type of mortgage.

Counteroffer - if your original offer to the vendor is not accepted, the vendor may counteroffer, which means that the vendor has amended something from your original offer, such as the price or closing date. If a counteroffer is presented, the individual has a specified amount of time to accept or reject. 

Credit Bureau - a company that collects information from various sources and provides credit information on a person’s borrowing and bill paying habits to help lenders assess whether or not to lend money to the person. 

Credit History Rating - a report ordered by a lender from a credit bureau to determine your creditworthiness. It includes information such as your ability to handle your debt obligations and your current outstanding obligations.

Curb Appeal - how attractive the home looks from the street. A home with good curb appeal will have attractive landscaping and a well-maintained exterior.

Deed/Certificate of Ownership - a legal document that is signed by both vendor and purchaser, transferring ownership. This document is registered as evidence of ownership. 

Default - a breach of a mortgage contract (such as not making monthly payments).

Delinquency - failing to make a mortgage payment on time.

Density - the number of homes built on a particular acre of land. Allowable densities are usually determined by local jurisdictions.

Deposit - money placed in trust by the purchaser when an Offer to Purchase is made. The sum is held with an estate representative or lawyer/notary until the sale is closed and then it is paid to the vendor. 

Depreciation - the decrease value of something because it is worth less than when you bought it. 

Downpayment - the portion of the home price that is not financed by the mortgage loan. The buyer must pay the downpayment from their own funds or other eligible sources before securing a mortgage. 

Duplex - a duplex is a building containing two single-family homes, located one above the other.

Easement - right-of-way granted to a person or company authorizing access to the owner’s land; for example, a utility company may be granted an easement to install pipes or wires. An owner may voluntarily grant an easement, or in some cases, be compelled to grant one by a local jurisdiction.

Equity - the difference between the value of a home and what is owed on it. Equity usually increases as the mortgage is reduced through regular payments. Market values and improvements to the property may also affect the equity.

Escrow - the handling of funds or documents by a third party on behalf of the buyer and/or seller.

Firm Offer - an offer to buy the property as outlined in the offer to purchase with no conditions attached.

Fixed Rate Mortgage - a mortgage for which the rate of interest is fixed for a specific period of time (the term).

Foreclosure - the legal process where the lender takes possession of your property and sells it to cover the debts you have failed to pay off. When you default on a loan and the lender feels that you are unable to make payments, you may lose your home to foreclosure. 

Freehold - ownership of land and buildings (house) by one person (or two, such as joint ownership by spouses). Detached and semi-detached homes, duplexes and townhouses are usually owned freehold. Freehold owners can do what they want with their property but must obey municipal bylaws, subdivision agreements, building codes and federal and provincial laws, such as those protecting the environment. 

Gross Debt Service Ratio (GDS) - the percentage of the borrower's gross monthly income that will be used for monthly payments of principal, interest, taxes and heating costs (P.I.T.H.) and half of any condominium maintenance fees. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.

Gross Household Income - is the total salary, wages, commissions and other assured income, before deductions, by all household members who are co-applicants for the mortgage.

High-Ratio Mortgage - a mortgage loan higher than 80% of the lending value of the property. This type of mortgage may have to be insured against payment default.
Holdback - an amount of money required to be withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.

Home Inspector - a person who visually inspects a home to tell you if something is not working properly, or is unsafe. They will also tell you if repairs are needed, and maybe even where there were problems in the past.

Infrastructure - the public facilities and services needed to support residential development, including roadways, bridges, schools, and sewer and water systems.
Inspection - the examination of the house by a building inspector selected by the purchaser.

Interest - the cost paid to a lender for the use of borrowed money.

Interest Rate - the price paid for the use of money borrowed from a lender.

Interest Rate Differential Amount (IRD) - is a prepayment charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. It is equivalent to the difference between your annual interest rate and the posted interest rate on a mortgage that is closest to the remainder of the term less any rate discount you received, multiplied by the amount being prepaid, and multiplied by the time that is remaining on the term.

Interim Financing - short-term financing to help a buyer bridge the gap between the closing date on the purchase of a new home and the closing date on the sale of the current home.

Land Registration - a legal document that records the ownership of a property and land.

Land Surveyor - a professional who can survey a property in order to provide a certificate of location.

Lender - a mortgage lender is an institution (bank, trust company, credit union, etc.) that lends money for a mortgage.

Lien - a claim against a property for money owing. A lien may be filed by a supplier or a subcontractor who has provided labour or materials but has not been paid.

Lump Sum Prepayment - an extra payment, made in lump sum, to reduce the principal balance of your mortgage, with or without penalty. A closed mortgage typically restricts the amount and frequency of the prepayments you can make. With an open mortgage, however, you can make a lump sum prepayment at any time without penalty. Making prepayments can help you pay off your mortgage sooner and ultimately save on interest costs over the life of your mortgage.

Manufactured Home/Mobile Home - is a factory-built home. It is transported to a chosen location, and placed onto a permanent foundation, but do retain the ability to be moved.

Maturity Date - the last day of the term of the mortgage. On this day, the mortgage loan must either be paid in full or the agreement renewed.

Modular Home - a factory-built, single-family home. The home is typically shipped to a location in two, or more, sections (or modules).

Mortgage - is a security for a loan on the property you own. It is repaid in regular mortgage payments, that includes the principle (amount borrowed) plus the interest (the charge for borrowing money). The payment may also include a portion of the property taxes.

Mortgage Broker - a broker who represents numerous lenders and helps consumers find affordable mortgages that will best suit them.

Mortgage Company /Mortgage Banker - a company that borrows money from a bank, lends it to consumers who want to buy homes, then sells the loans to investors.

Mortgage Life Insurance - a form of reducing term insurance recommended for all mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from the loss of their homes.

Mortgage Loan Insurance - required if you have a high-ratio mortgage (more than 80% of the lending value of the property).

Mortgage Payment - a regular payment to the lender that includes both the interest and the principal.

Mortgage Term - the number of years or months over which you pay a specified interest rate. Terms usually range from six months to 10 years.

Mortgagee - the lender who makes a mortgage loan.

Multiple Listing Service/MLS - a multiple listing service is a real estate agents’ cooperative service that contains descriptions of most of the homes that are for sale. Real estate agents use this computer-based service to keep up with properties they are listing for sale in their area.

Net Worth - your financial worth, calculated by subtracting your total liabilities from your total assets.

Offer To Purchase - a written contract setting out the terms under which the buyer agrees to buy the home. If accepted by the seller, it forms a legally binding contract that binds the people who signed to certain terms and conditions.

Open House - a period of time during which a house or apartment for sale or rent is held open for public viewing.

Open Mortgage - a mortgage which can be prepaid at any time, without requiring the payment of additional fees.

Operating Costs - the expenses that a homeowner has each month to operate a home. These include property taxes, property insurance, utilities, telephone and communications charges, maintenance and repairs.

Payment Schedule - the monthly, semi-monthly, biweekly, or weekly mortgage payments.

P.I.T.H. - principal, interest, taxes, and heating (the 4 major components of monthly housing payments).

Porting - this allows you to move to another property without having to lose your existing interest rate. You can keep your existing mortgage balance, term and interest rate plus save money by avoiding early discharge penalties.

Prepayment - payment of all or part of a debt prior to its maturity.

Prepament Charge - compensation when the borrower prepays all or part of a closed mortgage more quickly than is allowed as set out in the mortgage agreement.

Prepayment Option - the ability to prepay all or a portion of the principal balance. Prepayment charges may be incurred on the exercise of prepayment options.

Principal - the amount borrowed in a loan. Each mortgage payment consists of a portion of the principal that must be repaid plus the interest that the lender is charging you on the outstanding loan balance. 

Property Insurance - insurance you buy for the building(s) on your land; this should be high enough to pay to re-build if it is destroyed by fire or other hazards listed in the policy.

Property Taxes - taxes charged by the municipality where the home is located based on the value of the home. In some cases the lender will collect a monthly amount to cover your property taxes, which is then paid by the lender to the municipality on your behalf.

R-Value - the resistance of insulation material (including windows) to heat passing through it. The higher the number, the greater the insulating value.

Realtor/Real Estate Agent - a person who acts as an intermediary between the seller and the buyer of a property.

Refinancing - renegotiating your existing mortgage agreement. May include increasing the principal or paying out the mortgage in full.

Renewal - at the end of a mortgage term, the mortgage may "roll over" on new terms and conditions acceptable to both the lender and the borrower. This is known as renewing a mortgage. 

Reserve Fund - this amount is set aside by the homeowner on a regular basis so that funds are available for emergency or major repairs. Setting aside 5% of your monthly take-home pay will give you a well-funded reserve.

Row House/Townhouses - is one unit of several similar single-family homes, side-by-side, joined by common walls.

Sales Contract - a contract between a buyer and seller which should explain, in detail, exactly what the purchase includes, what guarantees there are, when the buyer can move in, what the closing costs are, and what recourse the parties have if the contract is not fulfilled or if the buyer cannot get a mortgage commitment at the agreed-upon terms.

Security - property that can be claimed by a creditor if a loan is not repaid.

Single-family Detached Home - free-standing home for one family, not attached to a house on either side.

Single-family Semi-detached Home - home for one family, attached to another building on one side.

Stacked Townhouse - two two-story homes are stacked one on top of the other. The buildings are usually attached in groups of four or more. Each unit has direct access from the outside.

Term - the length of the current mortgage agreement. A mortgage may be amortized over a long period (such as 25 years) with a shorter term (six months to five years or more). After the term expires, the balance of the principal then owing on the mortgage can be repaid or a new mortgage agreement can be entered into at the current interest rates.

Title - a freehold title gives the holder full and exclusive ownership of the land and building for an indefinite period. A leasehold title gives the holder the right to use and occupy the land and building for a defined period.

Title Insurance - insurance against loss or damage caused by a matter affecting the title to immoveable property, in particular by a defect in the title or by the existence of a lien, encumbrance or servitude.

Total Debit Service Ratio (TDS) - the percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations. The total should generally not exceed 40% of gross monthly income.

Variable Rate Mortgage/Floating Rate Mortgage - a mortgage for which the rate of interest may change if other market conditions change.

Vendor
- the seller of a property.

Vendor Take-Back Mortgage/Take Back Mortgage - the vendor, not a financial institution, finances the mortgage. The title of the property is transferred to the buyer who makes mortgage payments directly to the seller. These types of mortgages can be helpful if you need a second mortgage to buy a home.

Walk-Through - a final inspection of a home before possession to search for problems that need to be corrected before ownership changes hands.

Warranty - a promise, either written or implied, that the material and workmanship of a product is defect-free or will meet a specified level of performance over a specified period of time. Written warranties on new homes are either backed by warranty companies or by the builders themselves.

Zoning - regulations established by local governments regarding the location, height, and use for any given piece of property within a specific area.