When you’re purchasing a home, there are a lot of real estate terms that are thrown around that can sound foreign and be confusing. Understanding the “lingo” used by your real estate agent will make the process a little bit easier to digest, especially if it is your first home. Some common real estate terms include:
Adjustable Rate Mortgage (ARM): A type of mortgage with a lower initial rate for a set number of years that can increase or decrease, depending on the specified index rate. This type of mortgage is preferred for short-term ownership and are typically for 5, 7, or 10 years, but can be issued for longer time periods.
Amortization: The repayment schedule for a loan that includes payments of principal and interest. Displayed in a table format, an amortization schedule displays the amount of principal and interest included in each payment and the remaining balance due.
Appraisal: The estimated property value based on an appraiser’s analysis. Typically required by banks before a loan is issued to ensure the value to the property exceeds the loan amount.
Buyer’s Agent: A real estate agent that represents the interests of homebuyers
Closing Costs: All incidental fees associated with the completion of a real estate transaction. This can include attorney’s fees, credit report fees, documentation fees, deed recording fees, and appraisal fees.
Contingencies: Conditions that must be met prior to completing a real estate transaction. This can include a home inspection, financing contingencies, or a contingency that says a buyer must sell their current home first.
Earnest Money: The funds held by a neutral party that indicates a buyer has serious interest in purchasing a property. Also called a “good faith” deposit.
FHA Loan: A type of loan insured by the Federal Housing Administration (FHA) with attractive financing rates and less stringent requirements. This type of loan is appealing to those with lower credit scores and requires two types of mortgage insurance: an upfront premium and an annual premium (wrapped into monthly mortgage payments).
Fixed-Rate Mortgage: A conventional type of loan with a “locked in” interest rate for the duration of the loan. This type of loan is traditionally 30 years in length but can be issued for 10 or 15 years.
Home Inspection: An examination of the structural and mechanical condition of the property by a professional at the buyer’s expense. A recommended and common step in the contingency clause of a real estate sales contract to ensure that any issues with plumbing, foundation, roof, electrical, and HVAC systems are identified. These issues can be revisited with the owner before proceeding with the sale.
Listing: The official description of a property that is for sale that often includes details about the property, the home, other structures on the property, the price, and photos.
Offer: A formal request to purchase a home that is for sale.
Points: The prepaid interest on a loan, equal to 1% of the loan amount.
Pre-Approval: A written guarantee to grant a loan up to a specific amount by a lender prior to receiving all documentation.
Pre-Qualification: An estimate by the bank of the amount a buyer may be able to borrow.
Private Mortgage Insurance (PMI): If the buyer’s down payment is less than 20% of the home’s purchase price they may be required to pay a monthly insurance payment to protect lenders against a loss if a borrower defaults.
Sales Contract: A legally binding contract that is in place once a seller accepts an offer from a buy to purchase real estate for a specific price and for specific terms.
Seller’s Agent: A real estate agent that represents the seller of a piece of property’s best interests. They will market the property to potential buyers and negotiate on the seller’s behalf.
Title Insurance: A type of insurance that is acquired to protect against unknown liens or debts that may be placed on the property.