As you begin the home-buying process, you will inevitably start hearing some unfamiliar terms. This can create confusion in a process that already has many moving parts.
To help you keep up with the jargon, this blog post lists some of the most commonly used real estate terms in alphabetical order. You can keep it as a study guide or even bring it along on your next property visit.
To make it easier, we organized the terms into two groups: General real estate terms and financial and documentation terms.
You are likely to hear your agent use the following general real estate terms. Most of them relate to the condition of the property and the necessary steps to take when you find a property of interest:
If a property is sold “as-is,” it means the seller is unwilling to perform most if not all repairs. In other words, you are purchasing the home in its current condition.
A buyer’s agent is the licensed real estate agent whose job is to locate the property for you, the buyer.
A lister’s agent is a licensed real estate agent whose job is to negotiate for the seller whose property you are interested in.
Closing costs are the assortment of costs paid when closing a real estate transaction. These costs may include loan origination fees, appraisal fees, title searches, title insurance, surveys, taxes, deed recording fees, and credit report charges.
Contingencies are provisions in a contract stating that some or all of the contract terms will be altered or voided by the occurrence of a specific event, usually by specific dates leading up to closing. For example, the seller might include a contingency for proof that the buyer is financially able to close the deal. The buyer can prove this by going through the pre-approval process.
Disclosure is how the seller ensures the buyer knows of any issues that might have been hidden, such as physical defects or the presence of lead-based paint hazards.
Due diligence is the period in which the buyer can examine the property, as stated in the purchase agreement. Typically, the buyer will hire experts to perform evaluations.
An escrow account collects money from your monthly bill to pay your real estate taxes and homeowners’ insurance. This ensures that your bills are paid in full and on time without you having to budget for a large bill separately.
An escrow holder is a third-party agent who collects money and necessary documentation.
The following terms will be useful when speaking to your lender about all things related to home financing. However, just knowing what these terms mean won’t cut it. You also need to know how they work together.
Be sure to partner with a customer-obsessed lender so that you’re always aware of what’s going on.
With adjustable-rate mortgage (ARM) loans, interest rates can be variable, meaning they adjust after an initial fixed-rate period. After that, they can adjust on a yearly or monthly basis.
An APR is a cost you pay each year to borrow money, including fees. This offers a complete picture into how much a loan will cost over time.
An appraisal determines the estimated value of a piece of real estate by examining the property, looking at the initial purchase price, and comparing it to recent sales of similar properties.
An appreciation is an increase in the value of your property caused by economic factors outside of your control, such as increased market demand or inflation.
A credit report is a written account of a consumer’s credit history prepared by a credit reporting agency. A credit report includes information about loans, credit cards, and other bills and accounts.
A credit score is a numerical calculation used to evaluate creditworthiness for applying for a mortgage. Credit scores over 700 are considered high scores and indicate less risk of defaulting on your loans. Scores under 600 are considered low and indicate potential problems.
A debt-to-income (DTI) ratio is used by mortgage lenders to determine a buyer’s total debt payments. To calculate your DTI, add up your monthly debt payments and divide them by your gross monthly income.
An EMD is a partial payment paid to the seller when the offer is accepted. This lets the seller know you’re serious about buying. In most cases, you can get your money back if something is wrong with the house.
Equity is the property’s current market value. Equity can fluctuate over time as more payments are made on the mortgage and market forces impact the value.
An FHA loan is insured by the Federal Housing Administration (FHA) and issued by an agency-approved lender or bank. These loans are intended for low- to moderate-income families and require a lower minimum down payment compared to conventional loans.
A fixed-rate mortgage has an interest rate that stays the same throughout the loan's duration.
A mortgage pre-approval letter gives the buyer an idea of how much home they can afford before putting down an offer. Remember that pre-approval does not mean the buyer can bypass the mortgage approval process.
The pre-approval process allows a lender to determine a buyer’s financial situation.
Principal is the amount of money owed to the lender through a mortgage and does not include interest.
Proof of funds shows a lender that the buyer has enough cash available for the down payment and closing costs.
A purchase and sale agreement is a contract created by the buyer and seller that outlines the terms of a property purchase.
A Veterans Affairs (VA) loan is guaranteed by the government for active or retired military, offering competitive rates and a no-to-low down payment.
Although this is not a comprehensive list of all real estate terms, partnering with the right lender means you won’t need to know every single term out there.
Instead, you can partner with one of radius’ many customer-obsessed Loan Officers who are here to clear up any questions you might have.
Want to know how else you can prepare for a home purchase? Check out our mortgage preparedness guide.