Defining Common Real Estate Terms for First Time Homebuyers

It’s no question that buying a home can be a complicated process. Loads of phrases and terms are thrown at potential homebuyers, many of whom are hearing the words for the first time. Without a concrete understanding of real estate lingo, you’re in an uncertain spot, unable to truly make informed decisions. Thankfully, you can do something about it. Understanding real estate terms and definitions is the first step in empowering yourself during the home buying process. Let’s jump into some of the most common real estate terms you’ll come across, from pre-approval to closing. 

Adjustable rate mortgage

Adjustable-rate mortgages are a type of mortgage with an interest rate that can rise and fall during the loan's lifetime. Typically, adjustable-rate mortgages start low and gradually increase. 

Appraisal

An appraisal is an objective assessment of a home's current market value. It is a key part of buying, selling, or refinancing a home. When you get a home appraised, a qualified appraiser will perform a thorough, in-person inspection of the house. An appraisal value is so significant that a lower-than-expected value can cause the transaction to be postponed or canceled. 

Broker

A broker is a licensed professional representing a buyer's or seller's interests. They help with various aspects of purchasing or selling a home and usually have real estate agents working under them.

Closing costs 

Closing costs are the fees associated with completing the sale or purchase of a home. They may be paid by either the seller or buyer and include costs like taxes, title searches, homeowner insurance, and title insurance fees. On average, closing costs are around 2% to 5% of the total amount of the loan.

Deed

A deed is a legal document that shows the transfer of ownership of a property. Deeds contain a brief description of the property and the identity of the buyer/grantee and the seller/grantor. 

Down payment

A down payment is a percentage of a home’s purchase price that is paid upfront. The more substantial your down payment is, the less likely it is that you’ll have to pay for extra fees or mortgage insurance. 

Escrow account

An escrow account is a financial account that holds money until it is released to another party. In real estate transactions, an escrow account is usually managed by the mortgage lender and used to pay expenses related to the home sale, such as property taxes and insurance.

Fixed-rate mortgage

A fixed-rate mortgage is a type of mortgage that has a set interest rate. It doesn’t fluctuate during the life of your loan, which means there won’t be any surprise mortgage increases tied to your interest rate. They’re perfect for anyone who needs to stay on a tight budget. 

HOA 

An HOA, or homeowner association, is an organization that creates and enforces rules that the residents of a community must follow. Failure to comply with the regulations will likely result in fines or liens being placed against your home. HOA’s are typically funded by monthly or annual fees that they collect from the homeowners.

Inspection contingency

An inspection contingency is a clause in a purchase contract that gives the buyer the right to have a home inspected during a specific period. The buyer can then use the findings to negotiate with the seller or walk away from the contract without penalties. 

Lien

A lien is a legal right to an asset, like a car or home. They are often used as collateral to repay a debt. If you fail to pay your debt, lien holders have the right to force you to sell the property to obtain repayment. 

Title

A house title is a document showing the legal ownership of a specific property. It gives the owner the right to use and modify the property the way they want and transfer ownership to others with a deed. 

Pre-approval letter 

A pre-approval letter is a document that shows an estimate of how much a lender is willing to lend a buyer for the purchase of a new home. Your lender will use information like a buyer’s income, debt, and credit history to determine how much debt the buyer can take on.

Real estate definitions aside, make sure you’re actively asking questions throughout the home buying process. The more you ask, the more you’ll know, and the more confident you’ll be with your decisions. Make sure you address red flags as they arise, so they don’t spiral into bigger problems. If you need a little more assistance, you can reach out to your referring homeowner assistance partner or utilize additional training through eHome America courses. That said, we hope this article has helped shed some light on terms frequently used in real estate.