If you are a first time home buyer, or even a repeat buyer, you quickly realize that real estate has a language all its own. Understanding some of the lingo can help you navigate the process a little easier. By learning a few critical terms, you will
be in a better position to ask the right questions and make the best decisions.
- Buyer’s Market – A real estate climate where the amount of listings outnumber qualified buyers.
- Seller’s Market – A real estate climate when there are very few desirable properties listed for sale.
- Pre-approval - A pre-approval is a lender’s conditional agreement to lend you a specific
amount of money, made after confirming your financial information such as income and assets. Conditions may include a home appraisal and no significant changes to your finances.
- Inspection - A close physical examination of a home to evaluate its
plumbing, electrical, and heating and cooling systems, as well as its appliances, roof, foundation, and structural stability.
- Appraisal – A determination of the value of something, such as jewelry, stock, or, in this case, the house you plan to buy. A professional appraiser makes
an estimate by examining the property, looking at the initial purchase price, and comparing it with recent sales of similar property.
- Contingencies – Specific conditions included in offer to protect the buyer against unexpected situations, such as inspection, loan approval and appraisal
- Underwriting - The lender reviews submitted documents to verify
the borrower’s finances and other factors related to the home, such as the title search and appraisal, then decides to approve or deny the loan.
- Earnest Money – Money deposited when the offer is accepted. Subject to any contingencies, this money protects the seller from a buyer who simply changes
- Closing Costs – These are costs outside a property’s sales price that must be paid to cover the cost of the transaction. Closing Costs are typically
paid by the buyer. They are typically 2 to 5 percent of your loan amount and are often paid at closing or just before. These typically include lender's fees and points or prepaid interest, a prorated share of the property taxes,
transfer taxes, credit check fees, homeowners' and title insurance premiums, deed filing fees, real estate agent commissions, inspection and appraisal fees, and attorneys' fees.
- Adjustable rate mortgage (ARM) -
A mortgage loan with an interest rate that fluctuates in accordance with a designated market indicator -- such as the weekly average of one-year U.S. Treasury Bills -- over the life of the loan. To avoid constant and drastic fluctuations,
ARMs typically limit how often and by how much the interest rate can vary.
- Fixed rate mortgage – A mortgage loan that has an
interest rate that remains constant throughout the life of the loan, usually 15 or 30 years.
- Conforming Loan – A conforming loan is a loan limit by which the loan can be sold on the secondary market; a jumbo loan is one which is higher than
- PMI – PMI, private mortgage insurance is a fee paid by the borrower of a loan that they obtained with less than a 20% down payment.
These are just a few of the common terms used in real estate. If you are involved in a real estate transaction, learning a bit of the common lingo will help you understand the process better and make your home sale or purchase a smooth one.