Real estate vocabulary terms you need to know
Buying a new house can be equal parts exciting and distressing, especially for those looking to buy for the first time. Knowing exactly what to expect is nearly impossible. The jargon is heavy, and your lack of experience can make the unknown overwhelming. Rest assured, most of this stress can be overcome by doing your homework.
Purchasing a new home requires a language all its own. If you’re new to the experience, you may feel like a fish out of water. This guide will introduce you to a few of the terms you may run across while house hunting. Let’s get started!
Active property: A house on the market and ready for sale. The homeowners may have been given offers, but they have not accepted any.
Adjustable-rate mortgage (ARM): The loan from your bank for the property — the mortgage — has a fluctuating interest rate. This allows buyers to pay a lower initial interest rate, with lower payments early on. Over time, the mortgage and interest rate will increase.
Annual percentage rate (APR): A way to measure how much your loan will cost over time. APR covers interest, points, fees and other charges involved in obtaining a loan.
Appraisal: An estimate, conducted by a licensed appraiser, that uses the sales of surrounding homes to calculate the market value of a property.
Assessment: An estimate of the home’s value to help determine property taxes.
Assumable mortgage: The buyer takes over the seller’s current mortgage and complies with all established terms and conditions.
Balloon mortgage: A mortgage that isn’t paid off when the loan term ends, leaving a balance that must be taken care of at the end.
Buyer’s agent: The real estate agent or broker representing the person looking to buy a home. He or she will share listings, organize walk-throughs and represent the buyer during closing.
Climate-controlled storage: With a constant temperature between 55°F and 85°F, climate controlled-storage units provide greater protection against insects, humidity and other threats to valuables.
Closet space: The amount of storage space a property has. This is usually conveyed in square footage or by listing the number and size of closets.
Closing costs: All of the fees associated with the final sale of a property, including taxes, title insurance, lender costs and appraisal fees.
Commission: The amount the real estate agent earns for his or her services. This can apply to both the buyer’s and seller’s agents.
Contingency: This means an additional action must be taken before the closing, such as a home inspection, financing or home appraisal.
Counteroffer: When an original offer on a property is rejected and a higher offer is suggested.
Debt-to-income (DTI): The amount of a borrower’s income that goes directly to pay debt each month. It is typically shown as a ratio of monthly income to monthly debt payments, such as car, loan and credit card payments.
Deed: A legal document that logs the details of homeownership.
Depreciation: The gradual decline of the value of a property due to economic conditions, demand for real estate, quality of the neighborhood or other external factors.
Down payment: Buyers pay a percentage of the total cost of the home at closing.
Drive-up storage unit: A storage unit, typically outdoors, to which you can bring your vehicle directly to the door or gate for easier loading or unloading.
Earnest money deposit: Showing his or her commitment to buying the home, a buyer pays a partial payment, which is held in escrow to be put toward closing costs.
Equity: The difference between the mortgage and the sale price of the home.
Escrow: A third party who manages the money and documents on behalf of the property buyer and seller.
Fixed-rate mortgage: A mortgage with an unchanging interest rate for the duration of the loan.
For sale by owner (FSBO): A property being sold by the homeowner without the help of a real estate agent.
Hazard insurance: Homeowners insurance that covers damage from disasters like fire and flood.
Homeowners association: An organization of residents concerned with managing the look and feel of the exterior of homes in the neighborhood and upkeep of any common areas.
Indoor self-storage: A storage facility that offers units contained inside a building. These typically offer climate-control options.
Loan-to-value (LTV): The ratio of the loan amount over the value of the home. Lenders pay close attention to this ratio.
Nonrecurring closing costs: One-time fees associated with the sale of a property.
Outdoor self-storage: Storage units with outdoor access. These typically do not protect against humidity or temperature changes and require your own lock.
Pending: A sale is pending when the offer has been accepted, any contingencies have been taken care of, and a contract has been signed.
Points: In an effort to reduce interest, a fee can be given to a lender equal to one percent of the mortgage.
Pre-approved: After completing an application and a financial background check, the lender commits to a specific loan amount for the buyer.
Prequalified: A ballpark estimate of how much a buyer can afford to borrow to purchase a home.
Principal, interest, taxes and insurance (PITI): The fees that make up most monthly mortgage payments.
Private mortgage insurance (PMI): If the borrower happens to default on a loan, this insurance protects the lender. If the buyer puts less than 20 percent down on a property, then this insurance is required.
Rate lock: An agreement that gives the borrower a specific interest rate on a mortgage that will not change for a set period of time.
Right of first refusal: An agreement between a seller and a buyer that the buyer will have the opportunity to make an offer on a property before anyone else does.
Seller’s agent: The real estate agent or broker representing the person selling the property.
Storage unit insurance: Insurance, typically in addition to homeowners insurance, that protects belongings deposited in a storage unit.
Storage unit size: The size of storage units can range anywhere from 5 x 5 to 10 x 30 feet.
Title insurance: Protects the buyer or lender if issues surrounding the property’s title arise after closing.
Under contract: A seller has accepted the buyer’s offer but there are still contingencies that need to be met.
While there are other terms related to real estate that you may encounter, this list contains the most commonly experienced situations. One of the best tools in the house hunt is finding an agent you trust. Try to connect with at least one that has experience working with first-time buyers. When selecting an agent to work with, ask them about their successes, challenges, credentials and knowledge of homes for sale in the areas you’re interested in or at prices you can afford.
There are a lot of reasons purchasing a home can be intimidating. From trying to make heads or tails of the financial impact to deciding if you need to store or sell beloved items that might not fit in your new space, you’ll be faced with a lot of critical decisions in the months ahead. Arming yourself with knowledge of the process can help ease any anxiety you might have surrounding the purchase