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As a first-time homebuyer, it’s essential to know a little bit about real estate. You don’t need to become an expert, but when it’s time to take out a loan, you should be able to tell the difference between fixed-rate and adjustable-rate. Not knowing key real estate vocabulary can cause you to leave a few mistakes throughout your house-hunting journey.
Here’s a list of essential real estate vocabulary, from financial terminology to property-related phrases:
1. Adjustable-Rate Mortgage
When you buy a house, you can shop around for loans. An adjustable-rate mortgage (ARM) refers to a loan with a low initial interest rate that adjusts after a certain period.
Your payments may increase or decrease with these changes. You may find other real estate vocabulary terms refer to an ARM as a variable-rate or tracker mortgage.
Before you receive a loan, you need to hire an appraiser to determine your future home’s value. A bank uses this number to lend you a fair amount of money.
When you see a home called “as-is,” it’s likely the seller won’t conduct any repairs or updates. The price could remain fixed at a certain point as well. Once you write an offer for an as-is property, you accept its current condition from that point — unless damage occurs between the offer and closing.
4. Backup Offer
You can submit a backup offer to purchase a house that’s currently under contract with another buyer. If that original agreement falls through, the seller can consider your backup offer.
5. Buyer’s Agent
A buyer’s agent represents the homebuyer’s interests. They find properties and navigate negotiations for you. Some real estate terminology refers to buyer’s agents as listing agents, but there are key differences between each role.
When you close on a deal, the property’s sale becomes finalized. The buyer and the seller sign the final documents. Then, the buyer writes a check for a down payment, as well as any closing costs, which include various fees. At this time, the buyer receives access to their new home as well.
Both parties must meet these conditions before a property can sell. For example, you may encounter a contingency that asks the buyer to sell their current home before they finalize an offer.
8. Down Payment
Before you secure a mortgage, you need to set aside money for a down payment. Most banks and lenders require at least 20% of the loan’s amount when you close on a home. A lender can use your down payment as collateral should you default on your loan.
As you make loan payments, you gain ownership of your home — or equity. If you owe $100,000 on a $300,000 home, you currently own two-thirds of the house. When you increase your equity, you can use it as leverage to refinance.
Sometimes, buyers and sellers involve a third-party agent to handle all financial and legal transactions. When a home enters escrow, everyone’s money goes into a secure account. Once each party meets required contingencies, the seller and lender can access those funds.
11. FHA-Insured Loan
Typically, buyers with low credit scores opt for Federal Housing Administration loans. The government backs these mortgages, so they require low down payments — but they need additional insurance called private mortgage insurance.
12. Fixed-Rate Mortgage
A fixed-rate mortgage’s interest rate remains the same for its duration. These loans last anywhere from 15 to 30 years on average. It’s necessary to understand real estate terminology as it relates to loans so you know your options when searching for financing.
13. Homeowners Association
Many planned communities or condominiums include a Homeowners Association (HOA) group. If you buy a home that an HOA manages, you’re required to follow its rules and pay its fees. Association leaders may take legal action if you don’t comply.
14. Home Inspection
Before you close on a house, many transactions require a professional home inspection as a contingency. An expert double-checks your new property for potential damages. If they find an issue, you can negotiate with the seller to fix it.
When you want to buy a home, you need to submit an official offer. You can choose to make a full-price offer, or propose a number you and your buyer’s agent deem fit. If the seller doesn’t accept your initial offer, they can send back a counteroffer outlining a different figure.
To obtain loan pre-approval, buyers need to fill out an application. Then, a lender can determine their financial situation and estimate a proper loan. This letter typically includes specific figures, like an estimated down payment and possible interest rates. Buyers can use this document to make their offer more secure.
17. Private Mortgage Insurance
If you pay less than 20% as a down payment, you’ll likely need to add private mortgage insurance (PMI). This insurance protects your lender if you default.
A Realtor belongs to the National Association of Realtors. They may be a real estate agent, broker-associate or other related occupation. Realtors must follow certain standards within the real estate industry to maintain their memberships.
19. Real Estate Agent
Unlike a Realtor, a real estate agent doesn’t belong to a trade association. They must meet state education requirements, but they don’t need to keep up on specific Realtor-related requirements.
20. Sales Contract
Before you can legally buy a home, each party must sign a sales contract. These agreements include various detailed points, like potential contingencies and added fixtures, like appliances or furniture. Once the buyer and seller agree on a sale contract, they’re legally bound to it.
Take Note of This Real Estate Vocabulary
As you navigate this process, use this list of real estate terminology so you understand every part and secure your dream home.