What is equity? Or earnest money? And what about all of those abbreviations, like HELOC and MLS? Not to mention, what’s the difference between an adjustable-rate and a fixed-rate mortgage? Or pre-qualification and pre-approval? There are many different terms and phrases in the real estate world, and it’s easy to get overwhelmed and confused by it all.
Consider this a crash course in real estate terms! We’re sharing a brief overview of some of the most commonly used real estate terminology so you can enter the buying or selling process with confidence.
Adjustable-Rate Mortgage: A home loan with an interest rate that can adjust over time based on market conditions, typically at 3-, 5-, 7- or 10-year intervals.
Agent: A licensed professional who works under a broker and represents buyers and/or sellers in real estate transactions.
Annual Percentage Rate (APR): The total percentage amount of interest charged on a loan per year, as opposed to the monthly rate.
Appraisal: A professional estimate of the value of a property, to ensure the bank is lending the proper amount of money.
Appreciation: The increase of a property’s value over time.
Assessed Value: The value of a property according to a public tax assessor for the purpose of determining how much property tax is owed.
Broker: A real estate agent who has passed the state’s broker’s exam and completed additional training or licensing requirements, with the ability to work on their own or hire agents to work for them.
Buyer’s Agent: The agent who represents the buyer in the home buying process.
Closing: The official finalization of the sale, when both parties sign documents, closing costs are paid, and the title passes from the seller to the buyer.
Closing Costs: The fees and expenses associated with a real estate transaction that are paid by both the buyer and seller at closing, which can include loan processing costs, title insurance, attorney fees, appraisals, taxes, and more.
Commission: The percentage of a property’s purchase price paid to both the buyer’s and seller’s agent who assisted with the transaction.
Comparative Market Analysis: A report containing comparable recently sold properties in the area, to help sellers set listing prices and help buyers make competitive offers.
Contingent: When a seller has accepted an offer from a buyer, yet the sale is dependent on certain criteria being met, such as the home inspection producing favorable results, the buyer being able to sell their current property, etc.
Deed: The legal document transferring ownership of a property from one owner to another.
Down Payment: The money a buyer pays upfront during a real estate transaction, which typically amounts to anywhere from 5–20% of the purchase price.
Due Diligence: The period of time (typically 10-30 days) where the buyer has the opportunity to inspect a property to make sure they would like to move forward with the transaction, typically after going under contract and before closing.
Earnest Money: A sum of money the buyer puts down as a deposit to prove their seriousness about purchasing the home, which will be applied to the down payment or closing costs.
Equity: The difference between how much you owe on your mortgage and what your home is currently worth.
Escrow: When a third party holds onto funds during a real estate transaction until certain conditions are met, in order to protect the buyer and seller.
Fair Market Value: How much a property would sell for in an open market regardless of current supply and demand conditions.
Fixed-Rate Mortgage: A home loan with an interest rate that will not change over the course of the loan, resulting in consistent interest and principal payments for the borrower.
For Sale By Owner: When a home is sold by the homeowner without help from a listing agent.
Foreclosure: The legal process of a lender seizing property from a borrower who is unable to meet their mortgage repayment obligations.
Home Equity Line of Credit (HELOC): A line of credit a borrower can receive against the equity built up, often for the purpose of a large purchase, such as major renovations or another home purchase.
Homeowner’s Insurance: A form of property insurance that covers damages and losses to the residence, including damages to the interior or exterior, loss or theft of possessions, and personal injury that occurs while on the property.
Home Warranty: A contract covering replacements or repairs to appliances or systems in a home for a set period of time, typically for one year.
Inspection: A detailed examination of the condition and overall safety of a property, which includes an in-depth look at the major components of the home, including the plumbing, structure, foundation, appliances and other features.
Interest Rate: The percentage of principal charged by the lender as a cost of borrowing money, subject to change on a daily basis based on national rates.
Lender: An individual or institution that loans money to a person or business with the expectation of being repaid over time, with both principal and interest.
Lien: A financial claim to a property placed by a mortgage lender if the borrower is behind on payments.
Listing: A home that is for sale or rent, derived from the fact that homes are “listed” on a website or publication.
Listing Agent: The agent who represents the seller in the home buying process.
Mortgage: A type of loan from a bank or financial institution that helps a borrower purchase a home, land, or other forms of real estate.
Mortgage Broker: A professional who acts as a liaison between a borrower and a lender, taking care of all details associated with the loan, including originating the loan, securing an interest rate, and more.
Multiple Listing Service (MLS): A private database accessible only to real estate professionals with information about properties on the market.
Offer: A conditional proposal submitted by a buyer who is interested in purchasing a property, which can be accepted, rejected or countered by the seller.
Pre-Approval: The process of a potential lender reviewing an individual’s financial status in detail, which includes their income, debt, assets, credit history and more, to determine how much money they can borrow.
Pre-Qualification: A brief review of a potential borrower’s financial situation, based on information provided by the borrower, in addition to a credit check.
Principal: The amount of money borrowed when a loan was taken out to purchase a home, which when combined with interest equals the monthly mortgage payment.
Private Mortgage Insurance: A type of mortgage insurance buyers are usually required to pay on a conventional loan if they are unable to make a down payment of more than 20% of the purchase price.
REALTOR®: A real estate agent who is a member of the National Association of REALTORS®, a professional association with a code of ethics members must adhere to.
Refinancing: The process of replacing a current mortgage with a new one, which has a lower interest rate or other financial benefits.
Title: A legal document that states who owns a property or asset and who has owned it in the past.
Title Insurance: A type of insurance that protects both lenders and buyers from any financial loss related to a defective title, which may include liens, encumbrances, or other defects.
Under Contract: When a seller has accepted an offer on a property, and the two parties have agreed on the sale price, closing date and other terms.
