32 Commonly Used Real Estate Terms
Feeling a bit overwhelmed by all the real estate lingo you hear? From comparative market analysis to title insurance, it can all seem very confusing. We’ve compiled a list of 32 common real estate terms you will likely run across on your path to buying or selling a home.
Adjustable Rate Mortgage – There are two kinds of conventional loans; the fixed rate and the adjustable rate mortgage. With an adjustable rate mortgage, the interest rate can change over the course of the loan at different year intervals. If a homeowner plans to stay in their home for more than a handful of years, this might not be the type of loan for them as the rates can change depending on market conditions.
Amortization – The process of combining both interest and principal in payments, instead of just paying off interest at the start. The allows the homeowner to build more equity into their home early on.
Appraisal – Your lender will require an appraisal on the home to make sure they are lending the correct amount of money. An appraiser will determine the value of the home based on an examination of the property and the sales information of comparable homes in the area.
Assessed Value – This is how much a home is valued at according to a public tax assessor who make that determination in order to figure how much city, county, or state tax the owner owes.
Buyer’s Agent – This is the real estate agent representing the buyer in the homebuying process. On the other side is the listing agent, who represents the seller.
Cash Reserves – This is the money left over for the buyer after the down payment and the closing costs.
Closing – The meeting when the sale of the property is finalized. At the closing, the buyers and sellers sign the final documents, and the buyer makes the down payment and pays the closing costs.
Closing Costs – In addition to the price of the home, there are closing costs that are not included in the down payment. Examples of closing costs can include title insurance, loan processing costs, etc.
Comparative Market Analysis (CMA) – This is a report on comparable homes in the area that is used to determine an accurate value for your home.
Commission – The amount due to a real estate agent, broker or mortgage loan broker for services performed in the transaction process.
Contingencies – This refers to conditions that have to be met in order for the purchase of home to be finalized. An example of a contingency is that a buyer must sell their home before they purchase a new home.
Dual Agency – This is when one real estate agent represents both sides of the transaction, rather than having separate buyer’s and listing agents.
Earnest Money – Down payment or a small part of the purchase price made by the buyer as evidence of good faith.
Equity – This refers to how much of your home you actually own. In other words, how much of the principal you have paid off. The more equity you have, the more flexibility you have, and you can refinance against the equity you have built up. Equity is the difference between the fair market value of your home and the unpaid balance on the mortgage. If you home is worth $250,000 and you still owe $200,000 on your mortgage, you have $50,000 in equity.
Escrow – An account that the lender sets up that receives monthly payments from the buyer.
Fixed Rate Mortgage – There are two kinds of conventional loans; fixed rate and adjustable rate mortgage. In a fixed rate mortgage, the interest rate remains the same throughout the life of the loan.
Home Warranty – A warranty that protects your home from future problems to things like plumbing, heating, and air conditioning, which can be very costly to repair or replace.
Inspection – Inspections occur after a potential buyer makes an offer. The purpose is to make sure the house’s foundation, plumbing, a/c, heating, and other features are up to code. Issues that may turn up during the inspection could factor into the negotiation of the price of the home. An inspection typically costs a few hundred dollars but failing to do an inspection may result in costly surprise repairs down the road for the new owner.
Interest – The cost of borrowing money for the purchase of a home. Interest is combined with principal to determine your monthly mortgage payments. The longer a mortgage term, the more you will pay in interest over the lifetime of your loan.
Listing – A term used when a home is for sale and is “listed” on a website or in a publication.
Listing Agent – This is the agent representing the seller in the homebuying process. On the other side of the transaction, is the buyer’s agent who represents the buyer.
Mortgage Broker – A company (or individual) who’s responsible for taking care of all aspects of the deal between borrowers and lenders, whether it be originating the loan or placing it with a funding source, like a bank.
Multiple Listing Service (MLS) – This is a marketing database that real estate agents use to provide accurate and structured information about all properties for sale by real estate agents in a specific area.
Offer – The initial price offered by a prospective buyer to the seller. A seller may accept, reject or counter the offer.
Pre-Approval Letter – Before buying a home, the buyer should obtain a pre-approval letter from a lender which provides an estimate of how much the lender will lend them. This letter helps determine what the buyer can afford to purchase.
Principal – The amount borrowed to purchase a home. Paying off the principal allows the owner to build equity in the home. Principal is combined with interest to determine the monthly mortgage payment.
Private Mortgage Insurance (PMI) – An insurance premium that the buyer pays the lender in order to protect the lender from default on the mortgage. These insurance payments typically end when the buyer builds up 20% equity in the home.
Real Estate Agent – A real estate agent is a professional with a real estate license who works under a broker and assists both buyers and sellers.
Real Estate Broker – A real estate agent who has passed the state broker’s exam and met a minimum number of transactions. Brokers are able to work on their own and hire other agents.
Realtor – A real estate agent who is a member of the National Association of Realtors. NAR has a code of standards and ethics that members must adhere to.
Refinancing – This is when you restructure your home loan by replacing the old one with a completely new load that has different interest rates and payments. The main reason to refinance is to lower your interest rate and monthly payments and the overall debt owed.
Title Insurance – This is often required as part of the closing costs. It covers research into public records to ensure the title is free and clear and that there are not any liens against the property.
