Go into your open house with confidence
You’re buying your first home, and you went into the process feeling like you could take on the world…until you heard so many unfamiliar terms your head started spinning. If you feel a little lost, you're not alone—it's definitely like learning a new language. But with the help of your local real estate agent and this list of common terms, you can get a better idea of what's going on without Googling every word.
After a period of fixed interest rates, an ARM’s interest rate changes according to financial market fluctuations, sometimes higher or lower than the initial fixed rate. With this type of mortgage, your monthly payment could vary after the fixed-rate period expires.
This term refers to the interest rate, plus other fees you’ll pay as part of your home loan.
Lenders use a home appraisal to evaluate how much the property would sell once listed. You may go through this process when selling a home or when refinancing your mortgage.
Appreciation is the increase of the property’s value over time.
The term “as-is” has three meanings.
“As-is” usually means the seller isn’t interested in making repairs or improvements. You’ll buy the property just as it stands—complete with disrepair and damage.
If the property is priced “as-is,” this typically means the option for negotiation doesn’t exist.
“As-is” can also indicate the property’s condition when the buyer first wrote the offer. For example, if a storm comes through and damages the roof after the offer was submitted, it wouldn’t be in the same condition as when the buyer submitted the offer.
An assumption is when a buyer takes over the seller’s mortgage payments instead of applying for a new loan. Usually, the borrower has to qualify to assume the loan. You should note that not all mortgages are assumable.
Real estate agents that have extra training and licensure are brokers. Brokers can work alone or hire other agents to work with them in the brokerage (real estate business) they own.
Also known as a listing agent, a buyer's agent works on behalf of the buyer to help them negotiate the best offer. Many agents work for buyers and sellers, but some only prefer to work with buyers.
The closing is the final meeting of the sale when the property changes hands from seller to buyer. It's also sometimes called settlement.
Buyers pay a collection of fees and costs associated with getting a loan and transferring the property.
Real estate agents help buyers and sellers and earn a commission. They usually earn 5 to 6% of the sale at closing.
A conventional loan is not guaranteed or insured by the government. Buyers apply at traditional financial institutions for a conventional loan.
A DOM is the number of days from the time the property is listed for sale to the date when the seller signs the home sale contract.
Mortgage lenders use this number to decide whether or not you're a good candidate for which to lend money. The ratio is the sum of your debts plus the house payment divided by your gross monthly income multiplied by 100.
Usually paid at closing, the down payment usually is about 5 to 20% of the total cost of the house.
After the seller accepts the offer, the buyer shows good faith by submitting 1 to 5% of the sales price. Earnest money shows the seller you’re committed to buying the house.
Equity is the difference between the amount you owe on the mortgage and the current market value of your house.
Escrow is part of the home buying process; it's a holding place for deposited money. A neutral third party monitors the escrow account until the real estate transaction closes. Then, the escrow agent takes care of the paperwork and fund distribution.
Each property has a fair market value. It’s the price it would sell for in a competitive market or the price on which a seller and buyer agree.
Unlike conventional loans, the federal government backs FHA loans. However, the government doesn’t lend the money; they insure private lenders, meaning they’ll pay if the borrower can’t repay the loan.
You can count on the same interest rate for the entire loan term with a fixed-rate loan.
After a homeowner misses mortgage payments, a property goes into foreclosure, and the lender will try to reclaim some of the loan’s balance. Homebuyers can purchase a foreclosed home from the bank or a lender once it’s on the market. Some home buyers choose to renovate foreclosed homes after purchasing.
With a for sale by owner home, the homeowner doesn’t use a real estate agent to sell the house.
You can apply for a HELOC (a second mortgage) based on your home’s equity value.
If you’re ready to buy, a home inspection helps you learn about the house’s condition before closing.
Community members (usually in condos or planned communities) form an HOA. If you buy a home with an HOA, you agree to pay fees that cover the property’s maintenance and follow rules that govern the community.
Homeowners insurance protects your home from loss and damage due to disasters like fire and storms. It helps pay for repairs and replacements.
Instead of a traditional buyer, an iBuyer, or instant buyer, is a company using real estate software to calculate your home’s value and make you an offer instantly, normally with the intent to make improvements and resale later.
A lender is someone or a financial institution willing to loan money to buy real estate.
A mortgage is a loan used to buy a house or other real estate.
A mortgage broker works to connect buyers and potential lenders who are a good financial fit.
Homebuyers are often required to buy mortgage insurance to protect the lender if they cannot pay their loan back.
An MLS is a centralized database of properties listed for sale by local real estate brokers. There are hundreds of MLS organizations across the country. The MLS is where agents read information about properties for sale.
When you’re ready to buy a house, your agent will prepare an offer. An offer is the amount you feel is fair market value or the list price. The sellers may come back with a counteroffer and want to negotiate your initial offer.
If you have pre-approval when buying a home, it means a potential bank or lender has reviewed your finances. If they think your finances look good, you'll go ahead with the home buying process, knowing (barring any unforeseen issues) your mortgage application should go through.
The principal is the amount borrowed in a loan, not including interest and other fees.
Principal, interest, taxes, and insurance are the four parts of your monthly mortgage payment added together.
A real estate agent is a licensed professional who helps buyers, sellers, and renters manage their real estate transactions.
Realtors are agents and brokers who have an active membership with the National Association of Realtors. Not all real estate agents are realtors.
Early in the transaction, if the buyer and seller are on the same page and agree to the deal’s terms, they can go under contract and continue the sale process. The seller may still show the home (it’s smart to have backup buyers) until the contingencies are lifted, and the listing is marked as pending.
