Can you read through a real estate listing without scratching your head? Most first-time buyers–and even seasoned pros–get caught up on the listing lingo every once in a while.
Real estate vocabulary is a unique set of words, phrases, and acronyms that you learn quickly when you purchase your first home. However, since every purchase agreement is different, you may not even hear each of the home buying terms until you’ve gone through the purchase and sale process multiple times! From financial terms to listing verbiage, learning real estate vocabulary takes time and experience!
There are hundreds of real estate vocabulary words in the dictionary, but we’ll start by explaining the most common home buying terms for first-time home buyers. Keep reading to brush up on your words and phrases, so you can speak fluently no matter where you’re at in the home buying process.
In this article:
Home Buying Terms
- Home warranty
- Listing agent
- Closing costs
- Down payment
- Earnest money deposit
Real Estate Acronyms
Home Buying Terms
Whether you’re building a new home or buying a resale home, there are a handful of home buying terms that you just need to know. These real estate vocabulary basics will have you speaking like an unofficial real estate agent in no time.
Appraisal: An appraisal is a professional opinion of the property’s estimated value. An appraisal is required to help the mortgage lender confirm the loan amount needed to purchase the property. If the appraisal value is lower than the desired mortgage loan amount, it’s likely that the lender will not approve the mortgage. Appraisals are different than inspections in many ways.
Closing: Closing is an exciting event that means the home sale is final. Both the buyer and the seller meet to sign the necessary paperwork, exchange funds, and transfer ownership. Read more about what to expect on closing day.
Contingency: A contingency is a condition that must be met for a contract to be valid and binding. These clauses allow the buyer to dissolve a purchase agreement if certain conditions are not met. Common contract contingencies include:
- Appraisal contingency: If the home’s appraised value is less than the sale price
- Home sale contingency: If a buyer needs to sell their property before purchasing the new property
- Loan contingency: If a buyer is unable to secure a mortgage during a fixed period of time
- Inspection contingency: If an item found during the inspection causes the home buyer to no longer want to invest in the property, or if the home seller is unwilling to fix requested updates before closing
Home warranty: A home warranty protects the buyer and seller if the home has defects or items that may need to be serviced or replaced. Warranties are typically purchased from a third-party vendor and may cover things like plumbing, heating, and other items in the home within a certain period of time after closing, most often one year.
Listing agent: A listing agent is a licensed real estate professional who is hired to market the seller’s property and to represent the seller during the purchase process.
Real estate vocabulary aside, navigating the mortgage process can be confusing. With so many moving parts and pieces, the financial bits can be the most allusive. While much of the mortgage process happens behind the scenes with your lender, it helps to understand a few home buying terms to assist your budget and bank account.
Closing costs: Closing costs are the assortment of fees needed to complete the sale and are typically paid at the time of closing the real estate transaction. These fees include lender fees, title company fees, attorney fees, insurance company fees, tax fees, HOA fees, real estate agent fees, and other companies that settle the closing documents.
Down payment: The down payment is the total amount of money paid upfront for the property. The mortgage amount is typically the overall home price subtracted by the down payment. Down payments vary depending on the type of loan secured, the buyer’s preferences, and lender minimums.
Earnest money deposit: An earnest money deposit is the initial amount of money that a buyer submits as “good faith” that they are serious about the purchase. The earnest money amount can vary depending on the offer, but it is typically between 1-5% of the total sales price of the property.
Escrow: Escrow is the process during which a neutral third party or attorney collects money, documents, property, or other items related to the agreement until all of the conditions in the purchase and sale agreement have been met before the seller and buyer move to closing.
Interest: Interest is the money owed to the lender in addition to the loan amount. It’s the cost of borrowing money and is typically a percentage of the total borrowed amount.
Pre-approval: A pre-approval letter is a document issued by a lender or financial institution that provides proof that a home buyer can afford to buy a property up to a certain amount. The pre-approval is used to reassure the sellers that the buyer’s offer is legitimate financially. It typically outlines an estimated down payment and potential interest rate.
Real Estate Acronyms
HUH? As if tricky real estate vocabulary wasn’t enough, throw in some real estate acronyms, and your head will be spinning! Luckily, we’ve gathered the most frequently used acronyms in one place to get you up to speed.
ARM (adjustable-rate mortgage): The interest rate of an adjustable-rate mortgage can change over time. For example, the interest rate may fluctuate every five years based on market conditions and inflation. Compared to a fixed-rate mortgage, which does not change for the length of the mortgage, adjustable-rate mortgages can be risky and difficult to budget for over longer periods of time.
CMA (comparative market analysis): A comparative market analysis is performed by an agent to evaluate recent sales of similar properties to establish a price estimate for a particular property being sold. The evaluation is based on current market activity and estimated value. The comparable homes are sometimes referred to as “comps.”
HOA (homeowner’s association): A homeowner’s association is a group that manages rules and regulations and shared spaces for tenants in a community. This association will elect HOA board members who oversee various shared aspects of the community, such as amenities, landscape maintenance, and social events. Shared communities with an HOA most often have an HOA fee paid yearly or monthly for the upkeep of these services.
LIC (licensee in charge): A licensee in charge is responsible for negotiating a property’s sale on behalf of a property owner. The LIC must hold a valid real estate agent’s license.
MLS (multiple listing service): The Multiple Listing Service is a database that contains all real estate listings in a given area and allows agents and buyers to access information for all properties currently available on the market. The MLS lets you filter specific criteria, so you can search for the right home for you based on how many bedrooms and bathrooms you desire, price, amenities, and more.
Now that you’re comfortable with the real estate vocabulary basics, you’ll have no problem keeping up in conversation with your real estate agent, broker, and lender. If you find yourself lost in the jargon, your helpful real estate agent will be more than willing to guide you through any additional home buying terms you’re unfamiliar with–that’s what they’re there for. Now study up, make some flashcards, and impress your real estate team with all of your vocab knowledge!