Real Estate Terminology

Buying or selling a home comes with a lot of information that can sometimes seem like a foreign language. Here are some words you will likely hear when buying or selling your home, with a little more information on what they mean…

1. Adjustable-rate mortgage

There are two types of conventional loans: fixed-rate and adjustable-rate mortgage. In an adjustable-rate mortgage, also referred to as an ARM, the interest rate can change over the course of the loan. This typically happens at intervals of five, seven, and ten year. If you plan to stay in your home for along time, this is not an ideal loan type as rates can increase based on market conditions.

2. Amortization

This is the process of paying off a debt with period payments such as your monthly mortgage payment. A percentage of this payment goes towards your principal balance while the remained goes towards your interest. Unlike paying off only the interest first, this allows you to build more equity early on. Check out this Amortization Schedule Calculator provided by Bankrate to get an idea of monthly mortgage payment breakdowns.

3. Appraisal

In order to get a home loan from a bank, you will be required to have the home appraised. This assures the bank that they aren’t loaning you more money than what the home you’re purchasing is worth. The appraiser will inspected the property and determine it’s value based on the home itself, as well as comparable homes that have sold recently in that area.

4. Assessed value

The assessed value is what the home is worth according to the public tax assessor. The tax assessor determines this value to figure out how much taxes should be owed on the home.

5. Closing costs

Closing costs are costs paid in addition to the price of the home. Closing costs are determined determined by the lending institution being used. These vary between lenders, but are typically between 2-4% of the purchase price. When you are determining where to get your home loan, you should be sure to ask what closing costs are. Some items included in these costs are loan processing fees, title insurance, appraisal, and deed-recording fees.

6. Comparative market analysis

Comparative market analysis (CMA) is a report showing comparable homes in an area to help determine an accurate price of a property. When you find a home that you’d like to purchase, your Realtor will do more in-depth research on it, part of that being a CMA.

7. Contingencies

These are conditions that have to be met in order for the purchase of a home to be finalized. These can vary greatly, and can be very buyer/seller specific. Some common contingencies are that a buyer may need to close on the sale of their current home before being able to close on the purchase of their new home, the home must appraise for no less than the purchase price of the home, or that the sellers must pay for a certain percentage of the buyers closing costs.

8. Earnest money

This is considered “good faith money”. Earnest money is typically 1% of the purchase price of the home. When you agree on an offer, the buyer writes an earnest check to the listing agent’s brokerage. The check is deposited and held in an account at that brokerage until the closing date. If the buyer backs out of the sale without legal reason, the sellers are able to keep the earnest money that was paid by the buyers.

9. Equity

Equity is ownership. In homeownership, equity refers to how much of your home you actually own—meaning how much of the principal you’ve paid off. The more equity you have, the more financial flexibility you have, as you can refinance against whatever equity you’ve built. Put another way, equity is the difference between the fair market value of the home and the unpaid balance of the mortgage. If you have a $200,000 home, and you still owe $150,000 on it, you have $50,000 in equity.

10. Escrow

This is an account set up by the buyer’s lender where a portion of the buyer’s monthly payment is deposited for property taxes and insurance.

11. Fixed-rate mortgage

Unlike the adjustable-rate mortgage (ARM), a fixed-rate mortgage interest rate stays the same throughout the life of the loan.

12. Pre-qualification letter

When buying a home, a buyer must first obtain a pre-qualification letter from a lender. This letter will be submitted with the offer to show the sellers that you are able to get a loan based on the information you have provided that lender. This is different from a pre-approval letter, in the sense that it is based primarily off of verbal confirmation of income/debts/assets etc. The pre-approval is based off of verification of those items. Curious what amount you can get pre-qualified for? Find out!

13. Principal

This is the loan amount that you purchase your home for. This principal is combined with the interest you are paying on your loan to make up your monthly mortgage payment.

14. Private mortgage insurance

Private mortgage insurance, commonly referred to as PMI, is an insurance premium paid by the borrow to the lender to protect the lender against default on the mortgage. PMI typically gets dropped on a loan once you 20% equity in your home. Some loans, such as FHA, require PMI through the life of the loan. PMI cost is based on the purchase price of your home, and typically goes into your monthly mortgage payment.

15. Title insurance

Title insurance covers research into public records to ensure that the title is free and clear, and ready for sale. If you purchase a home and find out later that there are liens on the home, you will be safe due to title insurance. This is a one-time fee that is typically part of the buyer’s closing costs.


Still not sure about some of the real estate lingo you’ve read here or heard in the past? I would love to talk in more depth with you about the process and steps involved when purchasing or selling a home and answer any questions you have!



Leave a Reply

Your email address will not be published.