Like all industries, the world of real estate has its own language and terminology. Knowing some of the industry jargon will help you prepare for the home-buying process, and better equip you to communicate with your Realtor™.
Here are a few common terms to add to your vocabulary:
Fixed Rate vs. Adjustable Rate Mortgage
Two types of mortgages available to homebuyers. A fixed-rate mortgage has the same interest rate through the entire term of the loan, while an Adjustable Rate Mortgage (ARM) is a loan in which the interest rate periodically adjusts based on a specified index.
A deposit, given by the buyer to the seller and held by a third party, secures the contract until closing and lets the seller know you are serious about the transaction. An initial deposit must be given with the contract. Earnest money is typically held in an escrow account until the closing, when it may be applied to the down payment and/or closing costs.
Pre-qualification is an informal, preliminary assessment of your borrowing power based on basic information you provide to a lender. You’ll need to be pre-qualified in order to present an offer.
An insurance policy that protects the buyer or lender against defects or problems with the title when property ownership is transferred.
If you are obtaining bank financing, the bank will order an appraisal, which is an opinion of a home’s value. An appraisal is performed by a licensed appraiser who must follow a number of established guidelines. While appraisers use the same data as real estate agents to find comparables, they have additional guidelines to follow in order to protect the lender.
A condition that must be satisfied before closing occurs. These conditions are written into the contract and typically include things like a home inspection, mortgage financing or the appraisal. If you include a home inspection contingency with your purchase agreement, for example, you have the right to have the property inspected within a specified time period, and can remedy the contract or negotiate repairs depending on the results.
Of course, the right realtor won’t expect you to be an expert and know all the industry terminology. The right realtor will provide education, guidance and support, and work to meet you where you are.