If you’re looking to buy a home, you will have to study a lot of real estate terms. When we say “a lot”, we mean learning the meaning of more than 50 words! If this turns you off, think of this as a way to prepare for the real process of buying a home. That will take a lot more time and effort, and the consequences are a lot more significant!
Becoming a homeowner is a huge responsibility, so learning these terms will help you take it seriously. You’ll be ready to take on the expenses and effort involved. Our real estate glossary will also serve as a home purchase guide.
We’ll just jump right into our list of real estate terms. We organized them according to the situations where you may encounter these, so you can read them much easier. After that, we will talk about how you can choose the right home. If you lack funds, we’ll show you various ways to afford your dream home.
Real Estate Terms for Each Step of Home Purchase
- Looking for a home
- Applying for a mortgage
- Shopping for a mortgage
- When you’ve chosen a house
- When you own a house
Real Estate Terms When Looking for a Home
1. Approved for a short sale – It means that a homeowner’s bank approved a lower listing price on a property, and they may resell the home.
2. Buyers market – This refers to conditions where the supply of homes is larger than the number of buyers. As the homes stay in the market longer, their prices go lower.
3. Comparative market analysis (CMA) – Real estate agents perform this deep analysis to figure out the estimated value of a home. They base it on similar homes that were sold recently.
4. Comps – Otherwise known as “comparable sales”, these come from homes in a certain location that has sold within the past six months. Real estate agents use these to figure out a home’s value.
More Terms When Looking for a Home
5. Days on market – It’s also called “DOM”, and it’s the number of days a home listing is active.
6. Listing price – This is the price the seller placed on a property.
7. Multiple listing services – An MLS is a database where you can find properties for sale listed by agents.
8. Sellers’ market – It’s the opposite of a buyers market with more buyers than homes for sale, which usually means many people are bidding for homes.
9. Short sale – When an owner owes more on their mortgage than the value of their home, they might sell it. This is called a short sale, which means the house is listed at a lower price. However, the owner’s bank must approve of the new price first.
Read More: What To Do When Buying A House
Real Estate Terms When Applying for a Mortgage
10. Back-end ratio – This compares the borrower’s monthly debt payments with their gross income. Also, it’s one of the debt-to-income ratios that a lender looks at to see if a borrower is qualified for a home loan.
11. Depository institutions – Most people know them as banks and credit unions, and they also underwrite and set home loan pricing.
12. Debt-to-income ratio (DTI) – This compares home buyers’ expenses with their gross income.
13. Housing ratio – It compares the total housing cost to gross income, and the former comprises the principal, homeowners insurance, taxes, and private mortgage insurance. This is the other debt-to-income ratio that a lender looks at when screening borrowers.
14. Loan estimate – This is a three-page document that informs about a home loan’s terms, monthly payment, and closing costs. Applicants receive this three days after applying.
More Terms When Applying for a Mortgage
15. Loan-to-value ratio – Otherwise known as LTV, it’s the loan amount divided by the home value. Also, lenders reward lower LTV ratios.
16. Origination fee – A real estate broker or lender charges this before they start and complete the home loan application process.
17. Pre-approval – Before you can buy a home, your agent will ask for a pre-approval letter. It’s an in-depth assessment of a borrower’s assets, income, and other data to determine the loan amount that matches these criteria.
18. Pre-qualification – Similar to a pre-approval letter, your agent will ask for this before you may buy a home. It’s a general assessment of assets, income, and credit score to see if a borrower qualifies for any loan programs.
19. Underwriting – It’s the process that a lender follows to check a loan applicant’s credit, assets, income, and the risks in offering a mortgage loan to an applicant.
Real Estate Terms When Shopping for a Mortgage
20. Conventional loan – A home loan that a government agency like the FHA or the VA didn’t guarantee.
21. Down payment – A home buyer should put down a portion of the home purchase price outright, and the minimum amount depends on the loan type.
22. Fannie Mae – This is a mortgage loan company sponsored by the government to provide affordable and reliable mortgage funds across the US.
23. Federal Housing Administration – The National Housing Act of 1934 created FHA, and it’s in charge of giving loan insurance from private lenders.
24. FHA 203(k) – It’s a loan backed by the federal government that allows homebuyers to finance funds into a mortgage to improve or repair a home.
25. Foreclosure – It’s a home repossessed by a bank because the owner failed to make mortgage payments.
26. Freddie Mac – Congress chartered this government agency in 1970 to provide mortgage funding for housing markets in the United States.
27. Mortgage broker – This is a licensed pro who works on behalf of buyers to acquire financing through banks.
More Terms When Shopping for a Mortgage
28. Mortgage interest rate – Think of this as the price of borrowing money. The Federal Reserve sets the base rate, then adjusts per borrower.
29. Piggyback loan – It’s a mix of loans bundled to avoid private mortgage insurance. One covers 80% of the home’s value, and another makes up 10% to 15%. The remaining amount of money comes from the buyer.
30. Principal, Interest, property taxes, and homeowners insurance (PITI) – These make up a monthly mortgage payment.
31. Private mortgage insurance (PMI) – A borrower must pay this if they make a down payment of less than 20% of the home’s value. This fee is 0.3% to 1.5% of the annual loan amount. Under certain situations, it may be canceled if the borrower builds up 20% equity.
32. Points – This is prepared interest that must be paid after closing a home sale. Each point represents 1% of the loan, and paying them will lower the monthly mortgage.
Real Estate Terms when You’ve Chosen a House
33. American Society of Home Inspectors (ASHI) – This is a nonprofit group that sets and promotes home inspection standards. Make sure ASHI approves your home inspector.
34. Cash-value policy – This is a homeowners insurance policy that pays the replacement cost, minus depreciation, in case of damage.
35. Closing costs – These are the fees related to a home purchase that must be paid at the end of the real estate transaction. This may include the spending for the title search, pest inspection, and more. It’s best to prepare a budget that is 1% to 3% of the purchase price.
36. Contingencies – These are the terms written in a home purchase contract that protects the buyer in case certain issues with financing and others happen.
37. Earnest money – This is the buyer’s security deposit to assure the seller that they are willing to buy.
More Terms When You’ve Chosen a House
38. Escrow account – Lenders require this account that pays the buyer’s property taxes and the homeowners insurance, and it funds a home buyer’s mortgage payment.
39. Escrow state – An escrow agent must close a sale for this real estate.
40. Home inspection – This involves checking a home that is under contract or in escrow.
41. Homeowners insurance – This covers the structure of a home, the inside, and others should damage come up.
42. In escrow – This period lasts 30 days or more after a buyer has made an offer on the house and a seller has agreed.
43. Title insurance – This will secure the buyer and lender should someone or a company claims a property before the seller transfers legal ownership or the “title” to the buyer.
44. Transfer taxes – Fees charged by the state, county, or municipality when a title exchanges hands.
45. Under contract – This period lasts 30 days or more after a buyer has offered the house and a seller has agreed.
46. Walkthrough – This is when the buyer looks at the home for the last time before closing the sale.
Real Estate Terms When You Own a House
47. Equity – The portion of the home value that the homeowner owns.
48. Homeowners associations (HOA) – These groups set the rules in a housing area such as a condo and charge dues.
49. Property tax exemption – A reduction in taxes based on specific criteria, such as installing a renewable energy system.
50. A tax lien – It’s the government’s legal claim on a property when a homeowner fails to pay taxes.
What Should I Check before Buying a Home?
Now we’re done with that long list of real estate terms! Read it before you buy a home to go through the sale smoothly. You might want to print and bring this guide during the sale!
Buying a home involves a lot more than just knowing a bunch of words, though. You will have to consider several factors before you push through with your purchase:
- Size of the home – The house should fit you and everyone else living there. This may seem odd to point out, but the COVID pandemic caused many people to buy homes even if they haven’t seen them yet! Check the home with your family to see if they are also okay with living there.
- Location – Besides checking the home, go around the neighborhood to see if it’s good for you. Check for safety and traffic during your trip to work and back. Your home expenses will also depend on its location.
- Appliances – See if the oven and other devices inside still work. Also, make sure you’ll be able to keep those after you’ve bought the home.
- Budget – First, you must have enough money to pay for the down payment and the other expenses after buying your home. Then, you should gauge the living expenses such as utilities and groceries.
- Agent experience – Your real estate agent should know what they’re doing. It’s best to find ones that got certified by the National Association of REALTORS.
- Credit score – Buying a home usually means taking out a loan, so you’ll need to have good credit. Remember that both buyer and seller take on risks in a home loan. The seller uses credit ratings to ensure the buyer is likely to pay them back.
- Length of stay – Some people don’t plan on staying in their homes for too long. In that case, you may want to avoid spending too much on the home. If you want to live there until your later years, get a cozy home built to last.
How Can I Save Money for a Home?
After talking about the real estate terms and tips, we should talk about how people can afford a new home. You may start by saving more money.
This means reducing your expenses and increasing your earnings. Stop paying for things you don’t need, and find other less expensive options.
For example, you may want to remove online streaming subscriptions you’re not using anymore. You may keep one or spend your time on a new hobby instead.
That could be your new side gig too. You can find so many online jobs right now that will allow you to make money during your spare time. You don’t have to leave the house too!
What’s more, you must pay off your debts on time. This will free up more money for your home purchase and improve your credit rating, and you’ll need that to get the best home loans.
Meanwhile, look for houses that meet your needs. See if you can get an adjustable-rate or fixed-rate mortgage for those. Let’s talk more about them below:
- Adjustable-rate – As the name suggests, its interest rate moves according to economic factors. You’ll have an easier time applying for these than fixed-rate home loans because the requirements aren’t as high. The downside is that it’s hard to know how much you’ll have to pay in the long run.
- Fixed-rate – Unlike adjustable-rate mortgages, this charges the same interest rate no matter what. The terms are simpler, and you’ll have an easier time budgeting for it. However, these often cost more than the adjustable ones, so you might not afford many of the fixed-rate options.
That’s it for the real estate terms! Note that you may find words that we didn’t cover. There’s just so much that goes into buying a home, and the process may change in the long run.
Besides this article, read other online resources that can guide you in buying your first home. It’s best to get the right real estate agent for the job so the sale goes smoothly.
Once you’ve bought your home, secure your home’s title. It’s in public records, but it’s one of the most important documents you should keep safe.