27 Terms First Time Home-Buyers MUST Know!

Wait! What?! When you’re realtor starts throwing his/her fancy words at you; instead of looking at them going, “what the hell are you talking about?” Be prepared to think, “ahhh this jargon actually makes sense.” Below is a list of real estate terms brought to you by the lovely folks at Investopedia.

  • Adjustable Rate Mortgage (ARM) –A type of mortgage in which the interest rate paid  on the outstanding balance varies according to a specific benchmark. The initial  interest rate is normally fixed for a period of time after which it is reset  periodically, often every month. The interest rate paid by the borrower will be  based on a benchmark plus an additional spread, called an ARM margin.
  • Addendum – an addendum is a document containing any changes or modifications negotiated in  the original lease. Usually, an addendum is attached to the signed lease, as a  part of the lease, and describes financing terms and property inspection  requirements. 
  • Appraisal – Appraisals are typically used either for taxation purposes or to determine a  possible selling price for the property in question. The appraiser can use any  number of valuation methods in order to determine the appropriate value to  assign, including the current market value of  similar properties, quality of property and valuation models.
  • Closing – The final procedure in a sale in which documents are signed and recorded.  This is the time when the ownership of the property is transferred.
  • Closing Costs – The expenses, over and above the price of the  property that buyers and sellers normally incur to complete a real  estate transaction. Costs incurred include loan origination fees, discount  points, appraisal fees, title searches, title insurance, surveys, taxes,  deed-recording fees and credit report  charges.
  • Comps – Properties similar to the one being assessed.
  • Contingency – A condition that must be met before a contract is legally binding.
  • Counter Offer – Counter offers can come in a variety of options. During a sale negotiation  either party will make counter offers opposing the other party’s offer to  reach an agreed price which more closely suits their preferred price.
  • Disclosures – Sellers must provide this information about their home by law. Things like, repairs needed or any changes made to the home.
  • Deed – The legal document conveying title to a property.
  • Down Payment – A type of payment made in cash during the onset of the purchase of an  expensive good/service. The payment typically represents only a percentage  of the full purchase price; in some cases it is not refundable if  the deal falls through.
  • Earnest Money Deposit – A deposit made to a seller showing the buyer’s good faith in a transaction.  Often used in real estate transactions, earnest money allows the buyer  additional time when seeking financing. Earnest money is typically held jointly  by the seller and buyer in a trust or escrow account.
  • Escrow – A financial instrument held by a third party on behalf of the other two parties  in a transaction. The funds are held by the escrow service until it receives the  appropriate written or oral instructions or until obligations have been  fulfilled. Securities, funds and other assets can be held in  escrow.
  • FHA Loan – FHA loans are designed for low to moderate income borrowers who are unable to  make a large down payment. FHA loans allow the borrower to borrow up to 97% of  the value of the home. The 3% down payment requirement can come from a gift  or a grant, which makes FHA loans popular with first-time buyers.     
  • FICO Score – A type of credit score that makes up a substantial portion of the credit report that  lenders use to assess an applicant’s credit risk and whether to extend  a loan.
  • Fixed-Rate Mortgage – The distinguishing factor of a fixed-rate mortgage is that the interest rate  over every time period of the mortgage is known at the time the mortgage is  originated. The benefit of a fixed-rate mortgage is that the homeowner  will not have to contend with varying loan payment amounts that fluctuate  with interest rate movements.
  • GFE – An estimate of the fees due at closing for a mortgage loan that must be provided  by a lender to a borrower within three days of the lender taking a  borrower’s loan application. A good  faith estimate is required by the Real Estate Settlement Procedures Act  (RESPA).
  • Loan-To-Value (LTV) Ratio – A lending risk assessment ratio that financial institutions and others lenders  examine before approving a mortgage. Typically, assessments with high  LTV ratios are generally seen as higher risk and, therefore, if  the mortgage is accepted, the loan will generally  cost the borrower more to borrow or he or she will need to purchase mortgage  insurance.
  • Mortgage – A debt instrument that is secured by the collateral of specified real  estate property and that the borrower is obliged to pay back with  a predetermined set of payments.
  • Mortgage Insurance – An insurance policy that protects a mortgage lender or title holder in  the event that the borrower defaults on payments, dies, or is  otherwise unable to meet the contractual obligations of the mortgage.
  • Offer – When one party expresses interest to buy or sell an asset from another  party. The offering price is often the highest the buyer will pay to  purchase an asset, and the lowest that the seller will accept.
  • PITI (Principal, Interest, Taxes and Insurance) – The components of a mortgage payment. Principal is the money used to pay down  the balance of the loan; interest is the charge you pay to the lender for the  privilege of borrowing the money; taxes refer to the property taxes you  pay as a homeowner and insurance refers to both  your property insurance and your private mortgage insurance.
  • PMI (Private Mortgage Insurance) – A policy provided by private mortgage insurers to protect lenders against loss  if a borrower defaults. Most lenders require PMI for loans with loan-to-value  (LTV) percentages in excess of 80%.
  • Point – the initial fee charged by the lender, with each point being equal to 1% of the  amount of the loan.
  • Pre-Qualification – An initial evaluation of the credit worthiness of a potential borrower that is  used to determine the estimated amount that the person can afford to  borrow. Pre-qualification is a relatively simple and quick process  of examining the potential borrower’s income and expenses in  order to generate an estimated borrowing range that they would likely be  able to repay to the lender.       
  • Title Insurance – Insurance that covers the loss of an interest in a property due to legal  defects and that is required if the property is  under mortgage. Most title insurance is lender’s title insurance,  which is paid for by the borrower but protects only the lender.
  • VA Loans – VA loans offer up to 100%  financing on the value of a home. To qualify for a VA loan, borrowers  must present a certificate of eligibility, which establishes their record of  military service, to the lender.

First time homebuyers or anybody that just needed a refresher, I hope this information was beneficial to you. For any other information, contact Better Homes and Gardens Real Estate Executive Partners.


Once again the terms were brought to you by the amazing folks at Investopedia


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