Decoding the Lingo: 10 Real Estate Terms You Need to Know

The process of buying a home can be challenging. It requires a serious time commitment, especially in the current market, from researching listings to actually closing and many steps in between. If you’re in the market for a home, you might have realized that real estate has its own lingo. We’re here to help you understand some common real estate terms you’ll need to know as a potential homebuyer. Let’s decode the language of real estate.

1. Appraisal

This is an assessment of the home’s market value by a professional appraiser. When you’re financing a home, an appraisal is required. The appraised value is typically the maximum amount of financing a buyer can obtain from the lender.

2. Contingency

This is a clause that allows a buyer to end a purchase agreement for a specified reason. Typical contingencies are the appraisal contingency, a clause that allows the borrower to exit the purchase agreement if the home appraises for lower than asking price, and the inspection contingency, which allows the borrower to exit if home inspection results are unsatisfactory.

3. Closing

The final countdown to getting the key to a new home, closing usually takes place at the title company or escrow office. Closing is finished when all parties have signed all required documents, all money has changed hands appropriately, and the lender has approved the purchase. Exact steps vary by state, so talk to your realtor about what closing will look like for you.

4. Closing costs

These are an assortment of miscellaneous fees and expenses for both buyer and seller, including fees charged by the lender, the title company, any attorneys involved, the insurance companies, government taxing authorities, homeowner’s associations and real estate agents.

5. Comps

The term comps is used in a few different industries, but in real estate, it’s an abbreviation for comparable properties. Your realtor or buyer’s agent will probably use this term when assessing the asking price because comps are similar homes that have recently sold. Comps possess similar qualities to the one you’re looking at, like size and location, so they serve as good benchmarks for the home’s value.

6. Escrow

In real estate, escrow is the legal arrangement in which a neutral third party temporarily holds all paperwork and funding until all parties in the transaction fulfill their obligations. You’re said to be “in escrow” during the period of time between having an offer accepted and final closing.

7. Homeowners’ association (HOA)

An HOA is a governing body of a specific neighborhood that determines rules for the community and charges fees of all owners that are used to maintain common areas and cover common expenses. HOAs potentially provide stability for home values when they regulate exterior home upkeep with things like expectations for lawn maintenance, designations for exterior paint colors, or limitations on storage of RVs or boats on the property, though that may place boundaries on freedom for some buyers.

8. Private mortgage insurance (PMI)

This type of insurance protects the lender if the borrower fails to make their monthly payments. Though it’s called insurance, PMI is essentially a fee that’s typically paid monthly by borrowers who make a down payment less than 20% of the home’s value.

9. Pre-approval

Obtaining pre-approval for financing will allow you to make a quick offer on a home. To get pre-approved, your lender will conduct an assessment of your income, assets and other information, then they’ll specify what loan amount you can qualify for. A real estate agent will often request a pre-approval letter before showing you homes to save everyone time and make sure you’re ready to roll.

10. Short sale

A short sale is the sale of a home by an owner who is underwater on their mortgage, owing more on their loan than the home is worth. The lender must approve the lower listing price before the home can be sold, so despite the name, short sales can actually take more time and be a longer process from the buyer’s perspective.

If you’re ready to start the homebuying process, understanding these common real estate terms can help you navigate the market as a potential homebuyer.

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