Home buying terms that first-time home buyers should be familiar with

From amortization to HOA to zoning, real estate is full of terms and acronyms that can be confusing to first-time home buyers. We’ve compiled a list of fifteen real estate terms and their definitions to help you learn the vocabulary of home buying.

1. Adjustable rate mortgage (ARM): ARM loans have interest rates that can change after an initial, fixed period. This loan type is less predictable than a fixed-rate mortgage, but can offer buyers lower – or higher – interest rates during certain periods.

2. Amortization: Amortization is the process of combining principal and interest into payments instead of paying interest at the beginning of the loan. This helps homeowners build equity faster.

3. Appraisal: An appraisal is a required estimate of the value of a home. Appraisals are done by lenders to ensure the property you are purchasing is worth the amount they are lending.

4. Buyers agent/listing agent: The buyers agent is the real estate professional who has been hired by potential home buyers to help them find a home and negotiate on their behalf during the purchasing process. A listing agent is the real estate professional who represents the homeowners who are selling their house and negotiates on their behalf.

5. Closing costs: Closing costs are fees related to the buying and selling of a home in addition to the final price of the home. Typically 2-5% of the cost of the home, closing costs cover loan processing fees, excise tax, title insurance, and more. Who is responsible for what closing costs is often negotiated as part of the real estate contract.

6. Contingencies: Contingencies refer to conditions that must be met for the sale of the home to be finalized. Examples of contingencies include loan approval, home inspection, or sale of a previous home.

7. Debt-to-income ratio: Debt-to-income ratio, or DTI, is used by lenders to determine the amount of your income that is used to pay back debt or loans including student loans, car payments, and other personal loans. Most lenders look for a DTI of 36% or less.

8. Earnest money: Earnest money deposit, or EMD, is sometimes known as a good faith deposit. This is the initial money that a buyer pays along with an offer on a home to show that they are serious about purchasing the property. The EMD can vary but is typically between 1-5% of the purchase price of the home; an escrow company often holds the money until the sale is finalized.

9. FHA loans: FHA loans are a group of loans that are insured by the federal government. These loans are an excellent option for first time homebuyers, those with lower credit scores, or those who cannot afford a 20% downpayment.

10. Homeowner’s Association (HOA): A homeowners association, or HOA, is a private group that manages a community. If you purchase a property within a HOA community you must pay HOA fees and abide by community rules and restrictions.

11. Multiple Listing Service (MLS): The MLS is the database that lists all properties for sale in an area.

12. Offer/counter offer: Buyers make an offer on a home they want to purchase. Buyers can choose the amount they want to offer for a home; once submitted, sellers can accept the offer, reject it, or send back their own counter offer.

13. Pre-approval: Pre-approval from a bank or other lender shows the maximum mortgage amount for which you have been approved. This can be helpful in establishing a price range for potential properties, as well as showing agents you are serious about purchasing a home.

14. Title: The title is the ownership of a property. In real estate, the title is evidenced by a deed before being filed with a county land records office.

15. Zoning: Zoning refers to the local laws that divide different parts of a city; there are residential, industrial, commercial, and mixed used zones. Zoning laws are particularly important if you want to change the purpose of a property, such as turning a home into a business office.

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