Real Estate Terms Buyers and Sellers Should Understand
Real estate transactions are about more than finding the perfect home; they are actually complex contracts that require working with a number of different professionals. Because of this, buying or selling your home can often feel like you’re learning a whole different language.
The following terms are real estate terms that all buyers and sellers should understand. Knowing what these terms mean can help simplify the real estate process and make it a less complicated, more enjoyable process.
- Closing Costs: Closing costs are the additional fees associated with the buying process. Depending on your contract, they may be covered by the seller. Examples of closing costs may include appraisal fees, credit check fees, escrow fees, or loan origination fees.
- Contingency: Contingency allows you to get out of the contract if certain requirements are not met. One of the most common contingencies is that a home passes the home inspection.
- Earnest Money: Buyers pay earnest money as a way to show that they are serious about the purchase. Earnest money acts as a “deposit” and is applied towards the closing.
- Escrow: During a large purchase, escrow is used as a way to smooth the financial transaction. Money is taken from the buyer, put into escrow to show that the funds are available, and then transferred to the seller when the conditions of the contract are met.
- LTV: LTV stands for loan-to-value. This indicates how much equity you have in your home. For example, if your home is worth $200,000 and you owe $100,000 on your mortgage, your LTV is 50%.
- MLS: MLS stands for Multiple Listing Service. The MLS allows agents to view details about a home, but is typically not used as a place to market a home as it is only viewed by other real estate professionals.
- PITI: PITI is an abbreviation of principal, interest, taxes, and insurance – the four major costs that are associated with owning a home. These are typically included in or rolled into a monthly mortgage payment.
- PMI: PMI, or Private Mortgage Insurance, is often required is buyers are putting less than 20% down on a home. PMI is designed to protect the lender and premiums typically go away once the LTV of your home reaches 80%.
- Pre-Approval: While pre-approval can give you a good idea of the loan amount you can receive, it is not a guarantee on a loan. Buyers should avoid making major financial changes such as purchasing a new vehicle or leaving their job so they don’t jeopardize their loan.
- Title: A title in an indication of ownership that can be held for homes, cars, boats, and other large pieces of property. Before purchase, a report verifying that the title is “clean” and free from liens or other claims on the property is required.