Common Real Estate Terms Explained

If you’re a first-time homebuyer, chances are you’ll come across some terms you’re not familiar with. And that can be overwhelming, especially while going through one of the most significant purchases of your life.

The good news is you don’t need to be an expert on real estate jargon. That’s your agent’s job. But knowing these basic terms will help you feel more confident.

Terms Every Homebuyer Should Know

Once you’re familiar with this terminology, you’ll better understand important details – from contracts to negotiations. So, when those big conversations happen, you’ll feel informed, in control, and able to make the best decision for your unique situation. As Redfin puts it:

“Having a basic understanding of important real estate concepts before you start the homebuying process will give you peace of mind now and could save you a fortune in the future.”

According to the Federal Trade Commission (FTC) and First American, here’s a breakdown of a few key real estate terms and definitions you should know.

Appraisal: A report providing the estimated value of the home. Lenders rely on appraisals to determine a home’s worth, so they don’t lend more than it’s worth.

Contingencies: Contract conditions must be met within a specific timeframe or by a specified date. For example, a home inspection is a common contingency. While you can waive these to try and make your offer more competitive, it’s generally not recommended.

Closing Costs: A collection of fees and payments to the parties involved in your home purchase. Ask your lender for a list of closing cost items, including attorney’s fees, taxes, title insurance, and more.

Down Payment: This varies by buyer, but is typically 3.5-20% of the home’s purchase price. There are even some 0% down programs available. Ask your lender for more information. Chances are, unless specified by your loan type or lender, you don’t need to put 20% down.

Escalation Clause: This is typically used in highly competitive markets. It’s an optional add-on in a real estate contract that says a potential buyer is willing to raise their offer on a home if the seller receives a higher competing offer. The clause also includes how much a buyer will pay over the highest offer.

Mortgage Rate: The interest rate you pay when you borrow money to buy a home. Consult a lender to learn how this can impact your monthly mortgage payment.

Pre-Approval Letter: A letter from a lender that shows what they’re willing to lend you for your home loan. This, plus understanding your savings, can help you decide on your target price range. Getting this from a lender should be one of your first steps in homebuying, before you even start browsing homes online.

Bottom Line

You don’t need to memorize all these terms, but a little knowledge goes a long way. Brushing up on the basics now means fewer surprises later and more clarity when you buy a home.

What unfamiliar real estate term or phrase have you come across that wasn’t on this list?

Let’s connect and discuss it so you have a solid understanding of what it means and where it may appear in the homebuying process.