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. Here are ten real estate terms and definitions you should know before you start looking for a home.
There are usually two agents involved when you buy a home; the “buyer’s agent,” who represents you, and the “listing agent,” who represents the home seller. Dual agency is when there is only one agent representing both sides of the transaction, and is illegal in several states.
When buying a home, you don’t pay your real estate agent – they’ll get a commission from the home seller.
Conventional loans include “fixed rate” and “adjustable rate” mortgages. A fixed rate mortgage has a predetermined interest rate throughout the life of the loan, the most common are for 15 and 30 years. An adjustable rate mortgage has a variable interest rate, and the most common are for 5, 7, or 10 years.
Adjustable rate mortgages can make financial sense if you’re planning to sell or refinance your home before the introductory period ends, but if you’re planning to own your home longer than five years it’s less risky to choose a fixed rate loan. Make sure to shop around so you can get the best mortgage possible, which will save you a lot of money in the long run. Ask your friends, family, and real estate agent for lender recommendations.
Before you apply for a mortgage or even start looking for a home, you should get a pre-approval letter from the bank, which is an estimate of how much they’ll lend you. This letter will help you determine what you can afford, and ensures home sellers that you will be able to get a loan when needed.
When you go in for a mortgage pre-approval letter, you should be clear on what the bank is offering. Ask them about closing costs, what fees are involved, what you’re getting for that fee, and if they’ll lock in your loan at a specific interest rate. Note that if you end up competing for a home against other offers, it can help to have a local lender. Local lenders want continued referrals and really care about their reputation; listing agents prefer to deal with them for this reason.
A document that summarizes the history of ownership of a property.
A document that amends or adds to an existing contract.
The relationship between a real estate agent and a client.
An estimate of the value of a property.
A term used to indicate that a property is being sold in its current condition, with no warranties or guarantees.
A large, lump-sum payment that is due at the end of a mortgage term.
A licensed real estate professional who can represent both buyers and sellers.
A licensed real estate professional who represents the interests of a buyer in a real estate transaction.
A mortgage financing technique where the buyer pays mortgage points at closing in order to get a lower interest rate.
A property that is being sold directly by the owner, without the use of a real estate agent.
An offer to purchase a property that is made after the seller has already accepted another offer.
The final step in a real estate transaction, when the property is transferred from the seller to the buyer.
The fees associated with the closing of a real estate transaction, such as title insurance, appraisal fees, and recording fees.
The fee paid to a real estate agent for their services.
A type of property ownership in which each unit owner owns their own unit and shares ownership of the common areas.
The process of researching a property before making an offer to purchase.
A situation in which a real estate agent represents both the buyer and seller in a real estate transaction.
A deposit made by a buyer to show their good faith in a real estate transaction.
A right that allows someone else to use part of your property for a specific purpose, such as a right of way for a utility company.
A right or interest in a property that limits the owner’s ability to sell or use the property, such as a mortgage or a lien.
A neutral third party who holds funds and documents during a real estate transaction.
The difference between the value of a property and the amount owed on the mortgage.
A group of homeowners who create and enforce rules and regulations for a specific property or community.
A tax exemption that homeowners can claim on their property taxes.
A licensed real estate professional who represents the interests of a seller in a real estate transaction.
The price that a property would sell for in an open and competitive market.
A loan that is used to purchase a property.
A database of properties that are for sale or rent.
A written document that expresses a buyer’s willingness to purchase a property at a certain price.
A time when a property is open to the public for viewing.
A lender’s written commitment to lend a certain amount of money to a borrower.
A lender’s estimate of how much money a borrower may be able to borrow.
A document that provides information about the condition of a property.
A tax that is assessed on the value of a property.
A licensed real estate professional who can help buyers and sellers buy, sell, or rent property.
A company that invests in real estate.
A registered trademark used by members of the National Association of Realtors®.
The final step in a real estate transaction, when the buyer takes possession of the property and the seller receives the proceeds of the sale.
The legal document that proves ownership of a property.
Insurance that protects the buyer against any title defects.
A permit that allows a property to be used in a way that is not allowed by the zoning laws.