It can seem like real estate is its own language. It's important to know the meaning of real estate terms when you are on the home buying journey as it can be rife with misunderstandings and miscommunication. Understanding these terms will help you grasp the financial commitment you are making in owning a home, which is probably one of the biggest investments you ever will make in your life. The more you know about real estate, the more you will be able to negotiate a deal, make a bid, or just have the peace of mind that you made a great choice in buying your home. Here are a few real estate terms everyone should know.
Multiple Listing Service (MLS)
A database that compiles and distributes information on properties for sale in a specific real estate market. Real estate brokers who are members of a local or regional listing service list properties that are available on the market to sell to potential homebuyers.
Buyer's Agent/Listing Agent
A buyer's agent helps the homebuyer search for a home to purchase while a listing agent works with the home seller to list their home on the market.
When you want to buy a home, one of the first steps is to get pre-qualified. Pre-qualification is when a buyer wants to see how much money they can borrow from a lender. The information is only used as an estimate so the buyer can know how much they might get for a loan in order to predict their overall budget.
The final result of the pre-qualification process, this letter displays an estimate of how much the bank will lend the buyer. It's usually a good idea to get the pre-approval letter before seriously hunting for a home, as it is a confirmation of what you'll have to work with.
Adjustable Rate Mortgages (ARM)
An adjustable rate mortgage is a mortgage that has a variable interest rate. The interest changes periodically per fluctuations in an index. Adjustable rate mortgages can be tricky, as they typically have a lower initial interest rate in order to attract customers. After a specified period, however, that rate can increase substantially, according to the current interest rate (fluctuates annually) and the margin (remains constant).
Money or documents transferred to a third party to be held as a deposit until conditions of the sale are fulfilled. The sale is not considered complete until funds are released from escrow.
Earnest Money Deposit
In order to signify that you are a serious buyer you will need to put down an earnest money deposit. The initial deposit is an amount agreed between both parties and is given to the escrow company. Earnest money deposits are returned to the buyer if they choose to decline the deal within the contingency timeframe.
A legal document that transfers a title to a property.
Contingencies are a set of terms or conditions that must be met before a contract is legally binding. Terms usually include a successful inspection, appraisal, or mortgage approval.
Once you've made an offer on a home you will need to get a home inspection. An inspector goes through every part of the home and checks the foundation, walls, heating, electrical, plumbing, etc. to ensure these items are up to code or need repairs.
Title and Title Insurance
A title is a legal document that shows a homeowner is in lawful possession of a piece of property. Title insurance protects real estate owners and lenders against property loss or damage.
Fees that are typically two to five percent of the purchase price of the home that are paid upon closing. Once these fees are paid, the title of a home is transferred from the seller to the buyer.