Understanding key real estate terms can make the buying or selling process much smoother. Whether you’re a first-time homebuyer or a seasoned investor, having a solid grasp of these essential terms will help you navigate the market with confidence.
Amortization
Repaying a mortgage involves making regular monthly payments of both principal and interest according to an amortization schedule. By consistently making these required payments throughout the loan term—whether it’s 15 or 30 years—you’ll fully own your home by the end of the mortgage period.
Closing Costs
When purchasing a home, there are various fees due at the end of the sales transaction. These may include costs for the appraisal, home inspection, title search, pest inspection, and other related expenses. Buyers should plan to set aside an amount equal to 2% to 5% of the home’s purchase price to cover these fees.
Comparative Market Analysis (CMA)
A detailed analysis conducted by a real estate agent to estimate a home’s value. This evaluation is based on the recent sale prices of nearby homes that share similar condition, size, features, and age.
Contingencies
Provisions included in a home purchase contract that safeguard the buyer in case of issues with financing, the home inspection, or other unforeseen circumstances.
Debt-to-income ratio (DTI)
A ratio that compares a home buyer’s expenses to gross income.
Earnest Money
A deposit made by the buyer to demonstrate their commitment to purchasing the property and to reassure the seller of their intent.
Equity
The amount of your home that you actually own. Specifically, equity is the difference between what your home is worth and what you owe your lender. As you make payments on your mortgage, you reduce the balance of your loan and you build equity.
In Escrow
The period of time after a buyer has made an offer on a home and a seller has accepted. During this time, the home is inspected and appraised, and the title searched for liens, etc.
Pre-approval
A comprehensive evaluation of a borrower’s income, assets, and other financial information to determine the loan amount they are eligible for. Real estate agents typically require a pre-approval or pre-qualification letter before showing a home to a buyer.
Private Mortgage Insurance
Private mortgage insurance (PMI) is a policy that safeguards the lender from losses if the borrower stops making payments or fails to repay their loan. Borrowers who purchase a home with less than a 20% down payment are typically required to pay for mortgage insurance. PMI may be canceled under certain conditions once the borrower achieves 20% equity in the home.
Have you been thinking about buying a house, but don’t know if it’s the right time? Read Signs You’re Ready to Buy a House to see if you’re ready!