The real estate world has a language all its own. Learning the industry jargon can help you better understand the home buying and selling process. Whether you’re purchasing your first home, putting your home on the market or just exploring your options, here are 26 real estate terms you may come across in your journey.
1. Active Contingent
Active contingent means a seller has accepted an offer from a buyer, but the sale is contingent on certain conditions being met. Contingencies could be related to the inspection, appraisal, financing or the selling of the buyer’s current home. If contingencies are not met, the house could return to the market.
2. Active Under Contract
Active under contract means the seller has accepted a buyer’s offer, but the sale is not finalized. This is because contingencies still need to be met before the transaction can go through. For example, the buyer may need to get approved for a mortgage, pass a home inspection or sell their current home first.
An addendum is a document attached to a purchase and sale agreement to modify its terms and conditions. It can be used to add new information, make changes to existing terms or clarify any ambiguities in the original agreement. An addendum may include contingencies, an agreement that certain items will remain in the home or that the home will be sold “as is.” The buyer and the seller must both sign the addendum for it to be valid.
4. Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage (ARM), also known as a variable-rate mortgage, is a mortgage with a fluctuating interest rate. The interest rate adjusts over time to reflect market conditions. Adjustable-rate mortgages often have a lower initial fixed interest rate for a specific time period, after which the rate can increase or decrease.
5. Annual Percentage Rate (APR)
The annual percentage rate (APR) is the total finance charge for a loan, expressed as a yearly rate. It includes the interest rate and any other fees associated with the loan, such as origination fees and certain closing costs.
A broker is a person or firm that arranges transactions between a buyer and a seller and earns money through commissions. Brokers are sometimes referred to as agents or intermediaries. Mortgage brokers and real estate brokers are two types of brokers that may be involved in a real estate transaction.
7. Cash-Out Refinance
Cash-out refinance is the process of replacing an existing mortgage with a new loan for an amount higher than the current loan balance by leveraging the equity in the home. The extra cash can be used to fund home renovation projects, college tuition, pay off various debts or anything else.
The closing is the last step in the real estate transaction. It’s a meeting that takes place after the buyer’s loan is approved and includes all parties involved in the transaction. The buyer receives a closing disclosure detailing the loan terms, including the monthly payment, interest rate, down payment and closing costs. During the closing, all the necessary paperwork is signed. Once the closing is complete, the buyer is officially the property’s new owner.
9. Closing Costs
Closing costs are the extra fees buyers and sellers pay to close on a real estate transaction beyond the home’s purchase price. Examples of closing costs include appraisal fees, title, inspection and attorney fees, and discount points. Most closing cost fees apply primarily to the buyer, but some sellers will negotiate and may contribute a percentage of the closing costs. In some states, it is customary (not a requirement) for the seller to pay certain fees, such as owner’s title insurance and/or transfer taxes.
In real estate, a commission is a fee paid to the real estate agent for helping buyers and sellers. The commission rate is a percentage of the home’s purchase price and is determined by the real estate agent.
A contingency clause in real estate is part of a purchase agreement that outlines specific conditions that must be met for the contract to be valid and binding. For example, if the home inspection reveals significant issues, if the buyer can’t get financing, or if the appraisal comes in lower than the purchase price, a buyer could back out or renegotiate.
12. Down Payment
A down payment is a percentage of a home’s purchase price that the buyer pays at the time of purchase. Most home loans require some type of down payment, but certain loans allow buyers to put little to nothing/zero down.
Equity is the measurable value of a home or property beyond what’s owed on a loan. Homeowners often choose to borrow against their home equity with a home equity loan or home equity line of credit.
Escrow is a financial account set up by a lender or loan servicer to collect the expenses of property taxes, homeowners insurance and applicable mortgage insurance. A homeowner’s monthly mortgage payment includes payments for those expenses, and then the lender uses those collected funds to pay those bills on the homeowner’s behalf.
15. Fixed-Rate Mortgage
A fixed-rate mortgage is the most common type of home loan and ensures an unchanging interest rate over the loan term.
HELOC stands for home equity line of credit. A HELOC is a revolving credit line backed by the equity in a home that allows a homeowner to borrow against their home for large purchases. The interest rate on a HELOC is variable.
17. Home Equity Loans
A home equity loan is a type of second mortgage that allows a homeowner to borrow against the equity in their home. Home equity loans often have fixed interest rates and are typically used for large expenses, such as renovations, debt consolidation or college tuition. A homeowner with an existing mortgage will need to make two separate payments: one for the mortgage and one for the home equity loan.
A lender is a financial institution that lends money to borrowers.
19. Loan Officer
A loan officer is a licensed and trained professional loan expert who helps homebuyers navigate the home-buying process and get the best mortgage for their needs. They are a valuable resource and will work with a buyer to understand their financial situation and goals and advocate on their behalf with lenders. They can also help a buyer get pre-qualified for a mortgage, guide them through the paperwork and educate them on home loan options.
A mortgage is a loan used to purchase or refinance a home. The borrower agrees to pay a bank or creditor over time, typically in installments of principal and interest. The home then serves as collateral to secure the loan. Many types of mortgages are available, featuring various interest rates, terms, down payment requirements and qualification criteria.
21. Mortgage Broker
A mortgage broker helps prospective homebuyers shop for and compare loan products from different lenders. Mortgage brokers have fiduciary duties to clients and must act with a homebuyer’s best interest in mind.
In real estate, a pending sale means that a seller has accepted an offer on their home, but the sale is not yet complete. All contingencies have been met, and the contract is in the final escrow stages.
Mortgage pre-qualification is the initial step in the mortgage process. A prospective homebuyer will work with their lender to estimate the mortgage amount for which they could qualify.
Refinancing is the process of replacing an existing mortgage with a new loan. Typically, a homeowner will refinance their mortgage to lower their interest rate, reduce their monthly payments or change their loan from an adjustable- to a fixed-rate mortgage. Additionally, individuals who want to access cash to fund home renovation projects or pay off various debts can leverage the equity in their home and obtain a cash-out refinance.
25. Secured Loan
A secured loan is a loan backed by collateral, such as your home. A mortgage and home equity loan are examples of secured loans.
26. Under Contract
Under contract means that the seller has accepted an offer from a buyer, but the sale is not yet final. Certain conditions, called contingencies, still need to be met before the sale can close. The conditions may include the home passing an inspection, the buyer obtaining financing or being able to sell their current home to purchase the new one.
Knowing common real estate terms and their definitions can help you make better decisions when buying or selling a home. And remember—if you don’t understand a term, ask your real estate agent or a Loan Expert. They’re there to help!