Real Estate Terminology 101

Amortization Schedule

A table that shows how much of each monthly mortgage payment goes towards principal and interest. It can be used to track the progress of your payments and to see how much you will have paid off at different points in time.

Appraisal

A professional opinion of the value of a property that is conducted by a qualified appraiser. It helps to protect both the buyer and the lender by ensuring that the property is worth the purchase price.

Closing Costs

Fees that are paid at the end of a real estate transaction when the property is transferred from the seller to the buyer. They can include things like appraisal fees, title insurance, recording fees, and mortgage origination fees.

Contingency

A clause in a contract that allows one or both parties to back out of the contract if a certain condition is not met. Contingency clauses are common in real estate contracts because they protect both the buyer and the seller.

Earnest Money Deposit

Sum of money that a buyer gives to the seller as a “good faith” deposit when making an offer on a home. It shows the seller that the buyer is serious about buying the home. This deposit is ~1-3% of the purchase price of the home. It is held in escrow by a third party, such as a title company, until the sale is finalized.

In Escrow

A period of time (typically 30-60 days) between when a buyer makes an offer on a home and when the sale is finalized. During this time, the buyer and seller’s funds are held in a neutral third party account, called an escrow account, until all conditions of the sale have been met.

Pre-Approval

A lender’s written commitment to lend a borrower a certain amount of money to buy a home. It is based on a thorough assessment of the borrower’s income, assets, and credit history. A pre-approval is a valuable tool for homebuyers because it gives them an idea of how much money they can borrow and what their monthly payments will be.

Principal

The amount of money you borrow from a lender to buy a home. It is the amount you will be paying off, monthly, over the lifetime of your mortgage, which can last anywhere from 5 to 30 years, but is usually 30.

Private Mortgage Insurance (PMI)

A type of insurance that protects the lender if the borrower defaults on their mortgage loan. It is usually required if the borrower makes a down payment of less than 20% of the purchase price of the home. The insurance premium is typically added to the monthly mortgage payment.

While there are more terms in the real estate glossary, the ones we’ve defined above are the most common ones. More importantly, your real estate can and should be a great source of information and support. Don’t be afraid to ask questions. The more you know, the better equipped you will be to make informed decisions. Buying a home is a big decision, but it can also be an incredibly rewarding one!