Home buying can seem like a complicated enough process before adding in the fact that it comes with its own vocabulary. Use this simple terminology guide to get up to speed on the basics.
Agent — a legal representative during the buying and selling process. Buyers and sellers typically have their own agent, so that each “side” receives personalized representation.
Appraisal —a valuation done of the property that is being bought and sold. This process usually takes into account the land, the building(s), overall improvements and home values in the surrounding community.
Closing —the big day. All parties come together to sign sale-related paperwork. This initiates the transfer of money from buyer (and mortgage company) to seller.
Contract —a legally-binding document that lays out the specific terms of buying and selling a property. Many contracts use boilerplate language with fill-in-the-blank areas that the agents fill in.
Earnest Money — a small amount of money (typically a few hundred dollars or less) that the prospective buyer pays to the seller to show they are “earnest” in their interest to buy the property. If the sale falls through, the seller keeps the earnest money.
Escrow — a method for setting aside money for property taxes and home insurance. This money is collected with the monthly mortgage payment and set into an account that pays taxes and insurance each year. Any interest or overage in an escrow account is periodically returned to the homeowner.
If homeowner’s insurance isn’t something you’ve thought about yet, now’s a good time to find out more.
Good Faith Estimate — a financial document prepared prior to closing that estimates each line item of costs that will be paid by the buyer and seller at the closing of the property. It is an estimate because it includes calculations that could change (like interest and taxes) if the closing is rescheduled to an earlier or later date.
Inspection — a process where a home expert visits the property to be sold and evaluates its condition, noting any mechanical or structural issues the buyer may ask the seller to address prior to closing.
Mortgage — a loan provided by a bank or financial organization and secured by the value of the property. Loans come in varying terms, including 10-, 15- and 30-year lengths, and often originate as an 80/20 breakdown: 80 percent borrowed money, 20 percent down payment.
Offer — an official bid to buy a property from a seller. An offer includes the proposed selling price, terms of the sale like “as is” or “after inspection,” special conditions like the selling of another property first and proposed closing time frame. Several offers and counteroffers may be written before an agreement is reached.
Open House — a time when a home is opened for the public to walk through and view. An open house is often run just as a property is listed, to get out the word that the home is for sale and show it off to the community and prospective buyers.
Showing — an appointment when a real estate agent brings prospective buyers to a property.
Now that you know your appraisals from your inspections and your escrow from your interest, you are ready to attend your first open house or showing.
