When you’re buying a home, there can be a lot of confusing things. Some things you can leave to your broker or lender to explain, and some you have to read up on. Here’s a starter glossary of real estate terms you should become familiar with.
Down Payment: A down payment is the amount of money that you initially pay toward a property that you purchase. Typically, a down payment is required for the lender to provide you a home loan, that covers the cost of the rest of the property. The amount of the down payment is dependent on what type of mortgage you take, but typically ranges anywhere from 20 percent to 3 percent.
Appreciation and Depreciation: Appreciation is the amount of money that a property has gained in value over a specific time. Depreciation is the amount of money a property has lost in value over a specific time.
Appraisal: A qualified appraiser will give your property an estimated value, which helps lenders determine what kind of mortgage they’ll offer to the buyer.
Multiple Listing Service (MLS): Often you’ll experience realtors discussing listings on MLS. Multiple listing service, or MLS, is a database that real estate agents have access to. This database includes detailed information on the majority of properties that are currently available in your area.
Earnest Money: Earnest money is a small deposit that you provide when you make your offer on a house. It’s essentially a show of good faith, showing that you have intent to go through with the purchase of the home. Earnest money is usually 1-2 percent of the property’s price. This money is typically held by an escrow agent until the sale is finalized. If the sale goes through, the earnest money goes toward the down payment on the house. If the seller rejects the offer, the money goes right back to you.
Escrow: This is simply the deposit of funds or documents, like earnest money. This deposit is held by a third party, like an escrow agent, until the sale goes through.
Contingency: If you’ve ever hear of sales with contingencies, don’t get worried. It just means that in order for the sale to go through, there are some conditions that need to be met. Most contingencies have to do with home inspections. For example if you make an offer on a property, with a contingency on the home inspection, and you find that there’s a lot of damage to the sewer system. Because you had a contingency in place, you can walk away from the contract without being required to go through with the sale.
Mortgage Pre-Approval: This often comes in the form of a letter. It shows how much buyers can borrow, and determines that you are pre-approved to purchase a home. Pre-approval is great to show sellers, and prove that you already have financing in place.