Every specialized industry has its language, and real estate is no different. Some of these terms will be used sparingly, whereas others may become part of your everyday vocabulary.

Real Estate Terminology

Mortgage

A mortgage is a loan used to buy a house. It is a debt instrument secured by the collateral of a specific real estate property, and the borrower must pay it back with predetermined payments. Mortgages are also called "liens against property" and "property claims."

Down payment

A down payment is a required percentage of the sale price of the house that is paid. 20% down is expected to avoid paying mortgage insurance payments, but it can be as low as 5% or even 3%, depending on the type of loans taken out.

Escrow

An escrow is a contractual arrangement in which a third party receives and disburses money or documents for the primary transacting parties. It is a trust account held by a third party until a transaction has occurred.

Closing cost

Closing costs are incurred by the buyer, seller, or both. Closing costs are fees associated with the home purchase and home loan at the closing of a real estate transaction. The closing point is when the property title is transferred from the seller to the buyer.

Earnest money

Earnest money is when you give money to the seller to indicate that you are seriously interested in buying a home.

Equity

Home equity is the part of the paid mortgage the debtor has paid or the net increase in the property's market value. Home equity is also known as the actual property value.

Truth in Lending Act of 1968

This law promotes the informed use of consumer credit by requiring disclosures of terms and costs associated with borrowing money. It hopes to standardize the manner in which institutions calculate these costs.

Good faith estimate (GFE)

It is an itemized list of fees and costs associated with applying for a property loan. A mortgage lender or broker must provide this list, as required by the Real Estate Settlement Procedures Act (RESPA).

Pre-qualified

This is an estimate of the amount of loan an applicant may use as a mortgage based on the initial information submitted to a lender.

Pre-approved

This is a more accurate statement than a pre-qualification of the amount of loan an applicant may use as a mortgage based on additional information submitted to a lender.

Other terms used in the home buying process include principal, interest, amortization schedule, fixed and variable interest rates, foreclosure, delinquency, refinancing, credit rating, and pre-payment penalties. If any of these terms are unfamiliar to you, research them or find them in our previous modules so that you comprehend them when they come up in your home loan process.

Review Question

Which terms have you heard before but have just now learned to mean?

Next Chapter:

What Makes Up A Mortgage?

All Chapters:

[Chapter 1]: Introduction to Mortgages

[Chapter 2]: What Are the Fundamentals of Mortgages?

[Chapter 3]: What Makes Up A Mortgage?

[Chapter 4]: What is An Amortization Schedule?

[Chapter 5]: How Can I Secure A Good Mortgage?

[Chapter 6]: What Do I Need to Know as a First-Time Home Buyer?