Home buying terms are key real estate, financial, legal, and procedural concepts that help buyers understand the process. Important terms include appraisal, earnest money, pre-approval, closing costs, title insurance, and inspections—each playing a role in purchasing a home confidently.
When it comes to purchasing a home, the real estate market can feel like it has its own language. Not understanding real estate jargon can make you hesitant to move forward with confidence. In this article, we will help you become familiar with commonly used home buying terms, breaking them down by category.
Real Estate Home Buying Terms
These home buying terms are part of the broader real estate world and will help you understand basic real estate concepts.
1. Real Estate Agent Vs. REALTOR®
These terms are important examples of real estate jargon. Every agent you meet is a real estate agent; however, not every agent is a REALTOR®. A REALTOR® belongs to the National Association of REALTORS® and is bound to the association’s code of ethics and practice. This code of ethics includes obligations to clients, customers, the public, and other REALTORS®.
2. Appraisal
An appraisal is an assessment of the house and property you are looking to buy in order for the lender to decide how much they are willing to lend you.
An appraisal determines the fair market value of the property you will be using as collateral for the loan. Essentially, the lender is making sure they can sell your house for enough money to cover what you owe them if you are unable to repay the loan.
3. Active Listing
An active listing is a house that is currently available. In other words, the owners have not yet accepted any offers on it. That means you are free to make an offer on this home for the owners’ consideration.
4. Contingent Listing
A contingent listing is when the owner has accepted an offer on the house, pending certain criteria being met. Those criteria could include a successful home inspection, mortgage approval, or appraisal value. An owner may or may not be open to accepting additional offers on this home.
5. Listing Under Contract
A listing under contract is when a deal is just waiting to close; all standard criteria have been satisfied. It is rare for an ‘under contract’ listing to fall through, but it does occasionally happen. As with the contingent listing, the owner may not be willing to accept any new offers at this point.
Financial Home Buying Terms
Understanding basic financial terms is critical when looking to buy or sell your home. Not understanding this area of real estate jargon could end up being very costly, especially when it leads to confusion or misunderstanding between parties.
1. Hand Money/Earnest Money
These are funds given by the buyer and held in an escrow account until the real estate closing. It is sometimes called a ‘good faith deposit’ and is typically 1-3% of the purchase price. In some cases, these funds are refundable if the loan fails to close. If the loan does close, the purchaser is given credit at closing for the amount of the earnest money.
2. Offer
When a buyer makes a written promise to purchase real estate, this constitutes an offer. Making an offer typically includes a negotiation period between the buyer and seller. An offer is not transformed into an official contract until all terms are accepted by both seller and buyer.
3. Pre-approval / Pre-qualification
This refers to the process through which a mortgage lender advises that your debt-to-income ratios, credit report, and other factors show that you, the borrower, qualify for a particular loan amount before signing a contract. This step MUST be completed prior to writing any offer, and can be extremely helpful to secure even before you start looking at homes! Knowing how much you can borrow ahead of time will help you choose a home within your budget.
4. Mortgage
A mortgage is a loan given specifically to purchase a house or property. Mortgages are long-term loans that usually last either 15 or 30 years. The property you purchase acts as collateral, which the lender can sell to recoup the money loaned to you if you are unable to pay back your mortgage debt.
5. Closing Costs
Closing costs are paid at the end of the transaction. They are made up of a combination of prepaid taxes, insurance, lender-related fees, title company fees, and the down payment placed on your mortgage. You could also hear these referred to as “cash from borrower” or “cash needed to close.”
Legal Home Buying Terms
Knowing these legal home buying terms could help set you up for a successful home purchase experience – and it could also keep you out of hot water!
1. Home Insurance
Home insurance can also be called ‘hazard insurance.’ It covers the property you’re purchasing against loss due to fire, hail, theft, etc. The borrower selects the insurance and pays annual premiums, often through an escrow account established with the mortgage.
2. Title Insurance
This is an insurance policy purchased at closing to protect the new owner from liens or title clouds. The title simply stands for the bundle of rights that accompany a piece of property. Title Insurance protects those rights.
3. Deed
A deed is a legal document that proves the transfer of ownership of a home or property from the seller to the buyer. It is usually filed with your county government by the Recorder of Deeds and is a public record.
Procedural Home Buying Terms
The following procedural home buying terms cover many of the processes that take place during the home buying journey. Knowing this real estate jargon may help you avoid surprises along the way.
1. Inspections
Inspections are conducted to identify potential issues in the home. If problems are found, the seller can repair them or reduce the price accordingly. Buyers typically pay for an inspection after having their offer accepted.
The seller then has several days (the exact time frame varies depending on the contract) to respond to the inspection’s findings and complete any action steps required. Common inspections include general home inspections, pest inspections, radon inspections, well/septic inspections, and plumbing camera tests. Not all of these inspections are required or carried out in every transaction.
2. Closing/Signing
The closing, or signing, is the transaction in which the title passes from seller to buyer, and the seller is paid. A settlement officer will conduct this transaction, and it typically involves the seller and buyer meeting to sign forms. The settlement statement shows all costs incurred and gained by both parties. The process usually takes about an hour. Typically, this is also when you get the keys to your new home!
3. Recording
Typically, on the day after closing, ownership of the property is transferred to the buyer. This is done when the deed is put into the official records at the County Recorder of Deeds Office. The purpose of recording the deed is to officially establish that you now own the property.
Feeling overwhelmed? We’ll make sure you understand what is happening, each step of the way.
As you have now gathered, there is quite a bit of real estate jargon to learn when buying a home. Thankfully, we are here to help home buyers in Grove City, Mercer County, Cranberry Township, and the greater Pittsburgh North area understand key home buying terms and navigate the real estate process with confidence.
At Bonner Realty, our team of experienced realtors is knowledgeable and willing to answer any questions you have at any stage of the buying process. Don’t let unfamiliar words keep you from “experiencing home.”
Ready to put your new vocabulary to use in buying a home with Bonner Realty? Connect with an agent or call us at 724-405-7653 today.
FAQs
1. What are the most important home buying terms to know?
The most important home buying terms include appraisal, earnest money, pre-approval, mortgage, closing costs, and title insurance. These terms help buyers understand the financial, legal, and procedural aspects of purchasing a home and avoid costly mistakes.
2. What is the difference between pre-approval and pre-qualification?
Pre-qualification is an initial estimate of how much you may be able to borrow based on basic financial information. Pre-approval is a more detailed process where a lender verifies your credit, income, and debt to determine how much you are approved to borrow for a home.
3. What is earnest money, and is it refundable?
Earnest money is a deposit made by the buyer to show serious intent to purchase a home. It is often refundable if certain contract conditions are not met, such as failed inspections or financing issues, but it may be forfeited if the buyer backs out without a valid reason.
4. What is title insurance?
Title insurance is a policy that protects homeowners and lenders from issues related to the property’s ownership.
It helps guard against problems such as liens, ownership disputes, or errors in public records that could affect your rights to the property. This one-time purchase is made at closing and ensures your ownership is legally protected after the transaction is complete.
5. What does active under contract mean?
Active under contract means a seller has accepted an offer, but the property is still technically available under certain conditions.
This status often indicates that contingencies – such as inspection, financing, or appraisal – have not yet been satisfied. In some cases, backup offers may still be accepted in case the original deal falls through.
6. What does contingent mean in real estate?
Contingent in real estate means an offer has been accepted, but specific conditions must be met before the sale can proceed.
These conditions typically include inspections, financing approval, or appraisal. If the contingencies are not met, the buyer or seller may have the option to cancel the agreement, delaying or ending the transaction.
