What Every First-Time Buyer Needs to Know

Buying your first home is an exciting time packed with fun decisions and new experiences. Our homebuyer glossary is here to help you feel confident and empowered by defining common real estate terms you’re likely to encounter as you navigate the home buying process.

Definitions

Escrow – Escrow is the process of using a third party (agent) as a neutral actor in the sale of a home. The escrow agent makes sure that the seller receives the money agreed upon for selling the house and ensures the buyer receives the house in return.

PMI – Private mortgage insurance is an extra amount paid on top of your mortgage and is generally required if you pay less than 20% of a home’s cost for the down payment.

Earnest money – Earnest money is a sum (usually between 1%–5% of the home’s cost) paid from the buyer to the seller and held by the escrow company that represents the buyer’s serious intention to buy the home.

Fixed interest – If your home loan has a fixed interest rate, it means that the interest rate of the loan will never fluctuate.

Adjustable Rate Mortgage – An ARM loan means that the interest rate of your home loan will fluctuate with the market at predefined intervals.

Closing costs – Closing costs include a variety of fees paid for completing the purchase of a home, such as taxes, title insurance, homeowner insurance, and title search.

Down payment – A down payment is a portion of the total home price paid up front in one lump sum of cash.

Home Equity Sharing – A home equity sharing company pitches in to help with the down payment.

Broker – Brokers represent sellers and buyers of real estate.

Real estate agent – A real estate agent is also commonly referred to as a “realtor.” They’re qualified to facilitate real estate transactions.

Home inspection – A home inspection is conducted on behalf of the buyer during the homebuying process.

Title – A title is the ownership document for a home.

Appraisal – An appraisal is a report estimating the value of the property.

Lien – A lien is a legal right to someone else’s property.

Closing – The closing is a meeting where all final documents involved in the purchase of the home are signed.

Contingencies – Contingencies are conditions that must be met to successfully finalize the home purchase.

Equity – Equity refers to the portion of the home’s value that belongs to the homeowner, rather than the bank.

Annual Percentage Rate – The cost of borrowing money for your home is the Annual Percentage Rate.

Offer – This is the amount of money offered for a home by a prospective buyer.

Mortgage Payment – A mortgage payment is the monthly amount you’ll pay for your home.

Pre-approval letter – Before beginning the home search, a buyer should consider obtaining an estimate of how much a bank will lend them.