5 Real Estate Terms Every Homebuyer Should Know

5 Real Estate Terms Every Homebuyer Should Know

Buying a home is exciting, but it can also feel overwhelming when you start hearing unfamiliar real estate jargon. Understanding key terms not only helps you feel more confident, but it also ensures you’re making informed decisions every step of the way. Here are five important terms every buyer should familiarize themselves with:

1. Pre-Approval

Before house hunting, most buyers get pre-approved by a lender. This is when a bank reviews your income, credit, and financial history to give you an estimate of how much you can borrow. Pre-approval strengthens your offer because it shows sellers you’re serious and financially ready.

2. Contingency

A contingency is a condition written into your purchase agreement that must be met for the sale to go through. Common contingencies include home inspection, appraisal, and financing. They act as safeguards, allowing you to walk away or renegotiate if something major comes up.

3. Escrow

Escrow refers to a neutral third party that holds money and documents during the homebuying process. For example, when you submit your earnest money deposit, it’s typically held in escrow until closing. This protects both the buyer and seller until all terms of the deal are met.

4. Appraisal

An appraisal is an unbiased estimate of the home’s value conducted by a licensed appraiser. Lenders require appraisals to make sure the property is worth the amount you’re borrowing. If the appraisal comes in lower than the purchase price, it could affect your financing.

5. Closing Costs

Closing costs are the fees and expenses you pay at the end of the transaction. They can include loan origination fees, title insurance, taxes, and more. Buyers should budget for these costs in addition to their down payment.