January 22, 2024
Homebuyer Glossary: Key Words Homeowners Need to Know [Infographic]
Buying a home can feel especially complicated if you’re new to the process and don’t know the terms to expect. If you want to become a homeowner this year, it’s a good idea to learn these housing key words. Once you do, you’ll feel more confident and better informed.
Affordability
- A measure of whether someone earns enough to qualify for a loan on a typical home based on the most recent price, income and mortgage rate data
- When home prices and mortgage rates are higher, it can impact affordability.
Appraisal
- A report highlighting the estimated value of the property completed by a qualified third party.
- Lenders rely on appraisals to validate a home’s value and ensure they’re not lending more than a home is worth.
Closing Costs
- The fees required to complete the real estate transaction, which is paid at closing
- Ask your lender for a complete list of closing cost items, including points, taxes, title insurance, and more.
Credit Score
- A number ranging from 300-850 that’s based on an analysis of your credit history
- This helps lenders determine the likelihood that you’ll repay your rates
Down Payment
- Down payments are typically 3.5 – 20% of the purchase price of the home. Some 0% down programs are also available.
- Ask your lender for more information about what you may qualify for.
Equity
- The value of your home above the total amount of liens against your home
- Many homeowners are realizing they have more equity than they thought and they’re using it to move.
Inspection Contingency
- A provision in a contract requiring an inspection to be completed
- This essential step gives you information on the home’s condition and potential repairs.
Mortgage
- A loan using your home as collateral. It may also be used to indicate the amount of money you borrow, with interest, to purchase your house.
- The amount of your mortgage is often the purchase price of the home minus your down payment.
Mortgage Rate
- The interest rate you pay to borrow money when buying a home
- As mortgage rates fluctuate, consult a lender so you know how it can impact your monthly mortgage payment.
Pre-Approval Letter
- A letter from a lender that shows what they’re willing to lend you for your home loan.
- This, plus an understanding of your savings, can help you decide on your target price range.
Final Thought
These terms are used throughout the homebuying process. Having a basic understanding of what they mean enables you to ask questions and feel confident when shopping for a home. Speak with your local real estate expert to help you achieve your homebuying goals.
Related Article: Are You Ready to Buy?
Adapted from KCM.
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