15 Confusing Real Estate Terms Every Homeowner Should Know - Home & Texture
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15 Confusing Real Estate Terms Every First-Time Homeowner Should Know

Navigate the home-buying process with a little more ease.

By
June 4, 2024 at 7:32 PM PST
Homeownership Homebuying Terms

15 Confusing Real Estate Terms Every First-Time Homeowner Should Know

Navigate the home-buying process with a little more ease.

By
June 4, 2024 at 7:32 PM PST

The world of homeownership can be exciting. But it can also be just as challenging. One of the many obstacles you’ll face is understanding the often baffling terminology that gets thrown around in real estate and home maintenance. Get acquainted with the lingo so you don’t have to sneak off to your car to google a word you heard your real estate agent throw around. Here are some of the most confusing terms you’ll encounter as a first-time homeowner.

1. Escrow

Escrow is a financial arrangement where a third party holds and regulates the payment of funds required for two parties involved in a given transaction. For homebuyers, this often means your money is held by an escrow company until the sale is finalized. Think of it as a temporary holding tank for your funds, making sure everything is in order before your money changes hands.

Family in new home
Photo Credit: Cottonbro

2. Amortization

Amortization sounds like something you’d need a prescription for, but it’s actually much less scary. It’s the process of spreading out a loan into a series of fixed payments over time. When you take out a mortgage, your payments are amortized, meaning each payment you make is part interest and part principal. In the beginning, you’re mostly paying interest, but as time goes on, more of your payment goes toward the principal.

3. Appraisal

In real estate, this is a professional assessment of a property’s value. An appraiser will compare your home to similar properties in the area, considering factors like location, size, and condition. This is important for lenders to be sure they’re not lending more money than the property is worth. Essentially, it’s a reality check on whether you’re paying a fair price or if you’ve been swayed by that charming but impractical spiral staircase.

4. PMI (Private Mortgage Insurance)

PMI stands for Private Mortgage Insurance. If your down payment is less than 20 percent of the home’s purchase price, your lender will require you to get PMI. This insurance protects the lender in case you default on your loan.

5. HOA (Homeowners Association)

HOA stands for Homeowners Association, and it’s a mixed bag. If you buy a home in a community governed by an HOA, you’ll have to pay dues and follow certain rules regarding property upkeep, renovations, and even the color you can paint your house. It’s like having a landlord but with more meetings and less flexibility. The upside? They often take care of communal areas and services, making your neighborhood look pristine and well-maintained.

Woman signing papers
Photo Credit: Shvetsa

6. Title Insurance

Title insurance is one of those things you never knew you needed until you need it. This insurance protects you and your lender from any legal disputes over the ownership of your property. Imagine buying a house and then discovering that a long-lost relative of the previous owner claims they own part of it. Title insurance is your shield against such unexpected drama.

7. Equity

Equity is a term you’ll hear a lot, and it’s a good thing. It’s the difference between what your home is worth and what you owe on your mortgage. As you pay down your mortgage and (hopefully) as your home’s value increases, your equity grows. Building equity is one of the biggest financial benefits of homeownership, so give yourself a pat on the back every time you make a mortgage payment.

8. Closing Costs

Closing costs are the fees and expenses you’ll need to pay when finalizing your home purchase. These can include loan origination fees, appraisal fees, title insurance, and more. They can add up to a significant amount, usually 2-5 percent of the home’s purchase price.

9. Fixed-Rate vs. Adjustable-Rate Mortgages

When shopping for a mortgage, you’ll encounter two main types: fixed-rate and adjustable-rate. A fixed-rate mortgage has an interest rate that stays the same for the entire loan term, providing predictable monthly payments. An adjustable-rate mortgage (ARM), on the other hand, has an interest rate that can change periodically based on market conditions. The rate is usually lower initially but can increase over time.

10. Refinancing

Refinancing is the process of replacing your current mortgage with a new one, typically to get a better interest rate, reduce monthly payments, or access home equity. It’s like trading in your old car for a newer model with better features. However, it’s important to consider the closing costs and whether the long-term savings outweigh the short-term expenses.

11. HELOC (Home Equity Line of Credit)

A HELOC is a Home Equity Line of Credit, which lets you borrow against the equity in your home, kind of like a credit card. You can draw from it as needed, and you only pay interest on what you use. It’s a flexible way to fund home improvements, pay off high-interest debt, or cover emergency expenses. Just remember, your home is the collateral, so it’s essential to borrow responsibly. Treat it like a lifeline, not a free-for-all shopping spree.

Woman looking at computer
Photo Credit: Liza Summer

12. Deed

A deed is a legal document that proves ownership of your property. When you close on your home, the deed is transferred from the seller to you, and it’s recorded with the local government.

13. Lien

A lien is a legal claim against your property that must be paid off when the property is sold. It’s like a sticky note on your home’s title saying, “You owe me!” Common liens include mortgage liens, tax liens, and mechanic’s liens (for unpaid home improvement bills). Clearing any liens is essential before selling your home, so you’re not surprised by any lingering debts.

14. Appreciation

Appreciation refers to the increase in your home’s value over time. It’s influenced by factors like market conditions, location, and home improvements. It’s the idea that your home is getting more popular (and valuable) over the years. Appreciation is a key reason why real estate can be a great investment—who doesn’t love the idea of their home being worth more tomorrow than it is today?

15. Depreciation

On the other side of things, depreciation is the decrease in your home’s value due to factors like wear and tear, aging, or market downturns. It’s like your home getting a few wrinkles and gray hairs. While it’s less exciting than appreciation, it’s important to be aware of, especially if you’re planning to sell. Regular maintenance and updates can help slow down depreciation and keep your home looking and feeling young.



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