Real Estate Vocab: The Terms You Need To Know When Buying Or Selling A Home In 2022

Buying or selling your home can be overwhelming for a lot of reasons. It’s certainly emotionally draining to say goodbye to one home and welcome another, but it can also be physically exhausting to pack up your loved ones and all your personal possessions into boxes, bags, cars, storage units, moving vans, and so on.

For many inexperienced or first-time buyers and sellers, though, being inundated with all these new terms and things to keep track of can be equally overwhelming–so much so, things can easily fall through the cracks without a trusted, experienced Realtor by your side.

To shake some of the weight of the real estate process, I’ve gathered a few of the main key terms that will come up in the purchase or sale of your home. Let’s get right into it!



Appraisal

In resale, the appraisal is the report highlighting the estimated value of your property. This report is completed by a qualified third party to ensure the valuation of the property is fair and true to the current market.

Why do we need appraisals? Well, lenders use these third party reports to validate the home’s purchase price. This way, they can ensure that they are not lending the buyers more money than the property is worth.

But what does this mean for you? Hopefully very little. Ideally, a home lists, sells, and appraises for a fair market price. In the event that it does not, some contracts will include an “Appraisal Gap.” In the event that a home does not appraise at purchase value, the buyers may agree to cover that discrepancy in the appraisal up to a certain amount. Every situation is different, so it’s important to have experienced real estate agents on either side of the deal to ensure everything, including the appraisal, goes smoothly.



Closing Costs

This one might sound simple–of course, they’re the costs associated with closing–but it’s less clear for many folks what those costs are or why they need to be paid at closing. In simple terms, closing costs are an umbrella term for all the fees required to complete the real estate transaction…of which there are many.

These fees might include points, taxes, title insurance, and so on. Your lender will take you through everything at your closing, but if you want to know more about your specific closing cost items and their associated fees, you can always ask your lender for a comprehensive list.



Credit Score

Most people have at least a functional understanding that a credit score is important, but the details of what this score is and why it’s so important can be a little more murky for many folks. Your credit score is a number, usually ranging from 300-850, that encompasses many aspects of your credit history.

Companies use a mathematical formula called a scoring model to parse your overall credit report into one number, which is then used in things like home loan applications. This score takes into account many different things, like your bill-paying history, your current debt, how many loans you currently have, and more, with the ultimate purpose of helping lending companies determine whether or not to offer you a mortgage.

The higher your credit score, the more confident the lender can be that you have the ability and responsibility to pay off your loan. Your credit will also play a role in determining the interest rate on that loan, which is another huge consideration when buying a home.



Down Payment

Before you start paying off your mortgage, you’ll likely submit a down payment. Just like with any down payment for other large purchases, this is the initial deposit you will make towards paying off the property prior to the mortgage kicking in.

Down payments are typically going to be between 3.5-20% of the total purchase price of the home. On occasion, 0% programs might also be available, but it’s important to factor at least a moderate down payment into your budget for the home when possible.

In some cases, when a builder or seller is operating under a “highest and best offer” methodology, a sizable down payment can make the difference between an offer being accepted or passed over. Be sure to speak with your Realtor to discuss options before any offers are submitted.



Affordability

Affordability, as you might have guessed by the name, refers to the measure of whether an individual earns enough to qualify for a loan on a particular home based on the most recent price, income, and mortgage rate data. In short: what can you afford?

As you know, the housing market is always changing, and affordability will be heavily impacted by the current state of the market. Right now, we’re seeing homes continue to appreciate in value, albeit at a slower rate due to spiking interest rates. More information on that can be found in this blog.

Because of the current market trends, housing prices are still inching up, especially in my area of expertise in Horizon West, Florida. However, high interest rates have made it impossible for some folks to afford homes that would otherwise be within their budget. The best way to ensure you’re looking at the right homes within the right price point for you, speak to a licensed and experienced real estate agent about your options.

If you’re looking for homes in the Central Florida area, shoot me a text to my cell at 407-848-8042 for more information and a more personal overview of what affordability means for you.



Pre-Approval Letter

If you’ve been a long-time viewer of my YouTube channel, you’ll know that the pre-approval letter is a critical point in the modern real estate market. This letter, sent directly from the lender, is written confirmation that they are willing to lend you money towards your home loan.

If you are serious about looking for a home, this letter is a must. Otherwise, it can be a substantial roadblock on your journey to finding a home. Many builders, especially within this market, will require a pre-approval letter before they will even begin working with you. This is a protective measure for them to ensure they are only working with serious buyers, and it’s why many Realtors require pre-approval as well.

I have preferred contacts for the pre-approval process–folks I’ve worked with time and time again and have done good work for my clients in getting them pre-approved. Some builders will require pre-approval through their own in–house lenders as well, so it’s important to keep location, builder, seller, and so on in mind as we dive into this process.



Inspection Contingency

If you’ve bought or sold a resale home, you’ve likely heard of or included an inspection contingency in your contract. This contingency is a provision within the contract that requires an inspection to be completed on the home prior to closing.

This inspection is a crucial part of the process, as it provides both buyer and seller with important information about the home’s condition and any necessary repairs. If any significant repairs are necessary, the buyer may negotiate with the sellers to have those repairs done at the seller’s expense prior to closing.

It’s important to note, however, that not every item on an inspection report must be addressed immediately or by the seller at all. What items on the report do get addressed, as well as when, how, and on whose dime those repairs are made, depends on the terms of the contract and the severity of the issues. This is another reason why having a realtor on your side is essential, both for buyers and sellers, to ensure neither party is taken advantage of.



Mortgage Rate

Your mortgage is the amount of money you take out on a loan to the lender to pay for your home. That number will be determined by how much money you put down initially in your down payment. Your mortgage rate, however, is the interest rate you will pay on that loan when you borrow money from a lender.

As with any interest rate, the lower the number, the better! At the moment, interest rates are still on the climb, so it’s important to keep a close eye on the market and ensure you’re getting the best possible rate within your timeline.



Equity

Once you have your home, you can begin building equity in your property. Equity is the value in your home above the total amount of liens against your home. To put it simply, it is not the value of your home, but the value of your financial interest within that home.

A few things contribute to your home’s equity. Submitting a down payment of 20% or more automatically adds to your equity, but so too will simply paying off your mortgage in a timely manner. The state of the market will also fluctuate the equity of your home, as it impacts the way your home is currently valued within that market.

In the current market, homes have continued to appreciate slowly over time after the recent boom we saw earlier in 2022. This is great news for prospective sellers, who are discovering they might have more equity in their home than they realized. 

Want To Know More?

These are far from the only terms you’ll hear when buying or selling your home, but they are some of the important ones to know as we get going on your house hunting journey. If you have any other questions about the current market, vocabulary related or otherwise, shoot me a text to my cell at 407-848-8042.

As one of the top Realtors in my area, I work hard to demystify the entire process for you and your family, so you can skip the vocab test and skip right to the fun part. If you’re ready to take the next step in buying or listing your home, let’s get in touch! I’m always eager to help.