When buying a home, you'll encounter various terms and jargon that can seem confusing at first. Here are some common home-buying terms you should know:

1. Pre-Approval

A process where a lender evaluates your financial situation (income, debt, credit score) to determine how much money you can borrow for a home. A pre-approval letter is usually required to make an offer on a home.

2. Down Payment

The upfront cash payment made when purchasing a home. It’s usually a percentage of the home's purchase price, and the larger your down payment, the smaller your mortgage will be.

3. Mortgage

A loan used to purchase a home, where the property itself serves as collateral. You'll repay the mortgage with interest over a period (typically 15 to 30 years).

4. Closing Costs

These are fees associated with the final steps of the home-buying process, including loan origination fees, home inspection fees, title insurance, and other transaction-related costs.

5. Offer

A formal proposal from a buyer to purchase a property at a specific price. It includes terms and conditions that both the buyer and seller must agree to before proceeding.

6. Earnest Money

A deposit made by the buyer to show their seriousness about purchasing the property. If the deal goes through, it typically goes toward the down payment or closing costs. If the deal falls through, the earnest money may be forfeited depending on the contract terms.

7. Escrow

A neutral third party holds funds (like the buyer’s deposit or loan money) during the home-buying process, ensuring that both buyer and seller meet the terms of the agreement before closing.

8. Home Inspection

An examination of the property by a professional to identify any potential issues, such as structural damage or safety concerns. The buyer often uses the results to negotiate repairs or a better price.

9. Appraisal

An estimate of the property's market value, performed by a licensed appraiser. Lenders typically require an appraisal to ensure the property is worth the amount they're lending.

10. Closing

The final step in the home-buying process where ownership of the property is officially transferred from the seller to the buyer. This is when all necessary paperwork is signed, and the funds are exchanged.

11. Title Insurance

Insurance that protects the buyer and lender from any legal claims against the property’s title, such as ownership disputes or outstanding liens.

12. Contingency

A condition that must be met for the sale to proceed. Common contingencies include financing contingencies (e.g., loan approval) or inspection contingencies (e.g., the home passing an inspection).

13. Principal, Interest, Taxes, and Insurance (PITI)

The four components of a mortgage payment:

• Principal: The loan amount.
• Interest: The cost of borrowing the money.
• Taxes: Property taxes that the lender may collect and pay on your behalf.
• Insurance: Homeowner's insurance premiums that the lender may also collect.

14. Fixed-Rate Mortgage

A mortgage where the interest rate stays the same for the entire term, meaning your monthly payments remain consistent.

15. Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that can change over time, often starting with a lower rate for the first few years and adjusting periodically after that.

16. Deed

The legal document that transfers ownership of the property from the seller to the buyer.

17. Closing Disclosure

A document provided by the lender to the buyer, outlining the final details of the mortgage, including loan terms, closing costs, and the exact amount the buyer must pay at closing.

18. Principal Balance

The remaining amount of money you owe on your mortgage, excluding interest. This is the portion of the loan you’ll pay down over time.

19. Homeowners Association (HOA)

An organization that manages and maintains common areas and amenities in a community. Some properties, especially condos or homes in planned communities, have HOA fees.

20. Underwriting

The process by which the lender evaluates your financial situation and the property to ensure they’re comfortable with the risk of lending you money for the home purchase.

These are just a few of the terms that are commonly used in the home-buying process. Understanding these terms can help you navigate your real estate transaction more confidently.