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The ABC’s of Homebuying

Grand Central Park - The ABC’s of Homebuying

June 09, 2021

Buying a new home can be stressful. It doesn’t help that you suddenly feel bombarded with real estate terms and acronyms you may not know. What does it all mean? We’ve put together a primer — the ABC’s on home buying, if you will — to get you up-to-speed.

Adjustable-Rate Mortgage (ARM) – A type of home loan where the interest rate is fixed for a set period of time after which it will increase or decrease depending on market conditions for the remainder of your loan.

Amortization – The repayment period of your loan including interest.

Appraisal – What your home is worth, based on an evaluation made by a licensed appraiser. The appraisal is based on the condition of the home, its initial purchase price and comparable sales in the neighborhood.

Annual Percentage Rate (APR) – The yearly cost of your mortgage including the interest rate, mortgage insurance, points and credit costs.

Closing Costs – Fees paid in addition to your loan when you transfer the property to your name. They usually include lender’s fees, property taxes, document preparation fees, origination fees and more. Closing costs are approximately 2 to 5 percent of the purchase price.

Contingency – A home sale that only happens if certain conditions are met. The home offer may depend on the buyer selling their own home, obtaining financing, the results of the appraisal or the results of the inspection.

Down Payment – The amount of the home sales price you agree to pay in order to close the sale. This is anywhere from 3.5 to 20 percent of your loan.

Earnest Money – A deposit that shows you are committed to buying the home. The money is held by a neutral party.

Escrow – An account held by a neutral third party that holds your earnest money. The deposit stays in the account until closing, after which it is applied to the down payment.

Fixed-rate Mortgage – A home loan where the interest rate stays the same for the duration of your loan.

Home Inspection – Paid for by the buyer, this is an evaluation of the structural and mechanical condition of the home by a neutral third party.

Homeowners Association (HOA) – A nonprofit that is responsible for maintaining the common areas of a community such as the pool, landscaping or clubhouse. All homeowners pay a fee to cover maintenance costs.

Homeowner’s Insurance - An insurance policy that protects your home in case of damage. This usually includes personal liability insurance and hazard insurance.

Loan Origination Fee – A fee paid to handle preparation of documents, credit checks and inspections.

Mortgage – The amount of the loan plus interest you pay per month.

Offer – The amount you tell the seller you are willing to pay for the home. This could be more than, less than, or equal to the asking price.

Points – Pre-paid interest on your loan equal to 1 percent of the loan amount. Paying points up front can lower your interest rate.

Pre-approval – The amount a lender will allow you to borrow.

Principle – The amount you borrow from the lender without interest.

Private Mortgage Insurance (PMI) – A monthly payment that protects lenders against defaults. Typically, buyers are required to have PMI if their down payment is less than 20 percent.

Sales Contract – A legal agreement that sets out the terms of the sale.

Title Insurance – Protection against unknown liens or debts that may be placed against your property.

Walk Through – A final inspection, typically with the buyer before the sale is finalized.

As Seen In...

As Seen in... Houston Business Journal As Seen In...Texas Monthly As Seen in... Dallas Morning News
As Seen in...Community Impact As Seen in...Realty News Report As Seen in...Real Estate and You Magazine


As Seen In Forbes