The real estate market like all professional industries has its unique way of communication. So you will probably come across professional terms when you hire a real estate agent home transaction process ie. buying or selling a home.
We all feel shy when we have to ask for an explanation for terms that are strange to us. To spare your blushes, we have helped you explain some common real estate terms in this article. Now you will have a better understanding of the terms which will make the transaction process smoother.
Common real estate professional terms


This is a type of mortgage loan where the interest rate will be adjusted based on the current market value. Most ARM mortgages often start with a fixed interest rate typically 3 – 10 years. After the stipulated years, your interest rate will be reset periodically based on the happenings in the market.
ARM gives you a chance to save money when the interest rates are declining. Also, you could end up paying more if the rates are rising depending on the current market rates. So it is mostly an advantage if you don’t intend on staying in the home for long.


This type of mortgage comes with more certainty, unlike the ARM. The fixed-rate mortgage has an interest rate that is fixed throughout the loan. If you are ready to buy your home, a fixed rate is the best option for you.


Escrow is a way to protect the interest of both parties i.e. buyer and seller. For example, escrow is meant to assure the seller that the buyer won’t back out after the house is taken off the market. Also to ensure the buyers don’t pay any money until they are sure of the integrity of the property
Escrow is part of the buyer’s down payment deposited to a third party, usually, an attorney after the offer is accepted. The deposited amount is held until closing when the funds will be released to the required party or used to pay fees like property tax.


This is goodwill money paid by the buyer to the seller to show you are serious about buying. It is not compulsory to pay earnest money but it will give you an advantage especially when facing competition. You don’t have to give the seller the money directly, instead, it is deposited into an escrow account with your offer. If the transaction goes as planned the earnest money is used as part of your closing fee or down payment. But if you back out of the transaction without a valid reason stated in the purchase contract, the seller gets to keep the money.


This is an insurance policy you have to pay for if your down payment is not up to 20%. The lenders require that you pay PMI until you own a 20% equity, So if you default on the mortgage payment, the lenders will be indemnified by the insurance.
You have to pay the PMI along with your monthly mortgage bills which will cost more in the long run. So to avoid excess payment, it is better to have a 20% down payment when you buy a home.


Amortisation is the length of time over which the mortgage loan will be paid periodically to the lender. The payment usually includes the interest and the principal
Interest -this is the amount you will pay on the money you want to borrow. The interest serves as profit to the lender.
Principal – this is the exact amount of money that you borrowed as a mortgage.


The appraiser is the professional estimate of the market value of the property. It is required by the lender before the loan is approved. Its main purpose is to ensure that the property isn’t over-valued based on its current standard. The seller has to make necessary repairs if the appraisal value is low before the sale can proceed.


A pre-approval letter is a document that contains the amount a lender is willing to grant a borrower. It is issued after the lender has deeply investigated your financial capabilities such as (income, credit score, etc). It is always vital to obtain a pre-approval letter before you begin home hunting because of its essential purpose such as:
It makes the home-buying process easier and quicker
Your agent can help you get a home that is within your means
Sellers will be willing to strike a deal with you because your pre-approval indicates that you are serious about buying.


A pre-qualification is an indication that the buyer is liable to obtain a loan pending further investigation. Pre-qualification is an informal estimate of how much you can afford to borrow for a mortgage. The pre-qualification doesn’t include details of the buyer’s credit score. As the lender only compares your income and asset with your debt buyer.


These are conditions that must be met before the home sale can be completed. If the contingencies are not met, you can opt-out of the transaction process. Some home contingencies include
Home inspection
Home Appraisal


These are the fees involved when you want to buy a home. The closing cost is finalized when the change of title between the seller and buyer. The closing fee is usually between 2% – 5% of the total mortgage cost. Some of the fees you will likely pay as closing are
Title insurance
Home inspection fee
Appraisal fee
Property tax
Mortgage fee


A down payment is an upfront fee you need to pay before you can secure a mortgage loan. The down payment is paid from the buyer’s funds while the rest is financed by the lender. The down payment is usually 20% of the home purchase price although some mortgage lenders accept as low as 3%. As opposed to the misconception that the down payment is paid to the mortgage lender. It is part of the closing fee paid to the seller at closing.


This is often called the owner’s interest. It is the difference between how much you owe on the mortgage and how much you have paid. For example, if your home is worth $300,000 and you have paid $150,000 in the mortgage. It means you have 50% equity in your home.
You can increase the equity of your home by paying the mortgage fees regularly.