We have compiled a list of the most commonly used terms in real estate to make things clearer for you as a buyer and help you make a more informed decision.
If you are new to buying a home and have already started looking for properties, you might have come across certain real estate terms that can be confusing. While it’s not necessary for you to suddenly become an expert in the real estate market, knowing the basic terms can give you a big advantage as a buyer.
11 Common Home Buying Terms
We have compiled a list of the most commonly used terms in real estate to make things clearer for you as a buyer and help you make a more informed decision. Here are some of the terms you might come across.
- APR (Annual Percentage Rate): represents the annual cost you pay for borrowing money, and it’s expressed as a percentage of the amount you are borrowing.
- ARM (Adjustable Rate Mortgage): a mortgage loan with a variable interest rate, depending on a certain variable of the market. The interest rate will vary throughout the life of the loan.
- Closing Costs: the total amount of money you will pay as a buyer, including the actual cost of the property and adding lender’s fees, credit check fees, inspection costs, attorney’s fees, and so on. Your budget should be calculated by taking the closing costs into account.
- Credit Score: it expresses the risk level of someone applying to credit, and it will influence the amount of money you can get, the duration of a loan, and other variables.
- DTI (Debt to Income Ratio): this variable is determined by a lender to establish the threshold of the amount the borrower can receive. It’s calculated based on the borrower’s income to ensure that they afford to pay the loan.
- EMC (Earnest Money Deposit): a buyer’s deposit to assure the seller of their good faith.
- Fixed-Rate Mortgage: a mortgage loan that has a fixed interest rate throughout its life.
- PITI (Principal Interest Taxes Insurance): the total amount of money to be paid monthly on the house. It includes costs like taxes, interest rates, insurance, and it’s used to determine the DTI.
- PMI (Private Mortgage Insurance): insurance covers the lender if the borrower stops making payments on the loan.
- PPP (Prepayment Penalty): while not so common anymore, this penalty is applied when the borrower pays off the loan earlier than its due date.
- VOR/VOD/VOM/VOE (Verification of Rent, Mortgage, Deposit, Employment): documentation needed to prove the state of a borrower’s finances when they are applying for a loan.