25 Homeowner Terms You Should Know Before Buying a House

Ownerly

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Holding house keys on house shaped keychain in front of a new home(shutterstock / Brian A Jackson)

Buyers encounter a great deal of real estate and homeowner jargon when going through the home-buying process. If you’re thinking of buying a home, especially if you’re a first-time home buyer, you can benefit from brushing up on this jargon, and the documents you may need, because it makes the research, offer and escrow process much easier.

First-time home buyers made up roughly one-third of all home buyers, according to the National Association of Realtors’ 2021 Home Buyers and Sellers Generational Trends Report. That same report found many buyers in 2021 didn’t make their purchase at the ideal time, with 15% of buyers feeling they didn’t have much choice and had to purchase when they did and 2% of buyers wishing they waited to make their purchase.

To give you more information on the home-buying process, and help you to avoid the top mistakes to avoid when selling your home we listed some homeowner and real estate terms you should know before buying a house.

Real estate terms

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PITI principal, interest, taxes and insurance written by hand.(shutterstock/Vitalii Vodolazskyi)

When speaking with your real estate agent or searching through home listings online, you encounter terms like flood insurance and homeowner’s insurance, but many buyers are already familiar with those concepts. Here are a few terms some buyers may not be as familiar with.

1. Multiple Listing Service (or MLS): The MLS is a database containing homes for sale. Brokers and agents pay for membership, allowing them to post their client’s properties. This makes the MLS more accurate, as only licensed real estate professionals post on the database. Most real estate sites get the majority of their properties from the MLS as well.

2. Parcel Number: The tax assessment office assigns a parcel number to houses, and this number helps differentiate one house from another for tax, insurance and other purposes. You may also see other numbers like MLS numbers, but these are used for different purposes. Typically, any of the long numbers you see on listings are used for tracking and identification.

3. Annual Tax Amount: This is the estimate of the property taxes a homeowner will have to pay when owning a specific property. Keep in mind, this is only an estimate, and you won’t know the exact taxes you’ll be responsible for until you get that information from your lender.

4. PITI: This acronym stands for principal, interest, taxes and insurance, and it represents the total monthly payment after everything is included. Lenders consider all of these elements when qualifying a buyer for a mortgage. Once you include any monthly homeowners association fees, you can divide this total by your monthly gross (before-tax) income to get your front-end debt-to-income ratio.

If you take your front-end debt, add in your other monthly debts—auto loans, credit cards, student loans, etc.—and divide your total monthly debt by your gross income, you get your back-end debt-to-income ratio. Most lenders want a back-end debt-to-income ratio of less than 50%, but the lender’s requirements can be higher or lower depending on the type of loan, your credit score, and other factors.

5. Zoning description: The zone describes the type of district in which a home is located, whether it’s residential, rural, commercial or otherwise. Zoning laws vary by location, but you can search the zoning description code included in a home listing for more information.

6. Listing status: The status in a home-for-sale listing will typically be one of the following: active, pending, contingent or under contract. “Active” means the home does not yet have any acceptable offers, while “pending” means a seller has accepted an offer from a buyer and they are currently in the escrow process. “Contingent” means the buyer has accepted an offer, but they are still entertaining other offers just in case any of the contingencies fall through. “Under contract” means the seller has accepted an offer but the sale is not yet final. You might see other statuses like new, sold or accepting backup offers as well.

7. Water and Sewer: This indicates whether a property has public or private water and waste disposal—this includes things like whether the home has its water provided by the city or by a well or its waste is put out to the city sewer or to a septic tank. This information might not seem all that important, but it’s essential you research before choosing a home because having well water or a septic system can come with additional maintenance.

8. FEMA zone or flood zone: If you’re considering a waterfront home or a property in a flood zone, these terms become much more relevant. Flood insurance costs are determined by a number of factors, but flood zone status is a big part of the equation. If you live in one of the more hazardous zones (like zones A or V), you could have to buy flood insurance in order to get a loan on the property. You can use this tool to enter a property address and determine its flood zone.

9. Homeowners associations’ covenants, conditions and restrictions (or HOA CC&Rs): If you are looking for a home in a neighborhood governed by an HOA, it’s important you review their CC&Rs because these describe the HOA rules and regulations—what you are and are not allowed to do with your property. You might think you can install solar panels on the front-facing portion of your roof, paint your home’s exterior whatever color you deem fit or install whichever fence you like, but the CC&Rs might say otherwise. Before buying any property in a neighborhood with an HOA, review these HOA rules and regulations.

Home inspection and construction terms

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Engineers or inspectors in orange reflective vests are taking notes and checking with clipboards at the building's construction site(shutterstock/shisu_ka)

While touring homes you’re interested in, you might hear these terms used to describe the home’s features or the way it was built. You may also see some of these on a home inspection or appraisal report. While many people know common terms like central air conditioning and granite countertops, here are a few terms and concepts you might encounter that are not common knowledge.

1. Wood destroying organism (WDO) inspection: This is an inspection that checks for organisms such as termites, carpenter ants, powderpost beetles and fungi that can destroy wood structures.

2. Radon inspection: Radon is a naturally-occurring gas that you can’t smell or see. Breathing in radon can increase your risk for health complications such as lung cancer, so some lenders may ask for a radon test, which estimates the amount of radon in a home’s air.

3. R-value: This value determines the energy efficiency of a home’s insulation materials.

4. PVC: Polyvinyl chloride is the most common replacement for the metal piping found in older homes. Some newer homes may also contain CPVC, or chlorinated polyvinyl chloride pipes.

When making an offer

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Concept of making an offer on a house. A hand holds a model house above a meadow. Dice form the word "OFFER".(shutterstock/FrankHH)

When you’re negotiating a price on a home, some of these terms might come up.

1. Verified approval letter: When you seek financing approval from a lender, a verified approval letter shows you have the finances and credit to obtain a loan for a certain amount of money.

2. Contingencies: These are items you indicate in a contract that you want to complete before making a final purchase on a home. You may have a home-sale contingency, which says you won’t purchase a home unless you sell your existing home. Another common contingency is an appraisal contingency, which says you will not buy a home unless it appraises for the value you expect it will appraise for. There are also other contingencies like inspection contingencies, which tell the seller you won’t buy the home unless it passes a home inspection.

3. Earnest money: This is an amount of money you put up to get into a home purchase contract. This basically tells the seller you’re serious about buying the property because you’re putting up cash to get into the contract.

"When shopping for a home, keep in mind that the purchase agreement for the offer you write will also include a line item for "earnest money." Earnest money is an initial deposit of typically between 1% and 3% of the purchase price that the buyer offers to the seller in a show of good faith that the buyer will move forward with purchasing the property. Upon offer acceptance, the buyer will deposit the agreed-upon "earnest money" into an escrow account to be held during the transaction. Upon closing, the earnest money will be applied towards your purchase price."

Tara Hotchkis, Senior Estates Director, Compass

4. Seller concessions: These are costs that the seller of a home agrees to cover in order to sell their property. Seller concessions may include things such as a portion of closing costs or inspection fees.

5. Comparative market analysis: This is a tool real estate agents and buyers use to estimate the value of a home based on the recent sales in the neighborhood or area.

Financing, escrow, and closing terms

When you’re going through the escrow and closing process, you might hear these terms or see some of them in closing paperwork. Making sure your finances are in order is the best way to avoid foreclosure later on

1. Seller disclosures: Sellers must identify any known issues with a property before a buyer completes a final purchase contract, and a disclosure sheet allows sellers the opportunity to do just that. It asks direct questions about the property that the seller must answer honestly, so the buyer knows exactly what they’re getting.

2. Title search: During the closing process, the closing attorney will typically do a title search to make sure there are no liens or claims against the property. This way, you can buy a home with a clean title.

3. Warranty deed: A warranty deed ensures a title is clear, helping to prevent any title issues like liens or judgements from causing problems in the future.

4. Sole vs. joint ownership: When signing your closing paperwork, you need to decide whether you want to have the deed to the home in just your name or if you want to jointly have the deed with a spouse, family member, or partner. This should not be confused with your loan because you can have an individual loan and still have joint ownership on the deed.

5. Fixed-rate loan: With a fixed-rate mortgage loan, the interest rate stays the same all throughout the loan’s duration.

6. Adjustable-rate loan: With an adjustable-rate mortgage loan, the interest rate changes over time throughout the life of the loan. The changing rate is typically based on market conditions, and it often starts low and may go higher over time.

7. Private mortgage insurance (PMI): Private mortgage insurance is a fee that many lenders add on when you don’t have at least a 20% down payment. There are some exceptions, like when you’re eligible for a VA loan, but you often have to pay PMI if you can’t come up with the 20% down payment amount.

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