As a military family, you no doubt know your share of jargon. You’ve got the acronyms all nailed down and speak the language. (You probably even say things you don’t realize are military jargon until someone not in the military looks at you strangely—things like o-dark-thirty.) But real estate has its own language. Here’s a quick cheat sheet of the terminology you should know if you’re buying a home.
Let’s start with the proper terminology for the professional who helps you buy/sell your home. Real estate agent and REALTOR® are often used interchangeably, but they’re not the same thing. A real estate agent is a licensed professional who sells real estate, while a REALTOR® is a real estate agent who is a member of the National Association of REALTORS®. It’s like squares and rectangles. Every square (REALTOR®) is a rectangle (real estate agent), but not every rectangle is a square. Whichever type of real estate professional you work with, he or she will be the person who helps guide you through the process.
Once you’ve together found a house you love (or that at least meets your needs, because you don’t always get to love it when you’re PCSing), you’ll make an offer. An offer specifies the price you’re willing to pay and any other terms or conditions for the purchase that you require for you to complete the transaction. For instance, you may say you’ll meet the seller’s asking price, but only if they include the appliances. You can offer what you want as long as you understand that another prospective buyer offering more money or fewer stipulations may beat you out of getting the house.
If a seller is interested in selling to you but rejects your terms, he or she can choose to counteroffer, respond with a different offer that changes your offer in some manner. But counteroffers aren’t just for sellers—you and a seller can go back and forth with counteroffers until you come to a mutually agreeable set of terms. Keep in mind that a counteroffer, each time one is made, voids the offer before it. And once an offer (or counteroffer) is accepted, there is now a contract in place.
That contract may or may not have contingencies, which are stipulations that must be met or the contract will be voided. You can have contingencies in place for any number of things: deadlines for when things must take place, approval of the inspection report, etc. If both parties agree to these contingencies, they then become a requirement for the execution of the contract.
One of the first things that will need to happen once there is a contract is an appraisal. An appraisal is an estimate of the value of the home you’re considering purchasing. It factors in the age and condition of the property, the initial purchase price, and recent sales of similar properties. An appraisal should be done by a professional appraiser who is an expert in the local area. Your real estate agent should be able to refer you to a person/company you can hire. An appraisal is particularly important because a lender can refuse to lend money on a home with an appraisal that is lower than the loan amount.
Closing costs are all the expenses a home buyer must pay, in addition to the cost of the property itself, by the time a property is transferred at the close of escrow. (When you’re in escrow, it means that funds or documents are held in safekeeping with a neutral third party until the finalization of your home purchase.) There are two types of closing costs: recurring closing costs and nonrecurring closing costs. Nonrecurring closing costs are one-time expenses. They include things such as appraisal fees, transfer taxes, and title insurance. Recurring closing costs, on the other hand, are those you’ll continue to make over time. Homeowners’ insurance and property taxes are two such examples. For these, you’ll make your first payments at closing, but will continue to pay these annually and should factor them into your budget. You will receive a detailed loan estimate from your lender after completing your loan application, which breaks down all anticipated closing costs so there should be no surprises.
You’ll find that there are all kinds of financial terms you’ll be expected to know and understand too. Things like adjustable rate mortgage—the interest rate of a loan fluctuates with the market. Or fixed rate mortgage—where the interest rate of the loan remains constant for the life of the loan. Or annual percentage rate—the yearly interest rate including costs paid to get the loan and determined by taking the average compound interest rate over the term of the loan. (Lenders are required by law to disclose this information so you can accurately compare loans/fees.) You can and should ask your lender for clarification on any terms you don’t understand so that you can make the best financial decisions for your circumstances.
There are lots of other real estate terms that may come up in the course of a real estate transaction. It’s important that if you don’t know what a term means, you ask your real estate agent. This is the language they speak, and they will be happy to put things in terms you can easily understand. A house is one of the largest purchases you’ll make in your life (potentially again and again if you’re in the military). The stakes are high and there’s no shame in saying, “Please explain that to me.”
Your house closing? That’s your victory lap. It means you’ve survived the inspections, assessments, and paperwork. That the contract terms have been met and the deed recorded. Your closing is the final transfer of home ownership. It means the house is now yours!