If it feels like you need a dictionary to own a house these days, you’re not alone! Here’s a running list of terms (in alphabetical order) that my clients have asked me to help them better understand:

ap·prais·al [ uh-prey-zuhl ] (noun): 1. An act of assessing something or someone. 2. An expert estimate of the value of something.

The appraisal report is an estimate of a property’s value completed by a qualified third party. The appraiser is typically hired by a borrower’s lender to ensure they’re not lending more than the house is worth. Since the appraisal report is paid for by the buyer, the seller is not usually privy to the results. Sellers, check out this video to see what to expect during appraisals. Buyers, click here for your video.

clo·sing costs [ kloh-zing kawsts ] (plural noun): 1. fees charged to a purchaser by a bank, lawyer, etc. for services related to a sale, as title search, appraisal, etc. 2. any expenses over the purchase price of a house, land, etc., that is paid by the purchaser or seller at the completion of the sale.

Paid during closing, these are fees that are baked into both the sell and buy side of every transaction. Buyers who are borrowing from a lender will see the lion’s share of these fees (3-4% of the purchase price) since most of them are associated with a mortgage, but cash buyers don’t get away scot-free either. All buyers should expect to see things like title insurance, filing fees and taxes on the list of closing costs. Sellers are usually looking at around 1-3% of the purchase price, not including the real estate agents’ commissions.

contingency [ kuhn-tin-juhn-see ] (noun): 1. dependence on chance or on the fulfillment of a condition; 2. a contingent event; a chance, accident, or possibility conditional on something uncertain.

A clause in a contract that can change or cancel the contract if certain things happen. For example, if your offer depends on the seller first finding another place to live, that’s a contingency. The most typical example is an inspection contingency which gives buyers the opportunity to have the property inspected before buying it.

down pay·ment [ doun pey-muhnt ] (noun): 1. an initial amount paid at the time of purchase, in installment buying, time sales, etc.

Paid by a buyer who is borrowing a mortgage from a lender, a down payment is an out-of-pocket amount that can be 3% all the way up to 20% or more of the home’s purchase price. If you’re looking to reduce your estimated monthly mortgage payment, increasing the down payment can be an effective method. If a down payment is prohibitive, I can connect you with lenders who have programs for qualified buyers to put 0% down.

earn·est mon·ey [ ur-nist muhn-ee ] (noun): 1. money given by a buyer to a seller to bind a contract.

Also sometimes called a “good faith deposit”, earnest money is typically 1-3% of the purchase price paid to a third party by the buyer usually around 2-3 business days after an offer is accepted. This money is credited towards the buyer’s down payment or closing costs during closing, returned to the buyer if the transaction does not get to closing for reasons covered by a contingency, or given to the seller in the event that the buyer backs out of the deal for any reason other than what’s covered by the contingencies in the purchase agreement.

equity [ ek-wi-tee ] (noun): 1. the monetary value of a property or business beyond any amounts owed on it in mortgages, claims, liens, etc.:

The amount of equity you have is a ratio that compares how much you owe on a mortgage versus what the property is worth. Equity can increase as you pay down the loan, or as your house increases in value over time (also known as ‘Appreciation’).

pre·approval [ pree-uh-proo-vuhl ] (noun): 1. to give provisional consent or approval to or for.

Most sellers these days will expect all non-cash offers to come with a letter from a lender stating that they have already determined what you can afford and what they are willing to lend you. While the loan amount and terms are very important, a seller will also take your lender into consideration—their reputation, what kind of lender it is, etc. A pre-approval letter is different from a pre-qualification letter, as it is faster and easier to get pre-qualified. However, neither guarantees that you will secure a loan.

proof of funds [ proof-uhv-fʌndz ] (noun): 1. verification to show you have the money required for a transaction.

This document can be a bank statement, a copy of a money market account balance, a certified financial statement (signed by an accountant), or an open equity line of credit and must be provided with an all cash offer.

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Are there any unfamiliar terms you’d like to see added? Send us an email: hello@locallivinggroup.com.