Sometimes it sound like Realtors have their own language. We forget that not everyone speaks "Realtor-ese". Let's review the basics and take away any confusion you may have.
Realtor.com shared 9 common real estate terms in a recent post that might help.
Appraisal Contingency: Having an appraisal contingency in your purchase agreement means you will buy the home only if the home appraisal is equal to or above the sales price. This is important because it gives you the option to negotiate a lower sale price or walk. But if you’re confident the home appraisal will not change the asking price of the house or your ability to buy the house, you may decide to waive the appraisal contingency to make your offer more appealing to the seller.
Best and Final Offer: When a seller’s broker is hoping to avoid a bidding war (it sounds strange, but it does happen), the broker might ask interested buyers to submit their best and final offer. The seller then selects the most favorable terms and works with that buyer.
Escalation Clause: You can also try to beat out the competition by including an escalation clause in your best and final offer. An escalation clause will indicate how much you’re willing to pay over the highest verified offer.
Bridge Loan:
A bridge loan is a short-term loan that allows borrowers to buy a new property by using their current home as collateral. This type of loan is a good option for borrowers who need a lot of cash on hand. They’re commonly used for people who want to buy and sell a home simultaneously.
Debt to Income Ratio: Also known as DTI, the debt-to-income ratio is an equation that compares how much money you owe with the money you make. DTI is the amount of money being used toward debts and real estate costs (such as taxes and maintenance) in relation to a person’s income. It is extremely important for buyers to know their DTI because it affects whether they can qualify for a mortgage.
Earnest Money Deposit: The earnest money deposit, or good-faith deposit, shows sellers you’re serious about wanting to buy their house. It’s a sum of money paid by buyers when they sign the real estate purchase agreement but before closing. The earnest money funds go toward the down payment and closing costs.
Highest and Best Offer: Not to be confused with best and final, highest and best is similar in that it comes into play when there’s a hot property with multiple offers. If you find yourself in a highest and best offer situation, cash will be king. But you can also ask your real estate agent to find out which terms will be most favorable for the seller and tailor your offer accordingly. For example, will the seller be requiring a rent-back agreement after closing? Does the seller need to unload the home quickly and want an offer with a quick closing of 30 days or less?
Pre-Approval: If you’re pre-approved for a home, a lender has guaranteed to give you a mortgage. A pre-approval letter lets you see just how much money you can borrow—and all serious buyers need to have it at the ready. To a seller, the pre-approval letter shows a buyer’s financial qualifications and is proof the buyer can close.
Private Mortgage Insurance: Today’s astronomical home prices make it really challenging to make a down payment, but most lenders are leery of backing a buyer who can’t put down a sizable chunk of change. That’s why lenders typically require private mortgage insurance, or PMI, of homebuyers if they put down less than 20% of the home’s value. Should you default on your loan, PMI will protect your lender.
Click here to learn more: 9 Real Estate Terms You Need to Know
Remember - no question is too basic or silly to ask! Ask it - we're here to help you understand while getting you the best price and terms for your home. It's all about communication!
