February 11, 2021 at 12:50pm | BBHST Admin
By: Kyle Spearin

Before you start looking for a home, it is important to have the right information. Having a little upfront knowledge about the language used in real estate can help you to make a better and more informed decision. While the real estate world is filled with its own words, some of them are more commonly heard than others. To help you enter the home buying process prepared, we have brought together an easy list of must-know real estate terms that you should understand.


Pre-Approval is a written agreement between the home buyer and a potential lender. It is a piece of paper that tells the buyer that they are allowed to purchase a home for a specific amount of money. With this information, buyers will know what kind of home they qualify for. Additionally, you can use this for leverage when buying a home. Since you are already approved, you can guarantee that the home buying process will go more smoothly.

Conventional Loans

Though there are plenty of loans that are supported by a third-party to offer insurance to the lender, conventional loans do not. These loans, which are obtained from a private mortgage lender, are known for their complete lack of government insurance. With a conventional loan, there is a lot more risk involved for the lender. For this reason, the home buyer will be responsible for providing insurance costs themselves—and in some cases, the insurance isn’t required. This is a particularly great option for those who qualify, but they are harder to obtain for some people with lower credit.

FHA Loans

FHA loans are loans that are supported by the Federal Housing Administration. This means that these loans will be completely covered in the event that the individual cannot cover the costs of their monthly mortgage. Since they are backed, they are fairly easy to acquire, making them approachable for new buyers. This type of loan is a really great option for those that have a questionable credit history. These loans are also a great option for those who want manageable costs, making them highly appealing for some new buyers.


An appraisal is a process that determines the overall value of something. In the real estate world, appraisals are important because they are the best estimation of how much a property is actually worth. The last thing that you want is to overpay for a house that really isn’t worth all that much. Some lenders won’t even approve a loan for homes that are valued at less than the loan price—so make sure that you know what the home is worth!

Closing Costs

Closing costs are the additional fees that must be managed independently of the actual home price. There is more to buying a home than the price on the sign—and it is important to be prepared to pay those additional fees. Closing costs are called “closing” costs because they are due at the close of escrow when the deal is finalized. These fees must be handled and might include credit check fees, lender fees, real estate commissions, appraisal fees, and more.

Private Mortgage Insurance (PMI)

With private mortgage insurance, the lender on a home is completely covered if the homeowner fails to pay. This kind of insurance will offer the lender additional money when the person on the loan can no longer cover the costs. In most cases, these homes will go into foreclosure, which can cover some of the lending cost, but not all of it. Mortgage insurance can cover the rest so that the lender is not simply out the money that the individual could not pay. It is a common requirement for certain kinds of loans, as well as for those who cannot cover a decent amount for a down payment.

Debt-To-Income Ratio (DTO)

Debt-to-income is a number that is used to determine how affordable a loan program is for a potential buyer. This value is determined by bringing together your income, as well as your monthly expenses. To determine the number, they will look at your continuous expenses, your income, then factor a potential house payment into it. This is used to ensure that you really can afford your home payment comfortably.


Appreciation in real estate is linked to a home’s overall value. Natural appreciation occurs when an external force plays a role in the value of a home. In the best-case scenario, you want your home’s value to appreciate. This means that is worth more than it was when you purchased it. However, it can also lead to varying price points when you are trying to buy homes. Appreciation can occur when there is a higher demand for homes in an area or depending on certain market trends.

PITI (Principal, Interest, Taxes, Insurance)

PITI is a fun abbreviation for core elements of an actual real estate transaction. In this case, principal is a way to define the actual amount of money borrowed. Interest is the amount of interest applied to the money borrowed. Taxes refer to the cost of property taxes that the homeowner will be required to pay. Finally, insurance is the cost of the homeowner’s insurance.


Contingency clauses are the fail-safe of the real estate world. They are an agreed-upon document that is shared by the buyer and seller that lists out reasons that they can back out of the deal. The reasons on the list are determined by the two parties themselves and can vary widely to offer protections to both the buyer and seller. These contingencies are often linked to something that needs to be handled prior to the sale of the home. If a contingency arises, the deal will no longer be binding.

Final Thoughts

Being an informed home buyer will help you to find the best possible value in the real estate market. Make sure you brush up on these must-know terms so that you can clearly understand what is going on when you seek out a house. Knowing these terms will help you to stay safe while you shop!



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