March 13, 2025
Entering the real estate world can be overwhelming, especially with all the industry-specific jargon. Whether you're an aspiring investor, first-time homebuyer, or just trying to understand the market, knowing key terms will help you navigate deals with confidence. Here are some essential real estate terms every newcomer should know:
An evaluation of a property's value conducted by a licensed professional. Lenders require appraisals to ensure the property is worth the amount being financed.
The estimated value of a property after renovations. Investors use ARV to determine if a property is worth purchasing and how much profit they can expect after improvements.
The dollar value assigned to a property by the local tax assessor for tax purposes. This amount may differ from market value.
The net income generated from a rental property after deducting all expenses, including mortgage, taxes, insurance, and maintenance.
Expenses beyond the property price that buyers and sellers must pay at closing. These include loan origination fees, title insurance, escrow fees, and more.
A clause in a real estate contract that allows a party to back out under specific conditions, such as financing approval, home inspections, or appraisal results.
A financial metric used by lenders to determine a borrower’s ability to manage monthly debt payments. A lower DTI improves the chances of loan approval.
The initial upfront payment made when purchasing a property. Conventional loans often require 20%, but options like FHA loans allow as little as 3.5% down.
A good-faith deposit made by the buyer to show serious intent to purchase. The amount is held in escrow and applied toward the down payment or closing costs.
The difference between the property’s market value and the amount still owed on the mortgage. Higher equity provides financial flexibility for refinancing or selling.
A third-party service that holds funds and documents until both buyer and seller meet all contract obligations, ensuring a smooth transaction.
The legal process where a lender takes ownership of a property after the borrower fails to make mortgage payments.
A short-term, asset-based loan used primarily by real estate investors. These loans have higher interest rates but offer fast approval and funding.
A database used by real estate professionals to list and find properties available for sale.
A formula used by investors to evaluate the profitability of rental properties. NOI is calculated by subtracting operating expenses from gross rental income.
A lender’s commitment to providing a loan up to a specific amount based on a buyer’s financial status. It strengthens a buyer’s offer when house hunting.
A property owned by a lender after an unsuccessful foreclosure auction.
A policy protecting against legal claims or ownership disputes related to a property.
A real estate investment strategy where an investor contracts a property at a discounted price and assigns the contract to another buyer for a profit.
Local government regulations dictating how a property can be used, such as residential, commercial, or industrial purposes.
Understanding these key real estate terms will give you a solid foundation, whether you're buying, selling, or investing. The more informed you are, the smoother your transactions will be.
Disclaimer: This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.
