Home Buying Terms You Need to Know As Homebuyers

Before you go house hunting, learn key home buying terms you will most likely encounter when purchasing your dream home.

So you’re planning to buy a new home? If you’ve purchased a property before, you know how overwhelming and convoluted the buying process could be, especially if you don’t understand real estate jargon. If you’re a first-time home buyer, you might get confused with many terms.

To help you, we have listed some of the home buying terms (and their definitions) you will most likely encounter when you purchase a house. You might be familiar with some of these home buying terms, but it wouldn’t hurt to brush up on your real estate vocabulary.

Amortization

Amortization is the process of paying off your mortgage by making regular principal and interest payments over time. Each payment installment will partly go to the principal and partly to the interest. Your amortization schedule will show a table of your scheduled monthly payments (listed individually by month), principal repayment, and interest dues. 

Appraisal

Appraisal means the written estimate of the market value of a property (such as houses and condos) as of a given date based on a professional opinion.

Closing

In real estate, closing (also called “settlement”) refers to the delivery of financial adjustments, deeds, signing of a note, and disbursement of the funds needed to close the sale or loan transaction.

Collateral

Collateral is any property or asset you own, that the lender will accept as a security for your loan. If you’re buying a home on loan, the house you buy with borrowed money usually becomes the collateral.

Contract of sale

This is the contract between the seller and buyer of a property (e.g., a house) to convey title upon successful completion of the sale.

Deed

The deed is the document that shows an owner of a property has title to that property. The deed becomes a public record after it is filed and recorded by your local government.

Downpayment

This is a portion of the sales price buyers pay to the seller to close a sale. The buyer and seller will then agree on when and how the balance will be paid.

Foreclosure

A foreclosure is a legal action to take back property that was bought with borrowed money when the loan was not repaid according to the written agreement. The creditor can sell the property to pay off the buyer’s unpaid mortgage.

FSBO (For sale by owner)

This is used when a home or property is being sold by the owner, without having any assistance from a real estate agent or broker.

Home-Equity Loan 

This is a close-ended, secured loan where your home is used as collateral. This is also known as a second mortgage.

Property tax

This is the tax you pay to your local and state government for owning property within their jurisdiction.

Real property

Most commonly known as “real estate,” this property includes land and the objects permanently attached to it (e.g., buildings, houses, fences).

Refinance

This is the process of revising and replacing the terms of an existing loan agreement while retaining the same property as collateral.

Real estate agent or broker

A real estate agent or broker is a licensed professional who typically represents buyers and sellers in real estate transactions.

Mortgage

If you’re not planning to buy a house with cash, chances are you’re considering getting a mortgage. 

A mortgage is a loan from a bank or other financial institution used to buy or finance a home, land, or other real estate. You can even mortgage a car. As the borrower, you agree to pay the lender regularly over a specific period. The payment is divided into two: principal and interest.

Principal 

The principal is the amount you borrowed from a lender to buy a property. For example, if you borrowed $200,000 to finance a home, the principal you owe is $200,000.

Interest

The interest is the percentage the lender charges you to borrow the principal, also known as the interest rate. Simply put, it is the fee you pay for borrowing money. Your monthly interest payment is calculated by multiplying your remaining loan balance by your monthly interest rate.

Mortgage term

Your mortgage term is the length of time (usually in years) that your mortgage agreement is legally in effect. To fully own your home, you must abide by the mortgage terms and pay your mortgage (both principal and interest) within the agreed-upon term. Mortgage terms can be as short as 5 years or as long as 40 years. The most common types of mortgages are fixed-rate mortgages with 30- or 15-year terms.

The mortgage cost will depend on the type of loan you apply for, the mortgage term, and the interest rate.

When you apply for a mortgage, the lender will ask for collateral.

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FAQs

What is the difference between principal and interest on a mortgage?

The principal is the amount you originally borrowed to purchase the property, while interest is the fee the lender charges for borrowing that money, calculated based on your remaining loan balance.

What does “closing” mean in a home purchase?

Closing, also called settlement, is the final step in a real estate transaction in which financial adjustments are made, documents are signed, and funds are disbursed to complete the sale.

What is the difference between a mortgage term and a mortgage?

A mortgage is the loan itself used to finance a home, while the mortgage term is the length of time — often 15 to 30 years — over which you agree to repay that loan in full.

What happens during a home appraisal?

An appraisal is a professional, written estimate of a property’s market value as of a specific date, often required by lenders before approving a mortgage.

What does FSBO mean in real estate?

FSBO stands for “For Sale By Owner,” meaning the property is being sold directly by the owner without the assistance of a real estate agent or broker.

Ready to put these terms into practice?

Now that you know the key home buying terms, it’s time to start house hunting. Browse listings and connect with real estate agents on Ziba Property to find your dream home. Search homes on Ziba Property.

About the Author

Muhammad Amir is a real estate writer at Ziba Property. His work focuses on breaking down real estate jargon and processes into clear, practical guidance to help first-time buyers navigate the home purchasing journey with confidence.