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Key Terms You Need to Know

Lender This is the company that will loan you the money to buy a house. It will usually be a bank or credit union.

Loan officer This is the person you are dealing with directly about getting a loan. They may work directly for the lender or they may just be bringing your business to the lender.

Pre-Qualified This means that you have talked with a lender/loan officer and given a general idea of your finances and they have given you a general idea of how much of a home loan you would qualify for if everything is how you say it is.

Pre-Approved This is the next, and better step. This means you have given the loan officer some actual data, they have run a credit check on you, and they are giving you a much more reliable number of how much of a home loan you will qualify to receive.

Agent An agent is anyone who gets paid to represent someone else. A rule of thumb is: if the buyer is not paying the agent, then the agent technically works for the seller. This is why you want to sign a buyer’s representation agreement. Then the person showing you homes works for you.

Broker The broker is the person who owns the company that your agent works for. Technically, it is the broker who is your agent. This distinction is not likely to matter in your transaction but you might just like to know it anyway.

Realtor A “Realtor” is someone who pays money to a professional organization called a “Board of Realtors.” It is not required to be a “Realtor” in order to be a real estate agent although most residential agents do join the board. In your case, I would choose someone who is a Realtor. They will have greater access to listings.

Offer This refers to a formal offer to purchase a property and will include all of the details of purchasing. The “offer” is actually the contract you are offering. The seller will then say “hey this contract looks good, I’ll sign it” or they will counter-offer by sending you back a new contract (usually pretty close to your offer but with some changes).

Counter-offer Every “offer” is simply the offering of a proposed contract. After the initial offer, every subsequent proposal is considered a “counter-offer.” There is no formal limit on the number of times this can go back and forth.

Loan estimate After an offer has been accepted, you (or your agent) will submit your contract to your loan officer and you will receive a loan estimate. This form will tell you exactly how much your loan will cost you if you go with that lender. This form is standardized so that you can easily compare loans.

Earnest Money This is a small percentage of the sales price that you will pay as soon as your offer is accepted. The seller will then take the house off the market. If you back out of the contract for any reason that was not specified in the contract then the seller will get to keep your earnest money as damages for the lost time of not having the house on the market. You will actually put this money into an “escrow account” where it will not be in either your or the seller’s pocket until the contract is completed.

Escrow This is one of the more confusing terms because it is used in several related but different ways. What it means is an account that is controlled by a third-party and money in the account is distributed by the third party according to some contractual terms.

• This could refer to an account controlled by neither buyer nor seller, where the earnest money is held until closing. The person in charge of the escrow account will distribute the money in accordance with the terms of the contract. Someone might say: “I put the money into escrow.”

• This also could refer to an account that might be part of your monthly house payment. This escrow account will hold your taxes and insurance money so that the bank can pay them annually. Someone might say “your tax and insurance will be escrowed.”

• The term also applies to the period of time between when your offer was accepted and when you close on your home – the time your earnest money is in an escrow account. Someone might say: “you need to get your loan squared away during escrow (or the escrow period)”.

Option This is a negotiated period of time (often 7-10 days) that you pay for at a negotiated price (in your offer). During this time you can back out of the contract for any reason at all and receive back your “earnest money” (but not your “option” money, that was the price you paid for this period of time).

Inspection This refers to when a professional (who you will hire) will come out and give a structural and mechanical inspection of your home. This is a rather superficial inspection and should generally be considered to be most like a seasoned home owner coming out with a comprehensive check list of items to inspect. It is not required that an inspector have a background in home construction but I suggest that you find one that does. You also want to find one that has a lot of experience looking at homes like yours.

Appraisal An appraisal is done by a professional that the bank will choose. This person will try to provide a best estimate of the value of the house. This value will determine how much the bank is willing to loan on the house.

Closing This is when you go down to the title company and sign all the papers to formally buy the property.