If you are a new home buyer, you are likely to read and hear quite a few terms you’ve never heard before, which can make the process seem a bit more intimidating. Lowder New Homes has put together the following Real Estate Glossary to help new home buyers find their way around this new lingo. Feel free to bookmark this page and refer back to it as needed.
Adjustable-rate mortgage (ARM)
A type of mortgage in which the interest rate can change at periodic intervals during the term of the loan based on market conditions (as opposed to a fixed-rate mortgage whose interest rate stays the same).
A professional assessment of a home’s value based on a combination of an on-site examination of the home and the sale price of comparable homes in the local area. Lenders require an appraisal of a home as part of the mortgage approval process.
A real estate agent who acts on behalf of a buyer or seller to negotiate real estate transactions in return for a fee or commission.
Builders risk insurance
A specialized type of insurance designed to protect properties under construction from theft and damage.
A set of regulations in a local jurisdiction setting minimum standards for how a home should be constructed. All new construction homes must meet or exceed local building codes before they can be sold.
A real estate agent hired to act on behalf of the home buyer to negotiate the purchase of a home.
Certificate of Occupancy (CO)
A document that certifies that a given property meets all building codes, verifying that the structure is safe for occupants.
The meeting between the home buyer and seller to finalize the sale of a home. At closing, all remaining documents are signed (including loan documents, insurance, and title transfer), money due is paid, and arrangements are made for the transfer of funds to the seller.
A set of fees associated with processing the sale of a home, including loan fees, title insurance, taxes, etc. Closing costs typically range between 1 and 5 percent of the price of the home.
An official form detailing the closing costs associated with a real estate transaction. The Closing Disclosure (CD) is presented to the borrower at least one day before closing to check for any errors. (Formerly known as the HUD-1 Uniform Settlement Statement.)
A score between 300–850 assigned by a credit reporting agency that reflects a person’s creditworthiness. Credit scores are based on a number of factors, including credit history, timely payments, debt versus income, etc.
A new construction home that is designed from scratch and built from the ground up. With a custom home, the buyer works with a builder and architect to make decisions on every aspect of the home’s construction.
An official document that signifies ownership of a home and/or piece of property. The deed of a property transfers from the seller to the buyer during a home purchase.
The amount of money the buyer is required to put down out-of-pocket of a piece of real estate when obtaining a mortgage. The down payment usually ranges between 3 and 25 percent of the total purchase price, depending on the type of loan. The buyer pays the down payment to the seller at closing.
A good-faith deposit made by the buyer, usually at the initiation of a home purchase, to demonstrate that they are serious about their intention to buy. When buying a new construction home, earnest money is typically paid when the purchase agreement is signed. It may be a prescribed amount, or it may be between 1-3 percent of the purchase price. Earnest money is held in escrow until closing.
A designation established by the EPA certifying that a given product meets certain criteria for energy efficiency.
The amount of a home’s monetary value that is actually held by the homeowner. Equity is calculated as the difference between how much a home is worth and how much is left to be repaid on the mortgage.
A third-party account that holds funds securely until the buyer and the seller have each fulfilled their part of a contract.
A mortgage loan that is insured by the Federal Housing Authority (FHA) and designed to make homeownership more accessible to those with low to moderate incomes. FHA loans have lower minimum down payment requirements (typically 3.5 percent) and have lower credit score thresholds.
A type of mortgage in which the interest rate is established at the beginning of the loan and does not change during the term of the loan.
A diagram drawn to scale of the layout and square footage of a home. Builders often have a selection of pre-designed floor plans so buyers can select the type, size, and style of home they want to build.
A builder or construction company that specializes in building new construction homes.
Homeowners Association (HOA)
An organization (typically non-profit) consisting of homeowner-members in a given neighborhood or subdivision. The HOA of a neighborhood collects dues from homeowners and takes care of various community aspects of the neighborhood (e.g., community pools, clubhouses, landscaping). The HOA may also set standards of upkeep and rules of uniformity for what can be done on individual properties in the neighborhood, ranging from landscaping to paint colors to add-ons.
An insurance policy that protects the value of the home against loss or damage.
A professionally-conducted inspection of the various aspects of a home (e.g., foundation, plumbing, appliances) to look for problems and issues. In new construction homes, inspections are conducted at the completion of construction to make sure the building has been built to code and to look for problems to be fixed before the sale is complete.
The amount of money paid by the policyholder to keep an insurance policy active. Premiums may be collected annually or monthly. For new home buyers, the insurance premium on their homeowners insurance may be paid monthly along with their mortgage payment.
Limited home warranty
A warranty issued on new construction homes to guarantee the integrity of certain aspects of the construction for a specified period of time. Most limited home warranties cover parts and labor for the entire home for at least the first year, with other parts of the home warranted conditionally for additional lengths of time.
Energy-efficient windows made from low-emissivity (low-E) glass designed to reflect heat. Low-E windows help keep homes cooler and reduce energy costs.
The warranty issued by a manufacturer on the products it makes. For a new construction home, new appliances are covered by the manufacturer’s warranty rather than the limited home warranty issued by the builder.
A loan product specifically designed for the purchase of real estate.
A bank or financial institution that provides mortgages to finance homes and other real estate properties.
The company or agency that manages your mortgage loan (e.g., sending statements, processing payments). The mortgage lender sometimes also acts as the servicer of the loan; other times, the servicing is handled by a separate company.
Move-in ready home
A home that is ready for occupancy and/or a home that requires no repairs, maintenance, or updates.
A property that is either newly constructed or is in the process of being constructed; for new home buyers, a home that has never been lived in.
An event during which a home is available for public viewing, typically conducted for homes for sale. Builders often maintain model homes that are open for viewing on a daily basis.
Neighborhoods or subdivisions designed with pre-designated lots for new construction homes, as well as community amenities.
A non-binding letter issued by a mortgage lender indicating how much money the buyer is eligible to borrow on a home.
A lender that has a formal business relationship with a home builder. Buyers who use a builder’s preferred lender may receive advantages like discounted rates and simplified approval processes.
The amount of money borrowed on a loan minus any accrued interest or the amount of money required to pay off the loan.
Private mortgage insurance (PMI)
A type of insurance designed to guarantee payment of the mortgage in the event of a default, reducing the amount of risk to the lender. PMI insurance is usually required for loans with a down payment of less than 20 percent, and the amount of the premium is added to the buyer’s monthly payment.
A tax assessed by the local government on a piece of property based on its value. Any back property taxes on a home must be paid current as part of the closing of the sale.
A list of items in a new construction project that do not meet project specifications and/or local building codes. A punch list is created during an inspection after construction is complete, and all items on the list must be fixed before closing can occur.
A contract between a builder and a home buyer for the purchase of a new construction home, similar to a sales contract for a pre-existing home. The purchase agreement details the responsibilities of the buyer and builder, and any agreed-upon deposit or earnest money must be paid at the time of signing.
The rating system that measures the effectiveness of insulation with regard to its resistance to heat flow. The higher the R-value, the better the insulation.
A rating given to heating and air conditioning systems gauging their energy efficiency. SEER stands for Seasonal Energy Efficiency Ratio. The higher the SEER rating, the more energy-efficient the unit is.
A new construction home that is built with no specific buyer attached. The builder constructs the home “on spec” with the expectation of selling the completed home to an interested buyer.
A piece of land subdivided into two or more lots for the purpose of building multiple dwellings. Planned communities are commonly referred to as subdivisions, but technically, any dividing of a parcel of land qualifies as a subdivision.
A document signifying the legal right of ownership of a piece of property. A property’s title is transferred from the seller to the buyer through the deed.
An innovative concept in new construction design that focuses on creating relaxing spaces in the home with an emphasis on convenience, flexibility, and accessibility. Learn more about Thoughtful Houses.
Optional enhanced features for a new construction home that come at an additional cost over the base price of the home. Many aspects of new construction homes have upgrades available.
VA home loan
A government-backed loan provided through the Department of Veterans Affairs (VA) to eligible active and former members of the military. A VA home loan allows military personnel to borrow money for a home at reduced interest rates and with little to no down payment.
Veterans Affairs (VA)
Refers to the U.S. Department of Veterans Affairs, the government organization established to serve the needs of military veterans and their families. The VA is the organization that guarantees VA home loans for eligible military personnel.