Buying a home is a big step, and if you’re entering the market, you’re probably doing your research. But no matter if you’re fresh out of your UGA apartment or just finally taking the plunge after years of renting, there are bound to be words you don’t know. Here are five you might not have heard before.
Amortization is the process by which a large loan is repaid over a fixed amount of time. Essentially, amortization is a fancy way of saying “paying off a loan.” In your case, it will probably refer to your mortgage. Fun fact: According to the logophiles at Merriam Webster, the word derives from Vulgar Latin’s “admortire,” which means “to kill.” So, when you amortize a loan, you’re “killing it off.”
Once you’ve made an offer, it’s been accepted, and you’ve drawn up terms of sale with the seller, you also put some money down — even before the down payment. This is earnest money. Basically, earnest money is a way of showing the seller that you’re serious about buying the house. It’s a kind of collateral. If the sale goes through, earnest money will be put toward the down payment. If it doesn’t? You’re out of luck.
If you’re touring a property and a real estate agent tells you it “has an easement on it,” that means that an outside entity has control over the property under some circumstances. An easement, essentially, grants the “right of way” to someone other than the property owner. For example, if an oil company were installing a pipeline that was going to run through your land, you and the oil company would negotiate an easement allowing them to install and service the pipeline, without purchasing the land outright. In neighborhoods, it’s more common for easements to refer to utility company line maintenance and neighbors’ driveways.
An encumbrance is the real-estate equivalent of a “pre-existing condition.” It’s a broad category that can include easements, zoning restrictions, liens, claims, or even pending legal action. Encumbrances lower a property’s value, but they don’t necessarily prevent its sale. It is, however, the seller’s responsibility to alert potential buyers to all encumbrances.
If a piece of property “has a lien on it,” that means that someone else (not the owner) has a claim on it as security for money owed to them. For example: Say you borrow money from your bank to buy 15 acres of land from your brother. If you’ve granted a lien to your bank and you default on that loan, the bank can repossess that land to repay the debt. A property with a lien cannot be sold by the owner without the consent of the entity holding the lien.
This is by no means a complete list of homeowner vocabulary. As you make your way toward homeownership, you’re bound to hear more new phrases that will have you rushing to google. But don’t be embarrassed to ask your real estate agent for help. That’s their job!