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5 key real estate terms you should know

Buying or selling a home may feel confusing if you aren't familiar with some of the processes. Here are several terms to know that may be helpful before you list a home for sale or make an offer.

CV

Cyrus Vanover

10/20/2022 · 3 min read

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Key Takeaways

  • Knowing how much equity you have in your home may be helpful when you buy, sell, or apply for certain types of loans.

  • Escrow accounts are intended to protect both the buyer and seller in a real estate transaction.

  • Private mortgage insurance is intended to protect the lender.

  • Title insurance may provide additional protection in case something's missed in a title search.

1. Home equity

Home equity can be understood as the current market value of your home minus the remaining balance on your mortgage.

Knowing how much equity you have in your home may be helpful when selling. It can help you estimate how much you'll have after paying off your mortgage to put towards a new home.

Many homeowners also borrow against the equity in their homes with either a home equity loan or home equity line of credit (HELOC). Knowing how much equity you have in your home can be helpful in estimating how much you can borrow.

2. Escrow

Escrow is an account managed by a neutral third party where earnest money and documents are kept safe until the real estate transaction is complete. Typically, funds are released when certain conditions are met.

Escrow accounts may be managed by escrow companies, attorneys, or title companies and are intended to protect the parties involved in the transaction. The escrow service fee is typically part of the closing costs.

3. Private mortgage insurance

Private mortgage insurance (PMI) is a type of insurance that is intended to protect a lender in case a borrower defaults on their mortgage. Home buyers using conventional mortgages are usually required to carry this type of insurance if they are making a down payment that's less than 20% of the value of the home.

Although PMI protects the lender, the borrower is usually the one who pays for it. The premium is typically added to the borrower’s monthly mortgage payments. Home buyers who are required to obtain PMI may be able to cancel the policy when they have at least 20% equity in their homes.

A title search is an examination of the public records on a property, typically done before closing. Title searches are conducted to make sure that the person selling the property is the legal owner and that there are no other claims on it.

A title search may reveal problems with a property that could affect the buying decision, such as liens, easements, restrictive covenants, and other things. Sometimes the seller may not be aware of these things.

Title searches are typically conducted by attorneys or title search companies. The fee for the service is usually part of the closing costs.

5. Title insurance

Sometimes a buyer chooses to purchase a title insurance policy, which is a type of insurance intended to protect the policyholder against any claims or disputes that may arise after the purchase about the legal ownership.

This may happen if the title search misses something, if someone mistakenly believes they have a claim to the property, or for other reasons. If there are any claims or disputes, the policy may pay for the necessary legal fees to resolve the issues. If a title insurance policy is purchased, it is usually paid at the closing.

This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.

CV

Cyrus VanoverAuthor

Cyrus Vanover is a finance and real estate writer who specializes in making complex topics easy to understand. He is also the author of "Earn a Debt-Free College Degree." Based in the mountains of Virginia, he enjoys hiking the local trails, listening to 80s music, and reading books on military history in his spare time.

JG

Jena GreeneEditor

Jena Greene is the Managing Editor at Opendoor. She covers real estate, personal finance, money management, and market best practices. Jena is passionate about empowering people to find their dream homes and making the home-buying process a delightful one.