Buying a home can feel like learning a new language. You’re suddenly hearing about “contingencies,” “escrow,” and “earnest money” – terms that real estate professionals throw around daily but might leave you scratching your head. 

Let’s break down the essential vocabulary you’ll encounter on your home-buying journey, so you can navigate the process with confidence.

The Financial Terms

Down Payment – This is the upfront cash you’ll pay toward your home purchase. Most buyers put down anywhere from 3% to 20% of the purchase price, though 20% helps you avoid private mortgage insurance (PMI).

Pre-Approval vs. Pre-Qualification – Think of pre-qualification as a rough estimate of what you might afford based on self-reported information. Pre-approval is the real deal – the lender has verified your finances and committed to lending you a specific amount. Sellers take pre-approved buyers much more seriously.

Earnest Money – This is your “good faith” deposit that shows sellers you’re serious about buying their home. Usually 1-3% of the purchase price, this money goes toward your down payment or closing costs if the sale goes through.

Closing Costs – Beyond your down payment, you’ll need cash for these fees, which typically run 2-5% of the purchase price. They include things like loan origination fees, title insurance, attorney fees, and prepaid property taxes.

The Process Terms

Escrow – This neutral third party holds onto important items (like your earnest money and important documents) until all conditions of the sale are met. After closing, your mortgage company might also collect money in an escrow account to pay your property taxes and insurance.

Contingency – These are the “escape clauses” in your offer that protect you if something goes wrong. Common ones include inspection contingencies (letting you back out if major problems are found), financing contingencies (if your loan falls through), and appraisal contingencies (if the home doesn’t appraise for the purchase price).

Under Contract – When a seller accepts your offer, the property goes “under contract” or “pending.” The house is essentially off the market while you complete inspections, finalize financing, and work toward closing.

Clear to Close – Music to every buyer’s ears! This means your lender has reviewed everything and you’re approved to get your loan at closing.

The Property Terms

Appraisal – Your lender will order this professional assessment of the home’s value to make sure they’re not lending more than the property is worth. If the appraisal comes in low, you might need to renegotiate the price or make up the difference in cash.

Title and Title Insurance – The title is your legal right to own the property. Title insurance protects you and your lender from any disputes about who owns the property or claims against it from previous owners.

HOA (Homeowners Association) – If you’re buying in certain neighborhoods or condos, you’ll pay monthly or annual fees to an HOA that maintains common areas and enforces community rules. Always review HOA documents carefully – those rules and fees can significantly impact your budget and lifestyle.

Property Disclosure – Sellers must tell you about known problems with the property. In Massachusetts and New Hampshire, sellers typically provide a written disclosure statement covering everything from roof leaks to paranormal activity (yes, really).

The Market Terms

Seller’s Market vs. Buyer’s Market – In a seller’s market, there are more buyers than available homes, leading to bidding wars and homes selling quickly. A buyer’s market means more inventory and more negotiating power for buyers.

Comps (Comparable Sales) – These are recently sold homes similar to the one you’re considering. Your agent will use comps to help determine a fair offer price, and the appraiser will use them to assess the home’s value.

Days on Market (DOM) – How long a home has been actively listed for sale. A high DOM might indicate an overpriced home or potential issues, while a low DOM in a slow market might mean the home is priced attractively.

Multiple Offer Situation – When several buyers submit offers on the same property simultaneously. Your agent’s expertise becomes crucial here in crafting a competitive offer that stands out.

More Terms Worth Knowing

Adjustable-Rate Mortgage (ARM) – A loan where the interest rate can change periodically after an initial fixed period, affecting your monthly payments.

Amortization – How your loan payments are structured over time, with early payments going mostly toward interest and later payments reducing principal.

LTV (Loan-to-Value Ratio) – The percentage of the home’s value that you’re borrowing. An 80% LTV means you’re putting 20% down.

PMI (Private Mortgage Insurance) – Insurance you’ll pay if your down payment is less than 20%, protecting the lender if you default.

Points – Fees paid to the lender at closing to reduce your interest rate. One point equals 1% of your loan amount.

Rate Lock – A commitment from your lender to honor a specific interest rate for a set period while you close on your home.

Walk-Through – Your final inspection of the property (usually 24 hours before closing) to ensure everything is in the agreed-upon condition.

Deed – The legal document that transfers ownership of the property from seller to buyer.

Easement – Someone else’s legal right to use part of your property for a specific purpose, like utility companies accessing power lines.

Encumbrance – Any claim against a property, including mortgages, liens, or easements.

Fixed-Rate Mortgage – A loan where your interest rate stays the same for the entire term, giving you predictable monthly payments.

FSBO (For Sale By Owner) – Properties sold directly by owners without a listing agent, though buyers can still use their own agent.

Good Faith Estimate – A lender’s estimate of your closing costs, helping you understand the full financial picture.

Lien – A legal claim against your property, often for unpaid debts, that must be resolved before selling.

MLS (Multiple Listing Service) – The database real estate agents use to share property listings and cooperate on sales.

Principal – The amount you borrowed, not including interest. Your monthly payment covers both principal and interest.

Quitclaim Deed – A document that transfers whatever interest someone has in a property, often used between family members.

Settlement Statement – The final accounting of all costs and credits in your real estate transaction, reviewed at closing.

Understanding these terms is just the beginning of your home-buying education. The real estate market in Massachusetts and New Hampshire has its own unique characteristics and regulations, and having a knowledgeable local agent makes all the difference in navigating these waters successfully.

Ready to put this knowledge to work in your home search? The experienced team at Laffely Real Estate Associates knows the ins and outs of both Massachusetts and New Hampshire markets. We’ll guide you through every term, every document, and every step of your home-buying journey. 

Call Laffely Real Estate Associates today at (978) 255-4788 to get started with agents who speak your language – whether you’re a first-time buyer or a seasoned pro!