Real Estate Terms Explained

Buying a home can be a difficult, confusing, and exciting experience all at once. This is especially true if you are doing it for the first time. There are a lot of real estate keywords that you will be confronted with throughout the process and there is a good chance you will not be familiar with all of them. That is why we want to help you be prepared for your next real estate purchase by explaining some of the most commonly used and most confusing terms used in the home buying process.

Preapproved and Prequalified

The first step to your home buying process should be to get prequalified. Prequalification is a less formal preapproval. Getting prequalified can give you a rough idea on what your home buying price range is. This way, you will not fall in love with a home that is out of reach. Preapproval, on the other hand, is when a lender will perform a more formal analysis of your finances and come back with an approved number that they are comfortable lending to you. Armed with a preapproval letter is one thing that can put you ahead of other buyers since it will show a seller that you are serious about the purchase.

Debt to Income Ratio

When you are talking to a lender, they will look at and assess your debt to income ratio, or DTI, in order to determine how much home you can afford. This means they will look at the amount of money that you bring in versus the amount of money you spend monthly on debts such as cars. Your DTI does not factor in other necessary expenses like food and gas. So it is important for you to calculate this for yourself to determine what is a comfortable mortgage range.

FHA Loan

For most of us, we need a loan to purchase a home. But there are more than just conventional loans available to you. Even with a loan, you will need a down payment. FHA loans are loans that are backed by the Federal Housing Administration and allow for you to put down little to no down payment. There are a few extra hoops that you have to go through to secure this type of loan, but it is a good option for some and it is good to be aware of this option.


Escrow is another confusing term you will come across once you have purchased a home. Essentially, an escrow account is a third party account that holds money for future use. Typically you will pay into this escrow account and home insurance and property taxes will be paid out of it for the year.

Comparative Market Analysis

Comparative market analysis or CMA, is the action of comparing similar properties in order to determine listing prices. Not only is the value of the property itself taken into consideration, but ​ the local market as well. A good real estate agent will have a finger on the pulse of the area you are considering.

And there you have it! A few common and confusing real estate terms explained. If you are in the process or getting ready to begin the process of house hunting, why not start here! Energy Smart New Homes builds expertly crafted homes that are affordable to buy and own. Browse our move in ready homes today.

By Energy Smart New Homes 2-18-2022