Can you believe it is already August, and in about two weeks our children will be going back to school? In preparation for the school year, I wanted to start off this August article with a vocabulary pop quiz.
Buying your first home is exciting – but let’s be honest, it can also feel like learning a new language. Between showings, offers and contracts, you’re likely to encounter some unfamiliar terms. Understanding a few key real estate terms can make the process smoother and help you feel more confident every step of the way.
Earnest Money
This is the deposit a buyer makes when submitting an offer. Think of it as a good-faith gesture to show you’re serious about purchasing the home. If the sale goes through, this money is applied toward your closing costs or down payment. If not, you may or may not get it back – depending on your contract and contingencies.
Contingency
Contingencies are conditions that must be set for the sale to move forward. Common examples include a home inspection contingency (allowing you to back out or renegotiate if major issues are found) or a financing contingency (if your lender ends up refusing to fund your loan). Clauses protect buyers and sellers alike.
Appraisal
If you’re financing your home, your lender will require an appraisal to make sure the home’s value supports the loan amount. A licensed appraiser assesses the property and provides a fair market value. If the appraisal comes in lower than the purchase price, you may need to renegotiate, or bring additional cash to the table.
Escrow
Escrow refers to a neutral third party who holds funds and documents until all parts of the transaction are complete. It’s also the term used when your monthly mortgage payment includes money set aside to cover property taxes and homeowners insurance.
Closing costs
These are the fees and expenses beyond the purchase price. They typically include lender fees, title insurance, legal paperwork and escrow (taxes and insurance) prepaids. Expect closing costs to run about 3% to 6% of the purchase price.
Pre-Approval
Before you house-hunt, it’s wise to get pre-approved for a loan. Not only does this show sellers you’re a qualified buyer and gives you a realistic budget to work within, it is almost always required before you can submit an offer to purchase.
Billy Morris
2025 President of the Lynchburg Association of Realtors
Associate Broker John Stewart Walker Inc.