Purchasing a home can be a complicated and confusing process, 
especially for first-time buyers.  Throughout the process, 
first-time home buyers will encounter a variety of unfamiliar 
real state terms. There are several key terms associates with 
purchasing real estate that are helpful to learn.

For example, many buyers confuse the terms broker and 
salesperson.  A broker  is a properly licensed individual, or 
corporation, who serves as a special agent in the purchase and 
sale of real estate, a salesperson is an individual employed or 
associated by written agreement by the broker as an independent 
contractor.  The salesperson facilitates the purchase or sale 
of real estate.

Once you decide to purchase, a salesperson will prepare a sales 
contract to present to the seller along with your earnest money 
deposit.  The sales contract is the document through which the 
seller agrees to give possession and title of property to the 
buyer upon full payment of the purchase price and performance of 
agreed-upon conditions.  The earnest money is a buyer’s partial 
payment, as a show of good faith, to make the contract binding. 
Often, the earnest money is held in an escrow account.  Escrow 
is the process by which money is held by a disinterested party 
until the terms of the escrow instructions are fulfilled.

After the buyer and seller have signed the contract, the buyer 
must obtain a mortgage note by presenting the contract to a 
mortgage lender.  The note is the buyer’s promise to pay the 
purchase price of the real estate in addition to a stated 
interest rate over a specified period of time.  A mortgage 
lender places a lien on the property, or mortgage, and this 
secures the mortgage note.

The buyer pays interest money to the lender exchange for the use 
of money borrowed.  Interest is usually referred to as APR or 
annual percentage rate.  Interest is paid on the principle, the 
capital sum the buyer owes.  Interest payments may be disguised 
in the form of points.  Points are an up-front cost which may be 
paid by either the buyer or seller or both in conventional loans.

In general, there are two types of conventional loans that a 
buyer can obtain.  A fixed rate loan has the same rate of 
interest for the life of the loan, usually 14 to 30 years. An 
adjustable rate loan or adjustable rate mortgage (ARM) provides 
a discounted initial rate, which changes after a set period of 
time.  The rate can’t exceed the interest rate cap or ceiling 
allowed on such loans for any one adjustment period.  Some ARMs 
have a lifetime cap on interest.  The buyer makes the loan and 
interest payments to the lender through amortization, the 
systematic payment and retirement of debt over a set period 
of time.

Once the contract has been signed and a mortgage note obtained, 
the buyer and seller must legally close the real estate 
transaction.  The closing is a meeting where the buyer, seller 
and their attorneys review, sign and exchange the final 
documents.  At the closing, the buyer receives the appraisal 
report, an estimate of the property’s value with the appraiser’s 
signature, certification and sporting documents.  The buyer also 
receives the title and the deed.  The title shows evidence of 
the buyer’s ownership of the property while the deed legally 
transfers the title from the seller to the buyer.  The final 
document the buyer receives at closing is a title insurance 
policy, insurance against the loss of the title if it’s found 
to be imperfect.

Buyers should plan on at least four to twelve weeks for a 
typical real estate transaction.  The process is difficult and 
at times, intimidating.  A general understanding of real estate 
terminology and chronology of the transaction, however, will 
help any real estate novice to confidently buy his or her first 
home.