Common Real Estate Terms
Know the language before you sign on the dotted line
The real estate industry is known for having its own lingo. Before taking the plunge into homebuying, make sure you're familiar with these terms.
Why Understanding Real Estate Terminology Matters
Buying a home involves a significant amount of paperwork, and much of it is written in language that can be confusing if you are not familiar with the terminology. Understanding these terms before you begin the process helps you make better decisions, ask smarter questions, and feel more confident at every stage of the transaction. Knowledge is one of your strongest tools as a buyer.
In Texas, the real estate contract is a legally binding document prepared using forms approved by the Texas Real Estate Commission. These contracts contain specific terms and clauses that directly affect your rights and obligations as a buyer. For example, understanding the difference between earnest money and an option fee — and what happens to each if you decide to back out — can save you from costly misunderstandings.
The glossary below covers the most common terms you will encounter when buying a home in New Braunfels and the surrounding Hill Country area. While this list is not exhaustive, it covers the essentials that every buyer should know. Your REALTOR will explain each term as it comes up during your transaction, but having a foundation of knowledge before you start makes the entire experience less intimidating.
How These Terms Apply to Your Purchase
Each term in this glossary connects to a real step in the buying process. When you make an offer on a home, you will encounter terms like earnest money, option period, and contingencies. During the financing phase, you will deal with pre-approval, PMI, and closing costs. At the closing table, you will see references to title insurance, the seller's disclosure, and the final walk-through. Think of this glossary as a reference you can come back to whenever you need clarity on a specific part of the process.
If you come across a term during your home search that is not listed here, do not hesitate to ask your REALTOR. There is no such thing as a dumb question when hundreds of thousands of dollars are on the line. A good agent will always take the time to make sure you understand exactly what you are signing and agreeing to.
Pre-Approval
A mortgage lender's written statement that the approved person(s) will be granted a loan for a set amount pending underwriting approval. A pre-approval letter can strengthen a buyer's offer, making it more attractive to a seller.
Buyer's Agent
A buyer's agent is an agent who represents the interests of the homebuyer throughout the transaction.
Listing Agent
A listing agent is an agent who represents the interests of the seller in the transaction.
Listing
The description of the property for sale. A listing typically includes information about a property, like square footage, number of beds and bathrooms, price, and photos.
Offer
A formal proposal that a buyer wants to purchase a home at a specified price and terms.
Private Mortgage Insurance (PMI)
A monthly insurance payment that may be required if a buyer is unable to put down 20 percent of the home's purchase price. PMI protects lenders against loss if a borrower is unable to make the loan payments.
Sales Contract
A legal agreement between a buyer and seller to purchase a property, for a specified price and terms, for a limited time period. When the seller accepts, or a counteroffer is presented and accepted, it becomes a legally binding sales contract.
Earnest Money
Money offered in "good faith" to show that a buyer is serious about purchasing a property.
Option Period
A set amount of days that the buyer has the "option" to back out of a home purchase. An option fee is paid if the buyer wants an option period, sometimes called an inspection period.
Down Payment
The amount of money a home buyer puts down toward a home purchase. This amount is separate from the loan amount.
Home Inspection
During the option period, the buyer hires a home inspector to check out the property for any issues that the home may have.
Appraisal
An unbiased evaluation of what a property is worth. A home appraisal can impact the amount of money a lender is willing to loan for a specific property.
Seller's Concessions
Sellers may choose to offer concessions to help cover closing costs or in lieu of making repairs to the home.
Closing Costs
Fees associated with completing a real estate transaction. These fees may include fees for attorneys, document creation, credit reports, or deed recording.
Contingencies
Conditions that must be met before the close of a sale. In some cases, a home buyer will make a purchase contract contingent on the sale of their current home.
HOA
The Homeowner's Association. This is the organization that makes and enforces rules in a neighborhood.
Mortgage
The monthly payment a homebuyer makes on their loan balance.
Home Warranty
A warranty, often purchased by the sellers for the buyer, that covers issues that may come up with the home after the sale.
Title Insurance
A type of insurance that protects the home buyer and lender against any unknown liens or debts that may be placed against the property.
Final Walk-Through
The time that a buyer last inspects the property before the closing date to ensure everything is in order.
Seller's Disclosure
A state mandated document the seller completes that lists any issues that the owner may be aware of with the property.
Closing
The last step in the homebuying process. This is when the funds are transferred, paperwork is signed, and the sale is completed.
There are a lot of terms that you will come across during a real estate transaction. Don't worry — your REALTOR® will be by your side to explain all of your questions and guide you through the process.
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Frequently Asked Questions About Real Estate Terminology
What is the difference between earnest money and the option fee in Texas?
Earnest money and the option fee serve different purposes in a Texas real estate transaction. The option fee is a relatively small payment, often between 100 and 500 dollars, that gives you the unrestricted right to terminate the contract during the option period for any reason. If you back out during this time, you lose the option fee but keep your earnest money. Earnest money is a larger deposit, typically one to two percent of the purchase price, that shows the seller you are serious about buying. Earnest money is applied toward your purchase at closing. If you back out after the option period without a valid contractual reason, you may forfeit your earnest money to the seller.
What are closing costs and how much should I expect to pay?
Closing costs are the fees and expenses associated with completing your real estate transaction, beyond the purchase price of the home. They typically include lender fees, title insurance, appraisal fees, survey costs, recording fees, prepaid property taxes, and homeowner's insurance premiums. In Texas, buyers can generally expect closing costs to total between two and five percent of the purchase price. On a 350,000 dollar home, that means approximately 7,000 to 17,500 dollars. Your lender is required to provide a Loan Estimate within three business days of your application, which itemizes these costs. In some cases, you can negotiate for the seller to contribute toward your closing costs.
Do I need title insurance when buying a home in Texas?
Title insurance is not legally required in Texas, but virtually all lenders require a lender's title policy as a condition of the loan, and purchasing an owner's title policy is strongly recommended. Title insurance protects you against claims or liens that may exist against the property from before you purchased it — things like unpaid taxes, undisclosed heirs, forged documents, or errors in public records. Without title insurance, you could be held financially responsible for problems you did not create. In Texas, the seller customarily pays for the owner's title policy, while the buyer pays for the lender's policy. Your title company will handle the title search and issue the policies at closing.