"They are the ones signing these documents, and they should know what it all means," says Uziel, who practices in San Francisco. "I want them to know what a title is and what exactly goes into closing costs."
Here are common real estate terms that homebuyers encounter when they work with real estate agents, mortgage brokers and real estate attorneys. Be prepared by knowing these real estate terms and what they mean before you sign on the dotted line.
Appraisal: The price a property is valued at, based on comparable sales of homes in its vicinity. An appraisal is conducted by an appraiser. Appraisers sometimes work for mortgage lenders but more often are independent.
Assessed value: The value of the property for tax purposes. The value is determined by a tax assessor. A home can be appraised for one value and assessed at a different value.
Broker: A broker is anyone who earns a fee while acting as an agent to bring two parties together for a transaction. A Realtor is a real estate agent who is a member of the National Association of Realtors, and who often works for a broker. A mortgage broker is the person who puts together the loan for a lender but does not actually lend the money.
Closing: In most states, the closing is a meeting in which the buyer, seller, attorneys and sometimes the real estate agent come together to sign the documents that transfer ownership of the home from one party to another. This is where payments, or closing costs, are made, as well.
Closing costs: Typically, these include escrow fees, recording fees, title search and any other costs associated with obtaining the loan.
Contingency: A condition that must be met for a contract to be legally binding. This term is used most frequently when talking about home inspections. For instance, when a buyer signs a contract for a home, but the deal is contingent upon the home passing an inspection. Sometimes, a seller can make a sale contingent upon their finding a home to buy within a certain number of days.
Down payment: This is the amount of the purchase price of the home that a buyer pays in cash. You cannot use a mortgage to pay the down payment on a home.
Equity: The difference between the value of the property and the amount still owed on it. If a home is worth $250,000, and the homeowner still owes $100,000 on the mortgage, then the owner's equity in the home is $150,000.
Escrow: The process by which a third party holds money for safekeeping until a transaction is closed.
Escrow account: The account where escrow funds are held, and from which the buyer's money is transferred to the seller and to pay fees in the sale. Once you purchase a home, you may have an escrow account with your lender to cover costs beyond your mortgage interest and principal, including taxes and homeowners insurance. The lender would make those payments monthly, rather than the borrower.
Home inspection: An examination of a home by a professional, who will evaluate the condition of a home for structural and mechanical defects. Most buyers make a satisfactory home inspection a contingency of purchase.
Lien: Claims against a property that must be paid off before a home is sold. A mortgage is considered a lien. Often, a seller still owes money on a mortgage or a home equity loan. When he sells his home, he must immediately pay off those loans, or liens, in order for the closing to be completed.
Loan-to-value: Often referred to as the LTV, it is the ratio between the amount of the loan and the appraised value or sale price of the home. The higher the LTV, the higher the risk for the bank.
Mortgage insurance: Insurance paid by the homebuyer to ensure that if the buyer defaults, the mortgage-holder still gets its money. Mortgage insurance is required when there is a loan-to-value ratio of higher than 80 percent.
Owner financing: A transaction in which the property seller provides the loan to the buyer.
Pre-qualification: Upon review of a borrower's finances, it is a loan officer's favorable opinion on the borrower's ability to qualify for a home loan. Becoming pre-qualified is often a buyer's first step toward obtaining a mortgage.
Rate lock: A commitment by a lender that an interest rate will be available for a specific length of time.
Right of survivorship: When two or more people own a home and one person dies, ownership of the home automatically will become the property of the survivor or survivors.
Tenancy in common: Two or more people may own a property, but in this case, if one person dies, ownership does not automatically go to the other owners. Instead, it could go to heirs, or whomever the deceased has named in a will.
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