11 Confusing Real Estate Terms Explained

Hunker may earn compensation through affiliate links in this story.
Image Credit: Stephen Paul for Hunker

As puzzling as broker babble can be, it's crucial to know what certain real estate terms actually mean when shopping for a home. "The real estate process is complex with many legal terms that most buyers and sellers have never come across," explains Karen Kostiw of Warburg Realty. "It is vital that all clients understand the various terms and conditions and comprehend their nuances."

Need help breaking down the meaning behind some obscure real estate terms? We asked a handful of brokers and agents to explain eleven frequently confused terms and phrases, and here's what they had to say.

1. Proof of Funds

"Proof of funds refers to back-up documentation, such as returns, bank/investment statements, mortgage commitments, and pay stubs," explains agent Jeanne Byers of Warburg Realty. "It's proof that a buyer has the necessary funds required to close the deal."

2. Good Bones

"If someone describes a home as having 'good bones,' they're saying that the underlying structure is in excellent condition," broker Gill Chowdhury of Warburg Realty explains. "This often refers to pre-war property in need of a full upgrade."

3. Fixed Rate Mortgage

"A fixed rate mortgage is a home loan product that allows the borrower to have the comfort of knowing what their monthly payments will be for the lifetime of the loan," Kostiw says. "Even as interest rates fluctuate higher and lower over time, the monthly payment will always be the same as it is fixed at closing. It has a fixed principal and interest payment in accordance with an amortized (Ed.: amortized=paying off a debt on a regular schedule) schedule of fifteen or thirty years."

4. Adjustable Rate Mortgage

"An adjustable rate home loan is a unique product that only sophisticated borrowers should consider," Kostiw explains. "Typically, the rate is set at closing for a period anywhere from one to seven years. At that point, the rate adjusts based upon current interest rates in the market. As such, the borrower is taking the risk that the rate will be lower on the reset date. If it is not, their monthly payments will increase compared to the current amount. This reset will continue for the life of the loan until final repayment."

5. Pending Offer

"A pending offer is when a buyer and seller have agreed to all terms and conditions and have a written contract for the sale of the home," Kostiw explains. "This does not mean the house is sold or even that it is 100% certain. Many items can derail the sale when they are pending such as failure to receive financing or a satisfactory home inspection or an appraisal unacceptable to the financing institution. As such, a pending offer is a huge step towards a final sale, but it is not a guarantee."

6. Contingent Offer

"A contingent offer for a home requires some other action to occur for the deal to move forward," Kostiw says. "For example, an offer to purchase a property is contingent upon the buyer selling their current home. Another example is a purchase being contingent upon the buyer receiving financing. If the buyer cannot obtain a loan, they are then not liable to move forward on the transaction. One other example is a home purchase contingent on a home inspection. If the home inspection is not deemed satisfactory to the buyer, they can cancel the home purchase."

7. Escrow

"Escrow refers to funds held by a third party which are released only when specific conditions have been met," Chowdhury says.

8. Post-Closing Liquidity

"Post-closing liquidity is the amount of capital a buyer will have on hand in liquid assets, primarily cash, stocks, bonds, etc., after they close on a property," Chowdhury explains.

9. Closing Costs

"Closing costs are typically the costs associated with going to closing on a property and often refer to the costs charged by a mortgage lender as well as the attorney, title or escrow company handling the closing," explains Cara Ameer of Coldwell Banker Vanguard Realty. "There are generally a few buckets of costs: Closing costs associated with the mortgage loan (lender charges); closing costs charged by the attorney or title company closing the loan (if applicable in your locality or state); and lastly, there are pre-paids, which are separate from closing costs but also count towards the overall amount the buyer has to bring to closing."

10. Pre-Qualified

"Pre-qualified means a buyer has had a verbal conversation with a mortgage lender, and based on the information shared about income, assets, and debts, as well as running their credit score, the lender is able to issue a verbal pre-qualification of a price range for which the buyer is approved," Ameer explains.

11. Pre-Approved

"Pre-approved is much stronger and preferable when shopping for a home," Ameer says. "The buyer has provided documentation to the lender to validate their income, assets and debts, and the lender has been able to verify the information to issue a pre-approval letter. However, the approval is always conditional, and subject to the buyer going through underwriting; once they go under contract on a property, they can fully approve the loan which includes a satisfactory appraisal and also no adverse change to the buyer's financial situation."


Caroline Biggs is a writer living in New York City. Her work has appeared in The New York Times, Apartment Therapy, Refinery 29, and more.

View Work