10 Real Estate Terms Every First-Time Home Buyer Must Know

Table of Contents

1. Contingency
2. Earnest Money Deposit
3. Home Inspection
4. Appraisal
5. Closing Costs
6. Fixed-Rate vs. Adjustable-Rate Mortgage (ARM)
7. Title Search and Title Insurance
8. Private Mortgage Insurance (PMI)
9. Why Understanding These Terms Matters
10. Related Blogs for First-Time Buyers
    
    

Buying your first home is exciting — but the paperwork, contracts, and real estate jargon can feel overwhelming. Words like “contingency” or “appraisal” sound routine, but if you don’t understand them, you risk delays, surprise costs, or even losing your deposit.

Here are 10 essential real estate terms that every first-time buyer should know before signing anything.

1. Contingency

A contingency is a legal condition that allows you to back out of a deal without losing your deposit. Common ones include:

●     Financing contingency (if your loan isn’t approved).

●     Inspection contingency (if the home has major issues).

●     Appraisal contingency (if the home’s value is lower than expected).

 Instead of waiving contingencies completely (which is risky), you can shorten timelines or narrow their scope to stay competitive in hot markets.

Related Resource: Check our First-Time Home Buyer in Ontario Guide.

2. Earnest Money Deposit

This is a good-faith deposit (usually 1–3% of the home price) that shows the seller you’re serious.

●     If you walk away without a valid contingency, you could lose it.

●     You can structure the deposit in stages: a small amount upfront, then the rest after inspection.

 This protects your money during the riskiest stage of the deal.

3. Home Inspection

An inspection uncovers problems with the home’s structure, systems, or safety.

●     Don’t settle for a checklist — choose an inspector who provides photos, detailed notes, and clear explanations.

●     Walk through the property during the inspection to ask questions directly.

●     Always review permits and receipts if the home was flipped or renovated.

 Inspections protect you from hidden surprises.

4. Appraisal

An appraisal is the lender’s check on the home’s value.

●     If the appraisal comes in low, you may have to pay the difference out of pocket.

●     Appraisals can be challenged if there are errors (wrong square footage, poor comparables, etc.).

 Your agent should provide supporting data to help the appraiser get it right.

5. Closing Costs

These are fees you pay at the end of the transaction (2–5% of the purchase price). They include lender fees, legal fees, title insurance, and taxes.

 Pro tip: Instead of asking the seller to drop the price, ask for a closing cost credit. It reduces the cash you need upfront, which helps more if your funds are tight.

6. Fixed-Rate vs. Adjustable-Rate Mortgage (ARM)

●     Fixed-rate mortgage: Your interest rate never changes.

●     ARM: Lower initial rate, but it may adjust later.

Many first-time buyers avoid ARMs, but if you plan to stay in a home for only 3–5 years, an ARM with a 7-year fixed term could save you money. Always ask about:

●     Rate caps

●     Adjustment frequency

●     Index and margin

7. Title Search and Title Insurance

●     Title search checks if the seller legally owns the home and whether there are liens or unpaid taxes.

●     Title insurance protects you if something is missed.

Always review what’s covered. Some policies exclude boundary disputes or survey issues.

8. Private Mortgage Insurance (PMI)

If your down payment is less than 20%, you’ll likely need PMI — an extra monthly cost to protect the lender.

●     PMI isn’t always permanent — you can request removal at 20% equity or wait for automatic cancellation at 78%.

●     FHA loans follow different rules, where insurance often lasts longer.

●     Extra payments or new appraisals can help you cancel PMI sooner.

9. Why Understanding These Terms Matters

Real estate contracts move fast. If you don’t fully understand the terms, you risk:

●     Losing your deposit

●     Overpaying at closing

●     Missing hidden property risks

With the right agent, you won’t have to memorize every detail — but knowing these basics will protect your money and give you confidence.

 At HomesByNeeta (REMAX), we walk first-time buyers through every step so nothing gets overlooked.

Related HomesByNeeta Blogs

• First-Time Home Buyer in Ontario – 2025 Guide

• Pre-Construction Homes in Ottawa: Your 2025 Guide

• Pre-Construction Homes in Ottawa: Find Your Future Home

• Condos for Sale in Burlington, Ontario 

FAQs – Real Estate Terms for First-Time Home Buyers

Q1. What is a contingency in real estate?
A contingency is a legal condition in a contract that allows a buyer to back out without losing their deposit if certain conditions aren’t met, such as financing or inspection issues.

Q2. What is an earnest money deposit?
An earnest money deposit is a good-faith payment (usually 1–3% of the home price) to show the seller you are serious about buying.

Q3. Why is a home inspection important?
A home inspection uncovers structural, system, or safety issues in a property, helping buyers avoid costly surprises after purchase.

Q4. What is a home appraisal?
An appraisal is the lender’s assessment of a home’s market value. It ensures the buyer isn’t overpaying and that the lender’s investment is secure.

Q5. What are closing costs?
Closing costs are fees paid at the end of a property transaction, including legal fees, lender fees, title insurance, and taxes, usually totaling 2–5% of the purchase price.

Q6. What is the difference between a fixed-rate and adjustable-rate mortgage (ARM)?
A fixed-rate mortgage keeps the same interest rate throughout the loan, while an ARM starts with a lower rate that can change after a fixed period.

Q7. What is a title search and why is title insurance needed?
A title search ensures the seller legally owns the property and checks for liens or unpaid taxes. Title insurance protects the buyer if any issues were missed.

Q8. What is Private Mortgage Insurance (PMI)?
PMI is an additional monthly cost required if your down payment is less than 20%, protecting the lender against default.

Q9. Can PMI be removed?
Yes, PMI can often be removed once you reach 20% equity in your home or automatically at 78% equity, depending on loan type.

Q10. Why should first-time buyers understand these terms?
Knowing these real estate terms helps first-time buyers avoid losing deposits, overpaying, or missing hidden property risks, giving confidence in making smart decisions.