Real Estate 101 – Cram Course (Alabama Version)

Before you even get started reading through this – please note:

If you are wanting to tour homes, YOU NEED TO GET PREQUALIFIED/PREAPPROVED BEFOREHAND.

Think about it this way: If you were selling your home and had strangers entering multiple times a day, wouldn’t you want to ensure they are able to buy your home? Most sellers feel the same way.

Real estate agents have seen many broken hearts from clients not taking this initial step and either finding out they can’t get approved or someone that is already prequalified/preapproved submits an offer and gets a contract before they have the chance to get their financing lined up. We cannot express the importance of this step enough.

If you have questions regarding getting prequalified/preapproved, ask your agent for advice! Our agents are here to help guide you!

Welcome to your cram course for buying real estate! We are happy you chose our team to help guide you through this process. We hope this helps answer some basic questions you may have throughout the process.

If you're not buying and selling houses every day, there are terms that will be used that will sound foreign to you. Keep this guide handy so you can refer back to definitions or processes throughout your purchase!

We will get more in depth in later posts. This is for you to have the basic understandings needed to start the home buying process.

Important Definitions

  • Anti-Flip Rule: FHA limits how often a home can be purchased and resold. Buyers using FHA financing cannot purchase a home that has been owned by the seller for less than 90 days. Contracts cannot be written until the 91st day from the last deed recording date.

  • Appraisal: An expert estimate of value. Appraisals are done “arm’s length” and cannot be influenced by lender, agents, or seller. FHA, VA, USDA, and conventional loans may have different appraisal standards. Some appraisals require repairs before closing.

  • Caveat Emptor: “Buyer Beware” – Buyers are responsible for checking the quality and suitability of a property before purchase.

  • Closing Costs: Expenses at closing beyond the price of the property. These include lender fees, taxes, title insurance, real estate commissions, inspections, and more.

  • Condition: Items required by underwriters during the loan process. Clearing conditions is necessary to achieve a “clear to close.”

  • Construction Loan: Financing used for new construction, often with “draws.” May involve one-time or two-time closings depending on lender and loan structure.

  • Contingency: A clause allowing buyers to back out if specific terms aren’t met.

  • Contract (aka Purchase Agreement): A signed agreement between buyer and seller for the exchange of real estate.

  • Conventional: Loan not backed by government programs. Can be conforming or non-conforming. Minimum down payment typically 3% or more.

  • Down Payment: A portion of the purchase price paid upfront. Reduces the total loan amount.

  • Earnest Money Deposit (EMD): Money deposited to show good faith. Applied to buyer’s closing costs/down payment.

  • Escalation Clause: A clause in an offer stating the buyer is willing to increase the offer if another buyer submits a higher one.

  • Escrow: A secure holding account used for tax/insurance funds or during the transaction process.

  • FHA: Government-backed loan requiring 3.5% down. Often used by first-time buyers.

  • Home Inspection: NOT the same as an appraisal. An inspection evaluates condition, not value. Highly recommended for all buyers.

  • Home Inspection Requested Repairs: Repairs requested after an inspection. Consider major defects over minor imperfections.

  • Homestead Exemption: Property tax discount for primary residence. Must apply through your local county office.

  • Home Warranty: Optional protection plan covering home systems/appliances. Often lasts one year and can be renewed.

  • Lender Required Repairs: Repairs needed for loan approval. FHA, VA, and USDA loans often have stricter requirements than conventional.

  • Lender’s Title Insurance: Protects the lender from issues with title.

  • Mortgage/Financing: Loan agreement between buyer and lender for the purchase of property.

  • Offer: A signed agreement by buyer that becomes a contract once accepted by the seller.

  • Owner's Title Insurance: Protects the buyer against past title claims after purchase.

  • Preapproval Letter: In-depth financial verification by a lender. Stronger than a prequalification.

  • Prepaid Items: Upfront costs (like taxes and insurance) required at closing to fund an escrow account.

  • Prequalification Letter: Basic initial lender evaluation. Not as in-depth or reliable as a preapproval.

  • Taxes: In Alabama, property taxes are paid in arrears and due Oct 1. They are prorated at closing.

  • Underwriting: Process of verifying financials and clearing conditions before final loan approval.

  • USDA: Zero down loan for qualifying rural buyers. Must meet area and income requirements.

  • VA: Loan program for veterans, usually requiring no down payment. May include a funding fee.

  • WIR (Wood Infestation Report): Pest inspection required by many lenders before closing. Often under $100.

You're now ready to move on to Real Estate 102. Continue on if you're ready to keep learning, or keep an eye out for our next email!