Real Estate Terms You Need To Learn

Written by in Buying on June 5, 2015

Deciding to buy a property is a big step, and being able to walk the talk in a highly competitive market is a big help in securing that perfect property. Here are a few key terms every buyer needs to know.


A pre-approved loan is when you have secured an approval from a lender on a particular loan agreement before you have set your heart on any particular property; a good indication of your purchasing power. It seems simple, but a common mistake made by first time homebuyers is leaving lending requirements to the last minute, and seeking finance after they’ve found a property.

Securing a pre-approved loan before you set your heart on a place will help you speed up the buying process, by establishing your budget and capacity to negotiate. While it’s not wise to reveal your true borrowing capacity to vendors and agents, having pre-approval gives you capacity to negotiate and can lead to a quicker transaction.


Principal & interest vs. interest only loans

The lender will ask you what type of loan you are after. Knowing the difference is critical, and likely to save you thousands. For homes you will occupy, most borrowers choose principal and interest (P&I) loans. With this type of loan you repay a proportion of both the loan amount and the interest, with every repayment.


For those looking to purchase investment properties, however, interest only loans are a popular choice due to cash flow and tax benefits. For investment properties, only the interest paid on a loan is tax-deductible. Interest only loans can be applied to a standard mortgage, with the borrower typically only paying the interest in the first five years of the loan, which means lower monthly repayments than a standard P&I loan. However, after the initial interest-only term, borrowers are converted to a normal P&I loan, in which repayments are higher. Many homeowners who have a P&I loan on a current home, purchase an investment property by borrowing on interest-only terms.

Capital growth

You will hear investors talking about the capital growth of their investment properties, but it has also applies to a home. Capital growth is the term used to refer to a property’s growth in value. Many homeowners forget that each property purchase has the potential to affect their personal wealth in a positive way. Ensuring you make smart purchases on properties that are projected to increase in value or have the flexibility to be successfully rented out in the future is the clever thing to do in the long-term.Hand and money staircase isolated on white

Down payment or deposit

A down payment is the amount you have in your savings (as opposed to what your loaning) and as a general rule of thumb, equate to at least 10% of the property’s purchase point.

If you’re looking to buy a new property ASAP, you’re likely to establish your price range and budget early on. However, how do you calculate how much you need as a deposit and whether you have enough in the bank? A down payment is the amount you have in your savings (as opposed to what you’re lending) and as a general rule of thumb, equates to at least 10% of the property’s purchase point.

The greater your deposit, the higher the likelihood you are to get a loan. A higher deposit means you won’t have to borrow as much, and you could avoid lender’s mortgage insurance, saving your money, which you can use to pay off your mortgage sooner.

Conditional sale

A conditional sale is a transaction that is subject to agreed terms set by both the buyer and the seller. Timing is very important in this case, because if certain conditions are not met within the specified time, the agreement is made void and the sale may fall through.

This type of negotiation is tricky, but may work to the advantage of both parties. Having an experienced negotiator on your side can be a great help. Like most endeavours, knowledge is the key to maximising your outcome. Surrounding yourself with the right people to guide you and engaging with professionals that work to your best interests will be an invaluable resource when looking for your first home.

Profile shots - Greville Pabst 004 - cropGreville Pabst is a judge on The Block and the CEO of WBP Property, a leading property valuations and buyers advocacy firm.