Buying a house for the first time can be a confusing process, and all of the new, complicated terminology only makes it more so. Having an expert to help you through each step can help ease much of the stress, and give you an experienced guide to help you find your perfect home, but there is still a lot you need to know as the buyer. So let’s talk about some of the key terms you should understand when buying a home.
Preparing to Buy
In addition to budgeting and planning, there are also other important steps to prepare to buy a home, like qualifying for a home loan.
- Pre-Approval Letter: A pre-approval letter is a statement from a lender that states how much they would be willing to lend you towards your home loan. This can help you understand what price range you should aim for, as well as prove to sellers that you are a serious buyer.
- Underwriting: Once you’ve found a home you are interested in, your lender will go through a process called underwriting. This includes both checking your credit and lending history, as well as evaluating the value of the property to determine how much they will lend to you and at what interest rate.
- Affordability: A measure of the ability of a buyer to pay off a certain home. This measure compares income with current home prices and mortgage rates.
- Appraisal: This is a determination of how much a home is worth completed by an experienced 3rd party. An appraisal is used by lenders to ensure they are not lending you more than what given property is worth.
Offers and Negotiations
- Counter-offer: Once you find a property you like and make an offer on it, the seller has an opportunity to make a counter-offer in response.
- Earnest Money: This is a deposit you make to a seller when submitting your offer that shows you are serious about buying the home. This deposit is held in trust by a 3rd party during negotiations, and put towards your down payment after closing.
- Inspection Contingency: Contingencies are parts of a contract that protect the interests of each party. Typically, a contingency includes a deadline that must be met in order for a contract to be valid, otherwise it may be canceled. An inspection contingency is one that specifically relates to having a professional inspection done of the home. This helps the buyer understand the condition of the home.
- Down Payment: This is the money you pay up-front when you purchase a home that isn’t lent to you. The amount of your down payment varies based on what your lender determines you are qualified for, but is usually anywhere from 3.5% – 20% of the home price.
- Collateral: Collateral is something of value that is held by a lender until a loan is paid off. When buying a home, your home will be held as collateral for your home loan.
- Mortgage Rate: The interest rate you pay on your home loan.
Closing
- Closing Costs: These are all of the fees required to close the mortgage loan and purchase. These can include anything from legal fees, to title insurance, to taxes.
- Closing Disclosure: An official, itemized list of all final money transferred between the buyer and seller.
- Title: An official legal document proving ownership of a property.
- Equity: Once you’ve bought a home, its value will continually rise and fall over time. Equity is the value of your home above the total amount still owed on it. This is the money that could potentially be made by a homeowner if they were to sell their home.
The Takeaway
If you are looking to buy a house, or hope to do so in the future, don’t let the home-buying process hold you back! Coming to understand the most important terms will help you not only be more prepared, but also more confident as a buyer. This knowledge, paired with trusted advice from an expert, will help you achieve your goal of becoming a homeowner.
Sources
[2]https://blog.firstam.com/15-real-estate-terms-you-should-know