When you begin the home buying process you are immediately thrown acronyms and new terms from professionals at every turn. Here’s a list of 10 most frequently used terms to get you started with the lingo.
- Appraisal – The estimated value of a property based on a qualified appraiser’s written analysis. Part of the analysis is reviewing recent sales of similar properties in the same area. As a general rule, Banks won’t lend more than the value of the property you wish to purchase; however some loans may include funds for specific repairs or improvements.
- Assessed value – The dollar value assigned to a property to determine applicable property taxes.
- Closing costs – Fees and expenses associated with completing a real estate transaction, potentially including attorney’s fees, credit report fees, document preparation fees, deed recording fees, appraisal fees, etc.
- Contingencies – Conditions that must be met prior to closing such as a home inspection, a financing contingency (which releases a buyer from the sales contract if their loan falls through), or a contingency that a buyer must first sell their current home. In general, the fewer contingencies required of a seller, the stronger a buyer’s negotiating position, in terms of getting the best price.
- Earnest money – A deposit made to a seller showing the buyer's good faith in a transaction. The larger the deposit, the more serious the seller will see the buyer.
- Fixed-rate mortgage – A conventional loan with a pre-determined (or “locked in”) interest rate for the duration of the loan repayment period. They are traditionally 30 years in length but can be issued for 15 years, 10 years, or other duration.
- Home inspection – A thorough professional examination (at the buyer’s expense) that evaluates the structural and mechanical condition of a property (plumbing, foundation, roof, electrical, HVAC systems, etc.). This highly recommended step is a common contingency clause in purchase and sales contracts. If the inspector identifies issues that may be expensive to remedy, these can be revisited with the seller before proceeding with the sale.
- Pre-approval (loan) - After providing proof of income, credit and assets, this is a lender’s written guarantee to grant a loan up to a specified amount (subject to receiving full documentation). A pre-approval is always subject to the property the borrower chooses to purchase. A pre-approval makes a stronger offer.
- Private mortgage insurance (PMI) – A monthly insurance payment that may be required if a buyer’s down payment is less than 20 percent of the home’s purchase price. It protects lenders against loss if a borrower defaults.
- Purchase and Sales Contract - A legal agreement between a buyer and seller to purchase real estate, for a specified price and terms, for a limited time period. When initially presented to the seller this is also referred to as an “offer”.
I hope these terms are helpful in your purchase. When planning to buy your home give our office a call, one of our dedicated agents will be happy to assist you.