A GLOSSARY FOR HOME BUYERS: REAL ESTATE TERMS EVERY ASPIRING HOME BUYER SHOULD KNOW.

 

LOOKING TO BUY A HOME? STRUGGLING TO MAKE SENSE OF AN AVALANCHE OF NEW TERMINOLOGY? YOU’RE NOT ALONE. BEFORE YOU VISIT YOUR FIRST LISTING – OR EVEN PICK A REAL ESTATE AGENT – MAKE A START TOWARDS REAL ESTATE FLUENCY BY LEARNING SOME OF THESE TERMS:

 

ADJUSTABLE RATE MORTGAGE (ARM)

Just like it sounds: Interest rates on ARMs fluctuate during the life of the loan, based on certain market indicators. Loans usually have a limit on how much and how often the interest rate can change.

 

ANNUAL PERCENTAGE RATE (APR)

This gives you the actual cost of your loan. An APR will be higher than your interest rate because it also accounts for other fees and costs associated with your loan.

 

APPRAISAL

A licensed appraiser will evaluate and determine the value of a property. Usually involves comparisons to recent sales of similar properties and is used by lenders to determine the limit of what they will lend for that property. Differences between appraisal value and loan amount can cause deals to fall through (meaning: the bank won’t lend you more than the appraisal says the house is worth).

 

CLOSING

The actual purchase transaction. You go to the office of the company handling the transaction (often a title company or an attorneys office) and sign all the documents.

 

CLOSING COSTS

Closing costs encompass the myriad of fees and taxes paid in cash (i.e. not financed into a loan) at settlement or closing. Some of these costs are recurring, such as property taxes or homeowner’s insurance, others are non-recurring, like appraisal fees or title insurance.

 

CONTINGENCIES

Contingencies are the portion of contracts that protect either the buyer or seller. Contingencies release the protected party from liability if the certain terms are not met. For example, an inspection contingency means the buyer can negotiate repairs or even back out of the deal on the condition of an unfavorable home inspection.

 

CONTRACT

The document in which the seller agrees to sell the house to you and you agree to buy it on the terms agreed upon. This is a legally binding agreement between the two parties containing terms of the purchase of the property.

 

CONVENTIONAL LOAN

A Conventional Loan is a mortgage that is not insured or guaranteed by any government program like FHA or VA. It is the most common type of mortgage loan and typically fixed in its terms and rate.

 

DEBT RATIO

The ratio of your debt to your income. Banks use this to calculate how much money they are willing to loan you. This impacts how much house you can afford.

 

DEED

A document that transfers ownership of property from one person to another. You receive a copy of this at closing.

 

DISCLOSURE (SELLER’S DISCLOSURE)

Once you enter into a contract, the seller is required to provide you with this form detailing all the physical problems with the house that they are aware of.

 

DOWN PAYMENT

Down Payment, also known as Good Faith Deposit, is paid to underline your commitment to complete the purchase. It is a percentage of the total purchase price. It reduces the amount of the purchase price that needs to be financed.

 

DUE DILIGENCE

Buyers: you should do your “due diligence” on a property after entering an agreement with the seller but before the purchase occurs. The Due Diligence period provides the buyer the opportunity to thoroughly investigate a property within a specified time to determine the buyers satisfaction with the property before finalizing the purchase.

 

EARNEST MONEY DEPOSIT

Also called a “Good Faith Deposit.” You pay this when giving our offer as a sign of good faith regarding your intent to purchase.

 

ESCROW

A free service offered by the lender to make it easy for the buyer to pay property taxes and homeowners insurance. The lender will build this into your monthly mortgage payment and pay your taxes and insurance when they come due, generally once a year. While this is a convenient and free service, you can opt-out of escrow and pay your taxes and insurance yourself if you prefer.

 

FHA LOAN

An FHA Loan is a mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). The FHA does not make loans, it insures loans. Houses have to be in good condition to qualify for FHA Loans (not fixer-uppers).

 

FICO SCORE

Your credit score. Lenders use borrowers FICO scores along with other details on borrower’s credit report to assess credit risk and whether to extend credit.

 

FINANCING

A mortgage loan to purchase a house.

 

FIXED RATE MORTGAGE

A loan with a fixed interest rate across the life of the loan (15 to 30 years).

 

FORECLOSURE

Foreclosure is a process that transfers the right of the home ownership from the owner to the bank or lender after the owner defaults on the loan.

 

HUD

The HUD is the Department of Housing and Urban Development which oversees mortgage lending practices.

 

HUD-1 SETTLEMENT STATEMENT

The HUD-1 Settlement Statement is a standard government real estate form used by the closing agent to itemize all the charges imposed on a borrower and seller for a real estate transaction.

 

INTEREST

The fee charged by a lender to a borrower for the use of borrowed money.

 

MORTGAGE

A loan to finance the purchase of a home.

 

MORTGAGE BROKER

A Mortgage Broker is an individual or company which brings borrowers and lenders together for the purpose of loan origination. They do not originate or service the mortgage. The broker may negotiate with the lender to try and find the best deal for the borrower.

 

OPTION FEE

Option Fee is money paid by the buyer to a seller for the option to terminate a real estate contract. Option Fee funds should not be confused with Earnest Money.

 

ORIGINATION FEE

A one-time fee charged by the lender for processing a new loan. Some banks don’t charge an origination fee and others will drop the fee if you negotiate with them.

 

OWNER/SELLER

The person selling a property. These terms are used interchangeably, and there is no difference.

 

PRE-APPROVED

Some argue that there is no distinction between pre-approval and pre-qualification for a loan. Generally, a pre-approval is more in-depth than a pre-qualification: Pre-approval follows a credit check and thorough verification of your finances. A pre-approval letter states that, barring appraisal issues or other problems, you are approved for a loan. It is important to note that this is not a guarantee of a loan.

 

PREMIUM

The amount you pay for an insurance policy.

 

PREPAYMENT

A portion of the loan principal paid early, to save on interest and end the loan faster. Most loans allow you to pay a little extra at any time without any penalty, but there’s often a small penalty if you want to pay off the entire balance early and don’t give them sufficient notice.

 

PREPAYMENT PENALTY

These are not as common as they used to be, but it’s still important to check whether your loan comes with a prepayment penalty or not. To pay down your loan quicker and avoid paying as much interest, you can make additional payments towards the principal of your loan. Because banks want you to pay ALL the interest, some slap homeowners with a penalty charge for paying off the balance early.

 

PRE-QUALIFIED

Like pre-approval, a pre-qualification does not guarantee that you will get the loan. It tends to hold less weight than a pre-approval, but will give you a good idea of the maximum loan amount you could secure.

 

POINTS (DISCOUNT POINTS)

Points are a fee charged by a lender in exchange for giving you a lower interest rate.

 

PRINCIPAL

Your mortgage principal is the amount you actually borrowed to purchase the home. You pay interest in addition to this principal.

 

PRIVATE MORTGAGE INSURANCE/PMI

If your down payment is less than 20%, you will be required to purchase Private Money Insurance which protects the bank if you fail to make your payments.

 

PROPERTY TAXES

Taxes paid annually to state and local governments on property you own. It is calculated according to fair market value of the real estate.

 

REAL ESTATE AGENT

The person who represents a buyer or seller in a real estate sale. Not all agents are Realtors.

 

REALTOR

Only real estate professionals who are members of the National Association of Realtors (NAR) can call themselves Realtors. All Realtors adhere to NAR’s strict Code of Ethics, which is based on professionalism and protection of the public. That’s why all real estate licensees are NOT the same.

Dedicated to serving America’s property owners at both local and national levels, the National Association of Realtors, is the largest professional association. So, whether you’re buying or seller a home – it pays to work with a Realtor. Look for the Realtor logo when choosing your real estate agent.

 

MORTGAGE TERM 

The number of years a mortgage lasts. Usually 15 or 30 years.

 

TITLE COMPANY

Title Company is a company involved in examining and insuring title claims. The company verifies ownership of the property through a thorough examination of the property records in a title search. They typically handle the closing of a transaction.

 

Whether you are Buying or Selling a home, a collection of How-To's, Checklists, and Worksheets to help you understand what to expect during the real estate experience will help make the transaction as seamless as possible.

That's why having my Comprehensive Guide as part of the Preparation and Education Plan, will help keep you organized and focused throughout the entire process.

Request your free copy by emailing me at homesbymeral@gmail.com and indicate if you are a Buyer or Seller to ensure you receive the relevant Guide.

 

CREATING MEMORIES ONE YARD AT A TIME!