With the number of people involved in a single real estate transaction (real estate agents, attorneys, appraisers, inspectors, lenders, underwriters, etc.), buying a house can seem both overwhelming and complex—particularly if you don’t speak the ‘language’ of real estate.
To help you break the language barrier, here are some examples of basic real estate terms you’ll often heard when buying a home:
Mortgage – A mortgage is a home loan, which can be obtained after you contact a bank, credit union, or other type of lender. There are several different types of loans that can have different interest rates, terms, and down payments.
Amortization – This is the schedule to pay off a mortgage over an extended period of time, with payments made in monthly installments. Usually these payment plans extend over 15 or 20 years.
Credit Rating – Your “credibility” according to a numerical conversion helps lenders determine whether or not giving you a loan is a good risk. If you have a good credit rating according to one of the three credit reporting agencies (TransUnion, Equifax, and Experian), it is likely that you’ll be entitled to a lower interest rate on your loan.
Pre-Approval – If a thorough assessment of your financial situation is made, and the results are in your favor, you might be able to attain a pre-approval letter. This letter would give you in a firmer commitment of the loan amount that lenders are willing to extend to you, in turn helping your chance of buying your dream home.
Down Payment – The cash that is paid upfront on your home purchase, which differs from the payment of the rest of your purchase, which will be financed by your mortgage loan.
Binder or Earnest Money – The money that is included in an offer letter that proves how serious, or earnest, the home buyer is about the purchase.
Contingency– A condition included in the contract when a home is purchased that is meant to protect you, as the home buyer. There are several different types of contingencies, including secure home financing, a satisfactory inspection of the sale property, and the sale of the buyer’s current home.
Title – legally valid claim to ownership of real property, evidenced by deed, certificate of title, or bill of sale. A lender will extend mortgage financing to a buyer only if the seller holds uncontested ownership of the property in question. Most states treat a mortgage as a lien against the title held by the lender, or mortgagee , but some states recognize a mortgage as a binding obligation of the borrower, or the mortgagor named in the title.
Appraisal –written estimate of market value by a qualified appraiser. Appraised value is one of the key factors determining loan size in loans secured by real estate. The estimated value of real property is based on replacement cost, sales of comparable property, or expected future income from income producing property.
Escrow Account – funds that the lender collects monthly to pay the monthly mortgage insurance premiums, homeowners insurance policy premiums, and yearly property taxes.
Closing Costs – expenses involved in transferring real estate from a seller to a buyer, among them lawyer’s fees, survey charges, title searches and insurance, and fees to file deeds and mortgages.
Points –fees paid to induce lenders to make a mortgage loan. Each point equals 1% of the loan principal . Points have the effect of reducing the amount of money advanced by the lender, thereby increasing the effective interest rate.
Don’t let the language of real estate be intimidating….Contact me and I’ll be happy to translate.