Buying your first home is both exciting and overwhelming. When you begin the home buying process, there may come a time when terms you aren’t quite familiar with are used. Buying a home is a major investment and not one that should be taken lightly, so it is important to be as knowledgeable about the topic as possible. We came up with this guide of 30 common real estate terms for first time home buyers to help them be confident in their real estate decisions. However, you should remember that your real estate agent is there to help you. If you ever have any questions or doubts you should never be afraid to talk to them.
This means that the seller has agreed to the terms and price that you outlined in your offer. Once the seller has accepted your offer, you are considered under contract. Trying to back out at this point could result in consequences including: losing any earnest money or deposits you may have given.
- Acquisition Cost
The acquisition cost is the cost in acquiring a property in addition to the purchase price. Acquisition costs are often referred to as closing costs. Often included in the acquisition cost are title insurance, escrow fees, and lenders fees.
- Adjustable Rate Mortgage (ARM)
This is a home loan where the interest rate is adjusted at regular intervals, such as twice a year or once a year to coincide with current interest rates. First time home buyers will most likely not receive an ARM loan as the changing rate will change your monthly payment. This could possibly jeopardize your ownership if you are unable to adjust to the changes.
- Annual Percentage Rate (APR)
The APR is your interest rate each year. The APR on a mortgage includes the fees you pay upfront like loan origination fees and mortgage insurance. You can use this percentage to compare offers from different lenders.
An appraisal is the process that determines the value of the home. Appraisals include factors such as location, size, selling prices of similar homes in the area, condition of the property, and upgrades to the home. Not only does an appraisal let you know how much to offer on a home, but lenders ask for appraisals so they don’t provide a loan that exceeds the value of the home.
- Asking Price
This is the price that the seller is expecting to get for the property. Asking prices are negotiable. A real estate agent will help you to write an offer that satisfies both your needs and the seller’s needs.
This is the final transfer of a home’s ownership between the buyer and seller. The deed is delivered to the buyer, the title is transferred, and all costs are paid. It is at this point that the buyer gets the keys to their new home.
- Closing Costs
Closing costs are expenses of the sale that need to be paid in addition to the purchase of the property. Occasionally, the seller will pay a portion of the closing costs. It is important that all of your costs are itemized and spelled out in the paperwork. Some of the expenses that are included in the closing costs are credit check fees, appraisal fees, and escrow fees. Closing costs are usually about two to three percent of the purchase price.
Often referred to as comps, comparables are properties that are similar to the property you are looking to purchase. They are often used in the appraisal process.
A contingency is an item in the contract that allows you to get out of completing the purchase of the property if certain terms aren’t met. One of the most popular contingencies – and one that all buyers should include in a contract – would be the ability to get out of the contract if the home does not pass its home inspection.
- Conventional Loan
First time home buyers usually receive a conventional loan with amortized payments. The loan has fixed monthly payment and typically has a 30-year period of fixed interest rates.
- Counter Offer
Counter offers are often used by a seller when they consider a buyer’s offer to be too low. The buyer may offer $225,000, and the seller may come back with $240,000. The buyer would then need to decide whether or not they will accept the counter offer. Sometimes the counter offer may be as little as including a washer and dryer in the purchase of the home.
- Credit Rating
This is a detailed history of all of your credit dealings. Lenders look at credit reports to get an idea of where your finances stand, and what you owe. The lender will get a report from each of the three major credit bureaus. All three agencies offer a score based on the information that is in the report. The middle score usually carries the most weight in regards to loan decisions.
The deed can be thought of as a purchase receipt. It is a legal document that is the official proof of transfer of ownership of a property.
A default is a failure to pay a contractual debt. As a first time home buyer, a default on your credit score can have a negative effect on your power to purchase a home.
The act of making something known. A home seller is to disclose to the buyer of any known defects or problems with the property. As a buyer you will be asked to sign many disclosures that outline the flaws or defects with the property.
- Down Payment
The down payment is the portion of a property purchase that is paid in cash by the buyer when the sale agreement is executed. Most lenders today look for buyers to have 3-20% of the purchase price as a down payment.
- Earnest Money
This is a cash deposit prospective buyers pay on a property to indicate that they are serious about purchasing the property. The money is due when the offer is accepted. The remaining money owed is paid at closing. If a buyer fails to complete the purchase, the seller keeps the earnest money.
Equity is the remaining value in a property after payment of all liens. Your equity grows as the amount of your loan decreases. It is also subject to fluctuations in property value according to the current market. If your home is worth $225,000 and you still owe $165,000 then you have $60,000 equity in your home. If you owe more on your home than it is worth, you have negative equity.
A third party company that handles the closing of a real estate transaction. Essentially, your money is held in escrow so that the seller can see that you have it and that you are ready to pay. Once the paperwork is signed and the buyer has the title/deed in their name, then the funds are released to the seller. Using escrows looks out for everyone’s best interest and smooths the whole buying/selling process.
- Fixed Rate Loan
This type of loan is most desirable because the interest rate never changes for the life of the loan. No matter what happens in the market, your interest rate remains the same.
- Homeowners’ Association (HOA)
Homeowners’ associations are groups of property owners in certain communities that establish property standards, collect dues, and manage common areas. When you live in an area with an HOA you pay fees to the association and agree to follow the rules set by the association regarding home appearance, noise, and other such items. Make sure you fully understand the rules associated with the property and that you are willing to cooperate with them before you purchase it.
- Mortgage Broker
Mortgage brokers are lending agents who have access to many different loan programs. Mortgage brokers can help you compare your mortgage options and is paid on commission.
- Multiple Listing Service (MLS)
Listings that allow a real estate professional to see all the details related to a house. When you work with a real estate agent to buy a home, they will ask you what you are looking for and refer to the MLS to locate homes to show you.
Realtor jargon that stands for principal, interest, taxes, and insurance. These are the major costs associated with homeownership and are included in monthly home payments.
- Private Mortgage Insurance (PMI)
When a buyer does not have a down payment of at least 20 percent, private mortgage insurance is often required. PMI is there to protect the lender if the buyer should default.
A person whom is licensed to show properties and aid in selling transactions. They are a great tool when buying or selling a home.
Evidence of ownership of land that is publicly recorded in the county that the property is located. Once the transaction closes and the title is recorded, you claim ownership and have all rights to the property.
- Title Insurance
Protects the insured against loss and damage due to flaws in the property title. It helps to ensure that you are the rightful owner of the property.
A walk-through is the final inspection of a property before the closing of the sale. It is the last opportunity that a buyer has to confirm that the property is undamaged and vacant and that all fixtures that were included in the contract are still in the property.
Though this list is meant to help guide you through some of the common terms used during the home buying process, you may still have some questions and concerns. That is what we are here for. Please never hesitate to ask us for guidance and clarification. We are happy to be of service.