If you’re buying or selling a home, you’ll probably come across some terms that you’ve never heard before, or don’t completely understand. Being confused about the terminology can make an already complex process that much more stressful. By educating yourself before you dive into the market, you’ll gain peace of mind and might even save some money. Here are the most common real estate terms or concepts you should know.
If you’re purchasing a home with a loan, the lender will require an appraisal. This is an evaluation of all aspects of your home to determine its value, including its size and condition on both the interior and the exterior. Your lender wants to ensure their investment is sound.
Adjustable Rate Mortgage
When shopping for a mortgage, you may decide to apply for an adjustable rate mortgage. These types of loans have a variable interest rate and are generally extended for 5, 7 or 10 years. They may also have a cap on how high the rate can grow.
Fixed Rate Mortgage
As opposed to an adjustable rate mortgage, a fixed rate mortgage has a predetermined interest rate. The life of the loan is typically 15 or 30 years.
Closing is the last step of a real estate transaction when paperwork is signed and the title is transferred from the seller to the buyer. You may also hear it referred to as “settlement.”
When drawing up a contract for a real estate transaction, there may be certain provisions that need to be met in order for the sale to go through. These provisions are called contingencies, and a home may be listed as “contingent” until these requirements are met. These usually include inspections, mortgage commitment, and appraisal.
A down payment is the money a buyer pays upfront to secure the purchase of the home. In most cases, the down payment is 20 percent of the purchase price, though this can change depending on the type of mortgage you secure. This down payment goes toward your loan.
Earnest money is the cash that is deposited when an offer is made on a home. If the sale goes through, the earnest money is can be used towards the down payment or closing costs. We also refer to it as a “good faith deposit.” You are in essence providing money in good faith to ask someone to take their home off the market. In most cases in our market in Montgomery County PA, the good faith deposit is held in a non-interest bearing escrow account at the listing agent’s brokerage.
A property is in escrow once the buyer and seller enter into an agreement and the earnest money is paid.
Before you begin looking for a home in earnest, you should secure a pre-approval from a lender for your mortgage. This is typically a letter from a bank stating how much they will lend to you.
The title is the rights to a property, and often refers to the document that shows evidence of ownership. During the buying/selling process, a title company will conduct research to determine if the title is clear. If there are no outstanding claims on the title, it is then transferred during the closing process.
When a lender researches a borrower to determine whether or not to extend credit, this is called underwriting. This determination is made by examining the buyer’s application and credit scores, income, credit history and debt.
If you are preparing to buy a home in the greater Philadephia region, we would love the opportunity to earn your trust. Please get in touch!
Angela and Rick