Buying a home, even if this isn’t the first home you have purchased, can be confusing. There is a specific lingo that comes with being in the real estate world, and in order to successfully navigate it, buyers and sellers need to understand what they are hearing and reading.
To help, below are some standard terms found in contracts, communications, and throughout the home buying and selling process.
Mortgages and Loans
There are several types of mortgages available for homebuyers. Some of the most common include:
- Adjustable rate mortgage (ARMs) – A mortgage with a lower initial rate (for a set number of years), where the rate may go up or down, depending on the specified index used for determination, usually with a repayment period of five, seven, or ten years.
- Fixed-rate mortgage – This is known as a conventional loan with a locked-in interest rate for the entire loan repayment period. Usually, these mortgages are 30 years in length but can be 15 years, 10 years, or lower.
- FHA loan – These loans are insured by the Federal Housing Administration (FHA), and include incentives like low financing rates and less stringent lending stipulations than conventional mortgages; however, they require an upfront premium and annual premium insurance that is included in the mortgage payments.
Other terms that may need defining when pertaining to mortgagees and loans is amortization which is the repayment schedule of a loan, that includes payments of principal and interest.
There are two terms concerning insurance that are bound to be discussed, private mortgage insurance (PMI) and title insurance. PMI is required if a buyer’s down payment is less than 20 percent of the home’s purchase price. It is intended to protect lenders if a buyer defaults on the loan. Title insurance is used for protection against debts or liens against the property.
Money and Fees
Buying a home is not without fees and payments, whether to your agent, builder, or inspector. One charge that takes place in every real estate transaction is closing costs. Closing costs are fees associated with the completion of the real estate process, including document preparation fees, deed recording fees, attorney’s fees, credit report fees, appraisal fees, etc. Sometimes in new construction or in multiple bid situations, sellers will be asked for earnest money, a deposit that is held by a neutral party that shows that the buyer is serious about purchasing the property.
Familiarizing yourself with these terms before entering the home buying process can be an asset to you. By being knowledgeable about the real estate industry, you can feel confident you are informed, asking the right questions, and making the best decisions for this long-term endeavor of home ownership.