Home buying is a major milestone and a dream come true for many. It can also be a stressful time, especially when it comes to understanding all of the industry jargon. Before you can even start dreaming of the garden you want to plant in the back yard, the color of the backsplash, or that sauna bathtub, you first have to find an agent and, well, the house. That’s where things can get confusing, fast!
During your search, you’ll come across a variety of acronyms and terms, whether you hear them verbally or read them in print. If you’re a first time homebuyer, it can get tricky and overwhelming trying to decipher all of the real estate terms, and even if you’re a seasoned investor, there’s always something new to learn. In an effort to make that process a bit easier for you, we’ve compiled a list of 15 key terms that you need to know before beginning your house hunt:
Listings – Real estate agents refer to homes for sale as “listings.” A listing on a website shows information about the house, including price and number of bedrooms.
Credit Score – A credit score is a numerical expression that measures an individual’s creditworthiness, evaluating potential lending risk. While this is the most well-known factor in making large purchases, it is certainly not the only one. Your lender will also ask for employment verification, personal references, and any number of other criteria that they have deemed necessary.
Fixed Rate Mortgage & Adjustable Rate Mortgage – A fixed-rate mortgage has a predetermined interest rate throughout the life of the loan. An adjustable rate mortgage has a variable interest rate, and is often referred to simply as an “ARM”.
Down Payment – This is a percentage of the home purchase price (usually between 5% and 20%) paid up front in cash. Your lender will discuss the exact percentage that you will be required to pay at closing.
Appraisal – An estimation of a home’s market value by a licensed appraiser based on comparable recent sales of nearby homes. The appraisal is a part of the mortgage process, mandated by your lender.
Contingent Offer – An offer is accepted by the seller, but certain conditions must be met before the sale is final. Contingencies are an important part of a buyer’s ability to purchase the right home for their needs, but if taken too far, may also be cause for a seller to reject the entire offer.
Backup Offer – A secondary offer on a home that is under contract that becomes active if the primary contract falls through. This is very common in areas with a tight housing inventory.
Escrow – A neutral third party that holds funds from the buyers and distributes them when all conditions have been met.
Inspection: An examination of a property and its systems performed by a qualified professional, usually before the sale of a home. This is not to be confused with the appraisal. Appraisals are concerned with market value, while inspections are concerned with livability and safety of the structure.
Seller Disclosure – A document completed by the seller, which discloses the property’s history and any defects that may be present. This document is mandatory.
Closing Costs – Fees that typically amount to 2–5% of the purchase price of the home, excluding the down payment. Common fees include excise tax, loan-processing costs and title insurance.
Under Contract – This is when a buyer has submitted an accepted offer, but the closing is not yet final. Barring any unforeseen issues, a home that is “under contract” can be counted as off the market.
Preapproval Letter – A letter indicating that a lender is willing to loan a specific amount of money for a home purchase, as long as certain criteria are met. Preapproval does not guarantee a loan.
While you want to make sure that you are able to understand every step of the home buying process, don’t fret if you encounter certain industry jargon that you’re not familiar with. Working with a Certified Residential Specialist means that every step will be explained to you in exhaustive detail, and by the time you get to the closing table, you’ll feel like a seasoned home buying pro. Contact a member of our team at (206) 465-7215 to get started today.