When you buy a home for the first time, it can sometimes feel like everyone around you is speaking a foreign language. Here are a few of the most common home buying terms to know, so you can keep up with your Realtor, mortgage provider, and even your friends and family:
This is when you pay a debt through smaller periodic payments, rather than all at once. An amortizing mortgage is a fixed-term loan. Your lender sets the payment amount so the entire loan is paid off at the end of the mortgage term.
A portion of each payment goes towards both the principal (the original amount of the loan) and the interest on the loan. The interest repayment is heaviest early in the repayment period, with stronger principal reduction happening closer to the end of the term.
This is how much your home, or the home you want to buy, is worth in the current market. A professional “appraiser” prepares this valuation.
This is done to confirm the current worth of the home and ensure the bank is not lending you more than the home’s value. The appraisal is done to protect you from paying too much and to protect the bank in the event of foreclosure on your home because you don’t pay your mortgage.
This is the meeting in which the property changes hands. At the closing the transaction is completed with the buyer signing all mortgage commitment documents giving them access to the money to pay the seller, and the seller signing over the deed giving ownership of the property to the buyer.
Debt Ratio (or Debt to Income Ratio)
Banks use this ratio to find out how much money they're willing to loan you. This ratio is uses how much debt you have vs. how much money you make in order to determine how much additional debt you can take on with a mortgage.
A deed is a document that grants/entitles ownership of property. The deed will detail the transfer of ownership and describe what is being transferred. In simple, the deed is the proof of ownership. You'll get a copy of the deed to your new home at closing and the original need will be recorded as a public document with the registry of deeds.
Disclosure (Seller's Disclosure)
Before you offer on a house, the seller has to tell you about the known details and material defects with it. Be sure to partner with your Realtor to find out what is stated within the disclosure and what additional research should be done to better know what possible conditions might exist.
This is the portion of the home’s sales price that you pay in cash or the part not being included in your mortgage. 20% down payment had been the typical amount, but this can vary greatly between loan programs.
This is a deposit you pay when you sign a contract with the seller to show that you're serious about buying their home. When you close on the house, this amount is applied as a credit.
This is the amount of property that you actually own. As an example, you bought a house for $250,000. You have $100,000 on your mortgage, so you have an equity of $150,000.
Escrow is a free service offered by mortgage lenders to make it easy for you to pay your property taxes and insurance by collecting a portion of the annual amounts along with each mortgage payment. The lender holds your payments in an “escrow account” until the full payment is due and then forwards the payment on your behalf.
This is when the lender takes back a property because the person who bought it stopped making their payments on time.
This is a loan from a bank or other lending agency used to buy a home.
This is a company that has access to different mortgage lenders offering a variety of mortgage loan programs with the goal of finding the best one for you. Your Realtor can also help with making recommendations.
PMI / Private Mortgage Insurance
If your down payment is less than the standard 20%, you will also need to buy Private Mortgage Insurance. This insurance protects the bank if you stop paying your loan back and they have to foreclose on your house.
This is the name for the amount you pay for an insurance policy.
These are annual taxes that you have to pay to your municipality on any property you own. These taxes pay for local services like schools, road maintenance, police & fire protection. Many homeowners use their mortgage lender’s escrow service as a means to set aside money for these payments, whether they are due quarterly, twice a year or annually.
Real Estate Agent / Realtor
The person who represents a buyer or seller in a real estate sale. However, it’s important to know the difference between real estate agents and Realtors.
While both have a license to sell real estate, a REALTOR® (as you might see it written) is a member of the National Association of Realtors and must subscribe to the REALTOR® Code of Ethics, which includes 17 articles.
Closing Disclosure/Settlement Statement/"HUD"
This is a standard document with all the financial details of the transaction, including the credits and expenses, used to calculate your final closing costs and the seller’s net proceeds.
This is the company that handles the closing of the real estate transaction. It also verifies and insures the title (ownership) of a property.
Do you need any help with common home buying terms? Our team of professional Realtors is here to answer all of your questions and help you find the perfect home.
Contact us today.