Buying a home for the first time requires the marriage of several moving parts. Even seasoned homebuyers can find the process to be daunting. Knowing basic vocabulary and terminology can greatly aid in easing the anxious first-time buyer. Here is a helpful glossary of terms to reference as you move forward:
Realtor. Realtors, or real estate agents are integral to the homebuying process, and they serve as your guide to your area’s housing market. Agents will show you listings that fit your specific needs, and often have access to homes that may not even be listed on the market yet. A real estate agent is your unique personal shopper when it comes to home listings.
Annual Percentage Rate. An APR is the standardized method of showing you the total cost of borrowing money. An APR is the combination of the interest rate charged by your creditor, in addition to any fees you may be charged for. These fees are usually presented in percentages, and will be added to the interest rate to give you the total of your APR.
Appraisal. An appraisal is a document that contains the estimated value of a home. These are professional opinions of the market value of a property, and can often help you determine if a home’s value is appropriately reflected in an asking price.
Conventional Loan. There are a variety of different loans and mortgages available for homebuyers. However, a conventional loan is usually the route most first-time homebuyers will take. A conventional loan will typically require a 3 percent down payment. They are not typically advisable for people with low credit scores. Conventional loans are not guaranteed by a government agency, and require private firms to administer them.
Credit Score. What exactly is a credit score? In terms of homebuying, a credit score helps potential loan officers determine the risk level of providing a mortgage to a potential client. These scores are calculated using a formula that assesses your comprehensive credit history. The higher your credit score, the more likely you are to have better options as a homebuyer.
Closing and Closing Costs. First time homebuyers may be surprised to discover there are often closing costs associated with the completion of a sale. These fees may be related to insurance fees, survey fees or attorney’s fees (if applicable). These costs will vary from location to location. Be mindful of these fees before putting an offer on a home, to ensure you have the extra funds to cover any surprise costs.
Closing is the fun part! Closing means the home is now yours, and a deed will be given to you once all necessary documents have been verified and approved. The home is now in your name, and you can begin the move in process.
Down Payment. A down payment is a portion of the sales price you will be required to pay the seller in order to close a sale. The down payment must be paid at the time of settlement (closing). Purchasing a home does not require the entire sale price be provided upfront. This is where your mortgage payment will come into play.
Home Inspection. A home inspection is a close physical examination of a property. It is usually not recommended to get a home inspection unless you are a serious buyer, or have already put an offer on a home. Home inspections determine the functionality of plumbing, electrical units, heating and cooling systems, appliances, structural stability, etc. Home inspections occur before the purchase of a home if finalized.
Lender. A lender is the financial institution or private agency that is responsible for your loan.
Mortgage Banker. An individual, firm or company that originates, sells and/or services loans secured by mortgages on property.
Mortgage Broker. A mortgage broker is a loan provider who serves as a liaison between the borrower and the lender. Hiring a broker can help ease some of the anxiety that comes with applying for major loans. Brokers can work for firms or independently.
Net Income. Your net income helps determine your financial standing when applying for a mortgage. Net income is your after- tax pay, and is the money you receive after all tax withholdings have been deducted from your gross income. Net income allows lenders to gauge your viability is a potential homeowner.
Offer. An offer is your bid on a home that you are interested in purchasing. Offers are almost always the exact asking price or a lower value. Once you place an offer, depending on the value, you may enter a negotiation process with the seller. A seller will either accept the offer, negotiate a value somewhere in between your offer and the asking price, or decline the offer entirely.
Pre-Approval vs. Pre-Qualification. These terms are closely related but still have a few fundamental differences. Pre-Qualification is essentially a less formal version of a pre-approval process. Pre-qual asks for estimated information that you will give to your mortgage broker, that helps them determine if you are a viable candidate. If you get pre-qualified, getting pre-approval is the next step. Pre-approval is far more involved and will require verified documentation of your financial history. Pre-approval is not necessarily required for homebuyers to have, however it is strongly advised, as not being pre-approved by a reputable bank or broker will significantly hurt your chances of closing on a home.
Feeling overwhelmed? Not to worry, you will not be expected to know everything about the buying process up front. Buying a home takes time and patience. Don’t be afraid to ask your real estate team any questions; that’s what they’re there for!