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Health & Fitness

Straight Talk: Demystifying Real Estate Terminology

Don't be out of the loop when it comes to real estate terminology! Learn these words to lessen your confusion and get the best out of your home buying process.

If you’ve never bought a home before (or even if you have), it can be overwhelming to try to sort out all of the lingo that your agent, lender, or real estate attorney might be throwing around. If you’re unfamiliar with the home buying process – and in particular, financing your new home – all of these terms can get a little confusing. Here’s a brief glossary to help you decode some of the basic terms you might encounter:

Credit Rating. Your credit rating plays an important part in the type and amount of home loan you are able to secure from a lender and the interest rate for which you qualify. To find out your credit score, you can order your credit report online from the three credit reporting agencies – TransUnion, Experian, and Equifax.

Pre-approval. It is ideal to have a pre-approval letter in hand before making an offer on a home. A pre-approval from a lender is different from a pre-qualification, for which a lender looks over your financial records and makes an informed estimate of what sort of loan you might qualify for. For a pre-approval, you must actually go through the application process for a loan, at which point a lender will have a much clearer view of your finances and credit, and can therefore approve you for a loan pending the home appraisal.

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Appraisal. Your home sale will be contingent upon an appraisal – an assessment of the value of the property you wish to buy as performed by a licensed appraiser. The property should appraise for at least the amount of the loan you wish to secure from your lender.

Mortgage. A mortgage is a home loan, secured from a lender such as a bank or credit union to pay for a home or property. Mortgage loans come in all shapes and sizes, such as fixed- and adjustable-rate mortgages, conventional loans, and special loans such as jumbo, FHA loans (backed by the Federal Housing Administration), and VA loans (guaranteed by the Department of Veteran’s Affairs).

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Amortization. Once you’ve secured a mortgage from your lender, you will have a payment plan, usually due in monthly installments, to pay off the loan over a certain amount of time (commonly, but not always, 15 or 30 years)

Title. This is a document that proves ownership of a property. When you purchase a new home, it’s important to make certain that the seller is a legal owner of the property and that there are no judgments or liens against it.

Down Payment. The down payment is the amount of a home purchase that a buyer finances with cash. The rest of the purchase is paid with a mortgage loan. Conventional wisdom suggests that a down payment should represent 20% of the total purchase price, but loan options vary and it is possible to secure a loan with less money down.

Closing costs. Closing costs represent all of the one-time costs associated with buying a home and are due at closing, which can include attorney’s and recording fees, payment for inspections and appraisals, and title service costs. Pre-paid homeowner’s insurance and taxes may also represent part of your closing costs.

Earnest Money. A deposit of “earnest money” is usually included when a buyer makes an offer on a house, showing the seller that he or she is serious about the purchase.

Contingency. Contingencies are conditions written into the contract when an offer is made on a home in order to protect the buyer in the case that something goes wrong with the sale. Typical contingencies involve a satisfactory home inspection and secured financing prior to the finalization of the sale.

Escrow account. This is an account held by your lender that you pay into above the amount of your loan principal and interest. The lender then uses this “extra” money to pay for your property taxes and/or homeowner’s insurance.

Points. These are sometimes referred to as “discount points,” and are paid at closing with certain loan types. Points represent a percentage of the mortgage loan paid up front in exchange for a reduced interest rate.

Depending on the type of property you are buying, the type of loan you apply for, and many other factors, there are plenty of other real estate terms that might be unfamiliar to you. Talk to your real estate agent if you have any questions – he or she can be your greatest resource as you navigate the home buying process.

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