Now that you’re hunting for the perfect house, you’ve come to realize that it’s time to expand your vocabulary. Terms like closing and equity and all sorts of legalese are swimming in your head. While any real estate agent worth his or her commission is able to help you sort through these definitions, it’s a good idea to get acquainted with them now so you won’t need to ask later.
Below, I’ve compiled a list of the top vocabulary terms you’ll need to know to feel like a pro even if you’re a first time home buyer. Let’s get started.
This mortgage condition is when a lender demands immediate payment of the loan balance. This can occur in response to late mortgage payments.
Agreement of Sale
This contract is a simple document that the buyer signs when agreeing to purchase the property. It is also signed by the seller. All terms and conditions are include in the agreement of sale, including purchase price, home location, and any ongoing dues, such as homeowner’s association fees.
The period of time you owe interest and principal to your lender is known as amortization.
The estimated value of your property. Appraisals are done at the request of a lender and are performed by an impartial appraisal professional.
Certificate of Title
This certificate is issued by a title company. It certifies that the title of the property is insurable.
This is the final meeting where the seller officially transfers ownership of the property to the buyer. During closing, the seller signs the deed to the property over to the buyer. The buyer will then pay closing costs and sign all mortgage documents. Closing costs are generally between two to five percent of the home’s purchase.
This is money that the seller pays to the real estate broker for finding a buyer and successfully selling a home. Although the seller usually takes care of commission fees, some buyers agree to split the commission costs in half. Another arrangement is for the buyer to pay the full commission, although that’s less common. Commission rates vary between 5% to 10%, but there’s a lot of variance in between. Of course, you’ll often get what you pay for.
This is a written legal document that transfers ownership of property. It proves that you own your home. To be perfected and fully binding, a deed must be recorded in the local government. It will then become public record.
Deed of Trust
A borrower provides property as security against a debt. If the borrower defaults on the loan, a trustee may hold a public sale of the property and use those funds to repay the debt.
When you do not pay your mortgage on the agreed upon terms, you have defaulted on your loan. Officially, default happens 30 days after payment is due. If you default on your loan, the lender has the right to start foreclosure proceedings.
The amount of money you pay toward the purchase of a property. It is generally a percentage of the purchase price, for example 5% or 20%.
This is a deposit you, as a buyer, provide to the seller to show good faith toward completing the purchase of the home. Earnest money is applied to the down payment of the home. If you do not complete the sale, you may lose your deposit.
The right to access or use another person’s property without actually possessing it. An example of this is if your house sits back behind another person’s property and the only way to reach your home is through the other person’s property, that owner may grant you easement rights to create a road through his or her property.
The amount of value you hold in your home. To find the equity of your home, you’ll subtract how much you owe on the home from its current market value.
This is money you send to an impartial third party (an escrow agent) who will then release it at an agreed upon time. Escrow has multiple meanings in real estate, but for the purposes of buying a home, escrow is often used to refer to a holding of funds until all conditions are met.
When an owner has defaulted on a mortgage, the lender has the legal right to enforce payment.
A claim on a property until an owed debt is repaid. Liens may be placed on a property from a general contractor or other party who has worked on your home. It can also be placed on a property due to back federal, state, or county taxes. Finally, losing a judgement can also lead to a lien.
A loan you receive from a lender to aid in purchasing your house. Your new house is the collateral. There are multiple types of mortgages, but the most popular are:
Adjustable Rate Mortgage
Sometimes known as an ARM, this type of mortgage carries an interest rate that can be adjusted based on market activity. There are different types of ARM, each with its own structure. When applying for a this type of mortgage, the lender will explain the specific terms and when your interest rates may change. The rate is generally fixed for a period of five or 10 years, and then it can fluctuate, usually higher. This allows for a lower interest in the beginning of your loan.
A mortgage that is not insured by the federal government. To qualify for a conventional loan, a buyer must have good credit. A minimum credit score of 620 is needed, but the higher your credit score, the better the interest rates. This type of loan often requires a 20% down payment. Conventional mortgages usually last between 15 to 30 years.
Federal Housing Administration (FHA) Loan
This loan is insured by the Federal Housing Administration and offers lower down payments (some as low as 3.5%) to those with lower credit scores. To qualify for a FHA loan, you will need a credit score of at least 500, but to receive the lowest down payment, you’ll need a credit score of 580. The drawback of an FHA loan is that you’ll pay more interest with such a low down payment. You’re also on the hook to pay a mortgage insurance premium. An FHA loan is not granted from the government, only secured. This type of loan must go through a specific FHA certified lender.
Fixed Rate Mortgage
The amount you pay is locked in, or fixed, at a certain interest rate. While your mortgage payment may vary slightly, based on taxes, homeowners association dues, or insurance, the amount will be generally stay the same.
A map that shows boundaries of a property.
A bank meticulously looks through your records and is willing to approve you for a loan to purchase a home. The bank checks credit, financial statements, and other documents to assess your readiness to take on debt.
Payment of a mortgage loan before it’s due. A lender may restrict the amount you can prepay. Otherwise, they may charge a penalty.
Not to be confused with preapproval, prequalified means that you are likely a good candidate to start the preapproval process. However, it does not guarantee that the lender will prove a loan (neither does preapproval). It does help you determine whether you’re ready to start the home buying process, and what you can do if you’re not quite ready yet.
Real Estate Agent
A licensed professional who has passed a state real estate licensing exam. The agent must work under the license of a brokerage firm.
Real Estate Broker
A real estate agent who holds a broker license and can sell homes on his or her own.
A real estate agent who belongs to the National Association of Realtors.
The title is a report of the activity of ownership of a property. It shows who currently owns the property, who owned the property in the past, and what mortgages or liens may exist on the property. A clean title means that there are no liens or other claims to the property by a third party. It indicates that the property to free to purchase.