First-time home buyers can have a tough time sorting through real estate terms spewed by real estate agents, lenders, real estate attorneys and other real estate professionals.
Here’s a brief alphabetical glossary of some basic real estate terms first-time home buyers need to know:
Amortization:The repayment of a mortgage in small equal periodic installments of principal and interest, as determined by a payment plan to pay off the loan over a certain amount of time.
Appraisal:An appraiser’s assessment of a property’s value. A home sale is contingent upon an appraisal for at least the amount of the loan the buyer wants to secure.
Closing costs:One-time costs associated with buying a home, disclosed before closing, but due at closing. The costs can include fees for an attorney, recording, inspections, appraisals, title service costs, even pre-paid homeowner’s insurance and taxes.
Contingency:Contractual conditions that must be met before a home sale closes. They can protect the buyer or the seller and can include a satisfactory home inspection, secured financing, adequate appraisal, etc.
Credit Report: A report card of your creditworthiness. Go to AnnualCreditReport.com to get one free credit report, every year, from each of the three credit reporting agencies:TransUnion, Experian, and Equifax. That’s three free a year.
Credit Score:A numerical rendition of your credit report that plays a significant role in a mortgage approval, the cost of the loan and other terms of the loan. Get your credit score direct from the three credit reporting agencies.
Down Payment:Cash the homebuyer brings to the deal. A down payment reduces the amount financed by the amount of the down payment and brings equity to the deal. Many lenders require at least 20 percent down to reduce its risk, but various loan programs require as little down at 3.5 percent down.
Earnest Money:A deposit of good faith money, typically included with the offer to buy a house. Earnest money can become part of the down payment.
Escrow account:A lender-held account to which the buyer makes monthly deposits beyond the monthly principal and interest payment. The monthly payments are used to pay the homeowners property taxes and homeowner’s insurance. Otherwise the homeowner is saddled with large lump sum tax and insurance payments once or twice a year.
Mortgage:A loan from a bank, mortgage lender, credit union or other lender to finance the purchase of a home. Mortgages vary and can include fixed- and adjustable rate mortgages, conventional loans, larger jumbo loans and loans backed by the federal government.
Points:Sometimes referred to as “discount points” these costs reduce the interest rate and are paid at closing or up front when used. One point is one percent of the mortgage amount.
Pre-approval:An official document and the process by which a homebuyer obtains proof he or she has been approved for a mortgage, pending the home appraisal and other financial contingencies. During the process, the lender verifies the buyer’s credit score, income, debts, employment and other factors that go into a mortgage applications. A pre-approval letter says the buyer has been approved for a certain mortgage, again pending contingencies.
Title:A public records document that proves ownership of the property. A title also includes any claims against that ownership. During a home purchase, the buyer conducts a title search to verify the seller is the owner and if the title contains any judgments or liens against it.
This list is a small real estate glossary. Talk to your real estate agent if you have questions about other terms.