The path of buying a home can be overwhelming as you are making one of the biggest purchases you have ever or perhaps will ever make. Terms, you’re not entirely sure what they mean, are being thrown around. It is quite normal to be worried that you are going to make the wrong decision because you aren’t clear on the language of home-buying.
Home buying terminology shouldn’t be a source of frustration for us. It’s important to understand the phrases that will be thrown around, before digging into all the details of buying a home– and how they can save you some cash up front or in the future
Below mentioned are some key terms to know before you get started.
A contingency may be added while a real estate contract is created. It is a provision that says your contract will change or be voided if something comes up before closing.
For example, if something happens with the inspection report and you as the buyer don’t approve it, you don’t have to go through with the purchase if there is a contingency.
This describes the size of the loan you’re getting, or already have, versus the value of the home you’re buying, or already own. It’s expressed as a percentage, loan size divided by home value equals LTV%, and is a key to understanding how much you may be able to borrow, or where you stand with your existing loan.
- Closing Costs:
These are the fees that you will have to pay when you decide on a home, and you complete a transaction. These include your document preparation fees, attorney’s fees, the fees to record the appraisal and fees.
Closing costs can also be termed as the costs that come with the loan process, and most will come from third parties. The range is anywhere from 1 to 3% of the purchase price of a property.
The closing itself is a meeting when the ownership of a home is officially transferred to the buyer.
- Multiple Listing Service or MLS:
This is a digital service that lets real estate professionals see listings of what’s currently on the market, more commonly known as MLS.
- Private Mortgage Insurance:
Private mortgage insurance or PMI is insurance that will provide reimbursement to a mortgage lender if a buyer defaults on a loan and the property sells for less in a foreclosure sale than what was owed to the lender. You will probably have to buy private mortgage insurance if you make less than a 20% down payment.
Your lender will offer a conditional agreement to let you borrow a specified amount of money, when you have a preapproval. A lender will have to go over your financial information for a preapproval.
A prequalification is different. This is just an estimate of how much you may be eligible to borrow to buy a home. There is no commitment here from the lender, and they will likely still require you to submit other information before you can receive a loan.
- INTEREST RATES:
This is what you’re paying to borrow money from a lender. It’s normally referred to as an annual percentage. The lower the interest rate, the less you pay for the money you borrow.