There are plenty of great reasons to use a realtor when buying a new home, but there can be some difficulties. With a whole slew of new words and phrases to learn, your first conversations with a realtor may seem like you’re both speaking different languages. A good real estate agent will help you understand these terms as you navigate a new home purchase, but if you want to have a handle on what you’ll be talking about, here are a few important terms to know.
Mortgage – Let’s start at the beginning. A mortgage is a loan secured by real property through a bank, credit union or mortgage lender. There are many types of mortgages, including ones geared for first time homebuyers, so make sure to do your research when choosing a loan and lender.
Listing – A listing is a deal between a seller and a real estate agent that allows that agent to market the home and negotiate on the seller’s behalf.
Short Sale – When a home is sold for less than what the seller owes on the property loan, usually done to avoid a foreclosure. For buyers, this means you can find a home cheaper than it might otherwise be available. Sellers must meet a few criteria to be eligible for a short sale, and a real estate agent can help you negotiate the sale. For more details, watch the video below.
Appraisal – The appraisal is a survey of the home by a professional appraiser to determine the value of a property. The appraiser is typically chosen by your lender, but sometimes banks will allow a seller to choose their own appraisal professional. The appraisal affects everything from the asking price to the buyer’s down payment.
Contingency – Contingencies are conditions for a sale that have been built into the purchase agreement, and they are very important for homebuyers. Contingencies allow buyers to back out of a sale without penalty if something goes wrong. Common contingencies would include the completed sale of your current home before the purchase of a new one, or that the appraisal meets an appropriate level to receive financing. As a buyer, it’s important to include a home inspection contingency to ensure your new home is in the shape the seller claims it to be.
Down Payment – The down payment is the portion of the home price a buyer will pay in cash. Conventional mortgages may require a 20 percent down payment, but FHA mortgages may require as low as 3.5 percent. For a first time mortgage, an FHA loan can be very attractive, given its low down payment.
Good Faith Estimate – The Good Faith Estimate is a document provided by your lender that shows an estimated range of charges that a buyer will probably incur during the buying process.
Escrow – An escrow account holds certain funds that the buyer will owe the seller, held by a neutral third party. The buyer typically deposits these funds in the account to prove their ability to close the deal, but the seller will only receive the funds once other conditions of the sale are complete.
Closing – The part where you sign a seemingly endless stack of papers. The closing is the final completion of the sale, usually finished when the buyer completes all documentation, signs the mortgage obligation and pays all the Closing Costs. Closing costs, you say?
Closing Costs: These can include all the appraisal fees, mortgage fees, insurance and any other costs negotiated in the sale of the house. Buyers and sellers may have different closing costs, so make sure you are aware of your share before the closing date.