Buying a home can be intimidating and confusing if you are not familiar with the real estate transaction terms used during the process. To start you on your path with confidence, I have compiled a list of some of the most common terms used when buying a home.
Annual Percentage Rate (APR) – This is a broader measure of your cost for borrowing money. The APR includes the interest rate, points, broker fees and certain other credit charges a borrower is required to pay. Because these costs are rolled in, the APR is usually higher than your interest rate.
Appraisal – A professional analysis used to estimate the value of the property. This includes examples of sales of similar properties. This is a necessary step in getting your financing secured, as it validates the home’s worth to you and your lender.
Closing Costs – The costs to complete the real estate transaction. These costs, in addition to the price of the home, are paid at closing. They include points, taxes, title insurance, financing costs, items that must be prepaid or escrowed and other costs.
Ask your lender and Title Company for a complete list of closing cost items. To avoid closing costs surprises, the Title Company will email a five-page “Closing Disclosure” (CD) a few days before the Settlement. If you are new to the home buying process or haven’t bought a house in the last 2+ years, please note that HUD-1 has been replaced by “Closing Disclosure” or CD. To read more about this new regulation, please click here.
Credit Score – A number ranging from 300-850, that is based on an analysis of your credit history. Your credit score plays a significant role when securing a mortgage as it helps lenders determine the likelihood that you’ll repay future debts. The higher your score, the better, but many buyers believe they need at least a 780 score to qualify when, in actuality, over 55% of approved loans had a score below 750.
Discount Points – A point equals 1% of your loan (1 point on a $200,000 loan = $2,000). You can pay points to buy down your mortgage interest rate. It’s essentially an upfront interest payment to lock in a lower rate for your mortgage.
Down Payment – This is a portion of the cost of your home that you pay upfront to secure the purchase of the property. Down payments are typically 3 to 20% of the purchase price of the home. There are zero-down programs available through VA loans for Veterans, as well as USDA loans for rural areas of the country. Eighty percent of first-time buyers put less than 20% down last month.
Escrow – The holding of money or documents by a neutral third party before closing (usually Title Company). It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.
Fixed-Rate Mortgages – A mortgage with an interest rate that does not change for the entire term of the loan. Fixed-rate mortgages are typically 15 or 30 years.
Home Inspection – A professional inspection of a home to determine the condition of the property. The inspection should include an evaluation of the plumbing, heating and cooling systems, roof, wiring, foundation and pest infestation.
Mortgage Rate – The interest rate you pay to borrow money to buy your house. The lower the rate, the better. Interest rates for a 30-year fixed rate mortgage have hovered between 4 and 4.25% for most of 2017.
Pre-Approval Letter – A letter from a mortgage lender indicating that you qualify for a mortgage of a specific amount. It also shows a home seller that you’re a serious buyer. Having a pre-approval letter in hand while shopping for homes can help you move faster, and with greater confidence, in competitive markets.
Primary Mortgage Insurance (PMI) – If you make a down payment lower than 20% on your conventional loan, your lender will require PMI, typically at a rate of .51%. PMI serves as an added insurance policy that protects the lender if you are unable to pay your mortgage and can be cancelled from your payment once you reach 20% equity in your home. For more information on how PMI can impact your monthly housing cost, click HERE.
Real Estate Agent – A certified professional who provides services in buying and selling homes. Real estate agents or realtors are there to help you through the confusing paperwork, to help you find your dream home, to negotiate any of the details that come up, and to help make sure that you know exactly what’s going on in the housing market. Real estate agents can refer you to local lenders or mortgage brokers along with other specialists that you will need throughout the home-buying process. According to the Orlando Regional REALTOR Association, there are over 230 possible actions that need to take place during every successful real estate transaction. You want someone who has been there before, someone who knows what these actions are, to make sure that you acquire your dream.
Freddie Mac has compiled a more exhaustive glossary of terms in their “My Home” section of their website.
The best way to ensure that your home-buying process is a confident one is to find a real estate professional who will guide you through every aspect of the transaction with ‘the heart of a teacher,’ and who puts your family’s needs first. If you are ready to make a move, contact me today to schedule free no obligation buyer consultation.
And please, don’t forget to download
My Buyers’ Guide:
“Things to Consider When Buying a Home”
As a home buyer, there’s plenty you need to know. You’re about to make the largest financial investment of your life, but with my Home Buyers Guide, you’ll have the information you need about buying a home, right at your fingertips.
Here’s what you will find inside:
- The Cost of Renting vs Buying
- 2 Myths That Might be Holding You from Buying
- Why Pre-Approval Should be Your First Step
- What You Need to Know About Mortgage Process
- What to Expect When Home Inspecting
- And More!
The best part is, our Guide is free and available to download right now. All we need is your name and email, and we’ll send it directly to you.