Most people aren’t experts when it comes to purchasing a home. Instead, shopping for a new home is something they’re likely to do only a handful of times. As a result, the whole process can be a bit confusing – even to the seasoned homeowner. For first-time buyers, trying to understand all of the real estate and mortgage talk can seem almost impossible.
To help make things a little simpler, I’ve put together a helpful list of 15 important terms that you’re likely to encounter during your home buying experience:
- Adjustable-Rate Mortgage – Adjustable-rate mortgages are a type of home loan with a variable interest rate that changes throughout the life of the loan. Although they often offer lower introductory payments, adjustable-rate mortgage costs are likely to increase over time.
- Buyers’ Agent – A buyers’ agent is a real estate professional who represents the buyers in a specific transaction. Some Realtors work solely as buyers’ agents, while others work with both buyers and sellers on individual deals.
- Closing Costs – Closing costs are the total fees and charges that need to be paid in order to transfer ownership of the property. The closing fee statement will include credits and debits for both the buyer and the seller, and will include things like insurance premiums, property taxes, and lender’s fees.
- Contingency – Real estate contracts contain clauses – specifically contingencies – which identify certain events that must take place within a set time frame; otherwise the contract may be altered or voided. For example, it’s common for residential contracts to state that the buyer has a certain number of days to get the property inspected. This is the time period during which they can back out of the deal if they’re unhappy with the results.
- Counteroffer – When you submit a contract on a house, the seller has the option to accept your offer, reject your offer, or make a counteroffer. For example, if you offered $400,000 for a home listed at $425,000, the seller may make a counteroffer of $415,000. When this happens, the original offer becomes null and void.
- Earnest Money Deposit – The earnest money deposit, often referred to as the EMD, is a deposit that the buyer submits with their offer on a home. The deposit is credited back to the buyer at closing. However, if there is a breach of contract by the buyer, it is possible that the EMD could be retained by the sellers. Submitting an EMD shows the seller that you’re serious and committed to closing on the property.
- Fixed-Rate Mortgage – Fixed-rate mortgages maintain a constant interest rate throughout the lifetime of the loan. Because the payments remain constant month after month, fixed-rate loans are much more stable options for long-term financial planning. They also eliminate any worry by the homeowner about the future direction of interest rates.
- Homeowners’ Association – Commonly referred to as an HOA (or COA in condominium buildings), a homeowners’ association is a group of residents who work to set and enforce rules for properties within their community. They’re in charge of the maintenance and upkeep of common areas and amenities, and typically charge association dues to their residents on a quarterly, semi-annual, or annual basis. The purpose of the HOA is to help maintain the value the community.
- Listing Agent – The real estate professional working with a homeowner to sell their home is the listing agent. The listing agent has a fiduciary responsibility to their client, the homeowner. While they must treat buyers honestly and fairly, a listing agent’s loyalty is to the owner. So, just a note to buyers, you may want to work with a buyers’s agent when you purchase. That agent will have a duty of loyalty and fiduciary responsibility to you, and no one else..
- Multiple Listing Service – A multiple listing service – often referred to as an MLS – is a digital platform for Realtors. It allows your buyers’ agent to browse a comprehensive list of properties currently for sale in your area and search through the database for homes which meet your specific needs and other criteria.
- PITI – If you’re shopping for a loan to finance your home purchase, you’re going to run into PITI all throughout the paperwork. Short for “principal, interest, taxes, and insurance”, PITI generally accounts for the overwhelming majority of your monthly mortgage payments.
- Preapproval – When it’s time to get serious about purchasing a home, you’ll want to talk with your mortgage broker or lender about getting preapproval for a loan. Unlike prequalification, preapproval is an in-depth process which involves the submission of financial paperwork. Preapproval may also allows you to lock into a specific interest rate for a set period of time.
- Prequalification – This is first step to take before you begin the search for a home. Prequalification is the process through which a buyer gets an approximation of how much home they can afford to purchase based on their income and financial assets. Getting prequalified is a quick process that can generally be done online or over the phone.
- Private Mortgage Insurance – When you’re purchasing a home with less than a 20% down payment, you can expect to pay for private mortgage insurance (PMI). This insurance policy protects your lender in the event that you default on your loan and they’re not able to recoup their money through a foreclosure sale.
- Title Report – During the buying process, the title company will conduct an in-depth search through property records to create the title report. This report will contain site-specific information including the property description, tax rate, and any outstanding liens or judgements.
Well, there you have it, a list of terms you’re likely to encounter next time you’re in the market to buy a new home. And if that time happens to be right now, I’d like to help you find the perfect South Florida home.
Please give me a call or send me an email to learn more about the homebuying process. I can help you avoid many of the pitfalls you might otherwise run into. I look forward to speaking with you soon.
New Harbor Realty