Before you start your home buying journey, get familiar with some common real estate terms. With an understanding of these terms, you’ll be better informed throughout the process. Having context around terms will allow you to make the best decisions when purchasing a home.
Buyer’s Agent vs. Listing Agent
There are usually two agents involved when you buy a home. The buyer’s agent is representing you, and the listing agent works for the seller. Dual agency occurs when one agent is playing both roles and is a situation you should probably avoid.
When buying a home, you don’t pay your agent. They receive a commission from the home seller.
Fixed Rate vs. Adjustable Rate Mortgages
Conventional loans include “fixed rate” and “adjustable rate” mortgages. A fixed rate mortgage has a predetermined interest rate throughout the life of the loan. These are usually for 30 years. An adjustable rate mortgage has a variable interest rate that changes at set time limits. The most of these common is five, seven, or 10 years.
Adjustable rate mortgages make the most sense if you plan to sell or refinance before the introductory period ends. If you plan to stay longer, a fixed rate loan is less risky.
Pre-approval Letter
Before you apply for a mortgage or start looking for a home, you should get a pre-approval letter from the bank. This letter provides an estimate of how much they will lend you. This letter will help you determine what you can afford and assures sellers you will be able to get a loan when needed.
When you seek a pre-approval letter, be sure to ask lots of questions about additional fees and how to lock in a specific interest rate.
Listings
This real estate term describes homes that are for sale and can be found on the MLS (Multiple Listing Service). The listing offers information about the home, including the price, number of bedrooms and bathroom, square footage, and more. You’ll find the most up-to-date information on sites that offer access to the MLS rather than real estate portals.
Appraisal
When you apply for a mortgage, your lender will require an appraisal of the home. A licensed appraiser will estimate the home’s value based on comparable homes sold in the area and an investigation of the property.
If the appraised value is less than the offer you are making on the home, you might not be approved for a loan. The bank doesn’t want to invest in a home that’s overpriced nor should you. If the appraisal comes up short, there will need to further negotiation.
Contingencies
Upon making an offer, buyers can specify certain conditions that must be met to move forward. These are contingencies. These include:
- Financing contingency (the loan has to be funded)
- Inspection contingency (ensuring no major repairs need to be made)
- Appraisal contingency (appraised value is the amount of or greater than the offer price)
Offers and Contracts
Once you find the right home, you’ll make an offer on the property with the help of your real estate agent. If the seller counters your original offer, it’s usually because they want more money or a faster timeline for closing the deal. Then it’s time to negotiate. Choosing an experienced realtor is key to winning in negotiations.
Closing Costs
Be prepared to pay fees when you purchase a home, outside of the down payment. Typically, closing costs will amount to 2-5% of the purchase price of the home. Typical fees include taxes, loan-processing costs, attorney’s fees, and title insurance. Ask your lender about every fee involved in the Good Faith Estimate.
Title Insurance
After all the seller has accepted your offer, a title search is performed to ensure there are no defects. Most mortgage lenders require you to pay title insurance as part of the closing costs. You will also need title insurance to protect your interests. Title insurance is a one-time fee at closing and protects against any issues related to issues with the title.
These are just a few of the most important real estate terms to know before you start your search for a new home. Once you find the home, you’ll need to select a closing attorney to facilitate the purchase and transfer of deed. Rely on the experts at Moore & Alphin. For more information, contact the firm today.