Don’t let real estate terms confuse you! We’ve broken them down for you in our latest blog, so you can navigate the market like a pro. Ready to master the lingo?
Appraisal:
What it is: An appraisal is a professional assessment of a property’s market value. It’s conducted by a licensed appraiser who considers factors like the property’s condition, location, recent sales of comparable properties (comps), and current market trends.
Why it matters: Appraisals are crucial for securing financing. Lenders use them to determine the loan amount they’re willing to provide, ensuring the loan is not more than the property’s worth.
Home Loan:
What it is: A home loan is a sum of money borrowed from a lender, like a bank or credit union, specifically for purchasing a property. This loan is secured by the property itself, meaning if you fail to make payments, the lender can foreclose and take ownership.
Types of home loans: There are various types, including conventional loans, FHA loans, VA loans, and USDA loans, each with different eligibility requirements and terms.
Mortgage:
What it is: A mortgage is a legal agreement that creates a lien on your property, giving the lender the right to take ownership if you default on your loan payments. It’s essentially the document that formalizes your home loan.
Key components: Mortgages include the loan amount, interest rate, repayment term (e.g., 15 or 30 years), and any associated fees.
Home Inspection:
What it is: A home inspection is a thorough examination of a property’s condition, conducted by a qualified inspector. It covers major systems like the roof, foundation, plumbing, electrical, heating, and cooling.
Why it matters: Inspections help identify potential problems or necessary repairs before you finalize the purchase. This knowledge empowers you to negotiate repairs with the seller or reconsider the purchase altogether.
Escrow:
What it is: Escrow is a neutral third party that holds funds and documents related to a real estate transaction. They ensure all conditions of the sale are met before disbursing funds and transferring ownership.
Why it matters: Escrow protects both the buyer and seller by ensuring a secure and fair transaction.
Closing Costs:
What they are: Closing costs are expenses beyond the down payment that buyers and sellers pay to finalize a real estate transaction. These can include appraisal fees, loan origination fees, title insurance, taxes, and more.
Why they matter: Closing costs can be significant, so it’s important to factor them into your budget when planning to buy a home.
Down Payment:
What it is: The down payment is the upfront portion of the purchase price that you pay out of pocket. It’s typically a percentage of the total price (e.g., 20%).
Why it matters: A larger down payment can lead to a lower loan amount, lower interest rates, and potentially avoid the need for private mortgage insurance (PMI).
Earnest Money Deposit (EMD):
What it is: EMD is a good faith deposit made by the buyer to show their serious intent to purchase a property. It’s typically held in escrow and applied towards the down payment or closing costs.
Why it matters: EMD provides assurance to the seller that the buyer is committed to the purchase.
Contingency:
What it is: A contingency is a clause in a real estate contract that makes the sale dependent on a specific condition being met. Common contingencies include financing, appraisal, and home inspection contingencies.
Why it matters: Contingencies protect buyers by allowing them to back out of the contract without penalty if certain conditions aren’t met.
Title Insurance:
What it is: Title insurance protects buyers and lenders from financial loss due to problems with a property’s title, such as liens, ownership disputes, or errors in public records.
Why it matters: Title insurance ensures that you have clear ownership of the property and can help resolve any title issues that may arise.