As a first-time home buyer, you can be filled with many different emotions both exciting and overwhelming. Becoming a homeowner has a unique set of challenges and there is a lot to learn. The vocabulary used in a real estate transaction can be unfamiliar to most and you must make yourself familiar and stay informed. You want to know the terminology so you can fully understand the process. To help you, here is a breakdown of the top 10 real estate terms every first-time home buyer should know.
Top 10 Real Estate Terms First-Time Buyers Should Know
A down payment is the initial upfront payment that a buyer makes to the seller. This is a percentage of the home’s total purchase price. A standard down payment is 20%, however this can vary. Understanding this term influences your mortgage and monthly payments so it is extremely important.
A mortgage is a loan that enables you to purchase real estate. This is a legal agreement between the borrower and the lender. This loan will typically span several years. Your mortgage will cover the remaining cost of your home after you make the down payment. Different types of mortgages exist which is why it is essential to explore all of your options and choose the mortgage that best fits your financial situation.
The interest rate is the percentage that is charged by the lender for borrowing the money you need to purchase your home. This rate directly affects your monthly mortgage payments and the overall cost of your home loan. A lower interest rate will save you money over the life of the mortgage. This is why it is vital to shop around to get the best rate you possibly can.
Closing costs are fees and expenses that come with finalizing the real estate transaction. These costs include legal fees, appraisal fees, title insurance, and other additional items. It is imperative that first-time home buyers budget for closing costs in addition to their down payment and mortgage.
An appraisal is what evaluates a property’s value and this is done by a qualified professional. Lenders typically require an appraisal to ensure that a property’s value matches the purchase price. When you understand the appraisal process you know its impact on your ability to secure a mortgage.
San Fernando Valley Realtor says, “A home inspection is a thorough and detailed examination of a property’s condition. This is done by a qualified inspector. The inspection process is what helps you identify any potential issues or necessary repairs in the home. Even though it is not always required home inspection provides very valuable insights into the property’s overall health and this can be a crucial negotiating tool. “
Escrow is the financial arrangement in the home-buying process. The escrow company is a third party that holds and regulates the payment of the funds required for a real estate transaction. Escrow ensures a secure and transparent process for the buyer and seller. Understanding the escrow process is important to ensure a smooth and trustworthy home-buying process.
Park City UT Realtor says ,”Before you start looking for a home you want to get pre-approved for a mortgage. This involves a lender reviewing your financial information and credit history so they can determine the loan amount you qualify for. This will give you a clear budget and strengthen your buying position when you go to make an offer. “
The principal is the amount of money borrowed for the mortgage. This is the initial amount and as you make monthly payments a portion will go towards reducing the principal. This is how you build equity in your home. When you understand the balance between the principal and interest you can make better financial planning decisions.
Homeowners Association (HOA)
Philadelphia Realtor says, “In some cases, you may buy a home in a community. If you purchase a condominium or in a planned development there may be a homeowners association (HOA). These organizations establish and enforce rules for the properties within their jurisdiction. As an owner, you need to understand the rules, fees, and regulations imposed by the HOA. This is crucial for first-time home buyers considering a property within one of these communities.”
Strengthening your knowledge of these essential real estate terms can benefit your homebuying experience. As a first-time buyer, taking the time to understand the intricacies of the process is vital to your decision-making and navigation of the market. Happy house hunting to you!