Buying a home can be an overwhelming experience no matter how many times you go through the process. But when it is your first time buying a home, there are many things that need to be considered.
You will need to find a realtor, determine how much money you can afford to spend on a down payment, get approval for a loan and more. Because there are so many processes involved when buying a home, there are a lot of terms that are associated with the home buying experience that may be new to you. Familiarizing yourself with some of the glossary terms of real estate can make the home buying process run more smoothly. To learn about some of the most important real estate terms, refer to the sections below.
There are a few terms that specifically refer to the people involved in the home buying process. The first terms are buyer and borrower. In many cases, these terms refer to the same person. The buyer refers to the person who is buying the home, while the borrower refers to the person who is borrowing money from the bank to purchase the home. Unless you are paying for the home with cash, then you would usually be considered both the buyer and the borrower. The seller is the person who is selling the house. This person is also referred to as the owner. The terms can be used interchangeably.
Another set of terms that are used interchangeably is realtor and real estate agent. There is actually a difference between the two. A real estate agent is the person who represents either the buyer or the seller in the procurement of real estate. A real estate agent can be a realtor but that is not necessarily the case. A realtor is a real estate agent who is a member of The National Association of Realtors.
The final two institutions that are involved in real estate sales that you should know about are lenders and mortgage brokers. The bank that you use to purchase your home is known as the lender. The mortgage broker is a company that will search for lenders to find you the best mortgage deal possible. You do not have to use a mortgage broker as this service comes at a fee, but in many cases, it is beneficial to do so.
Once you make your offer for the home, the seller or their agent will send you what is known as a counter offer. These offers usually state that the seller or home owner is willing to accept your offer with a few changes or exceptions.
The next set of terms has to do with the financial aspect of purchasing the home. It is important to know these terms so that you can understand the total costs associated with your home. The first term is closing costs. The closing costs of a home are the fees that you must pay in relation to the purchase of the home. These are usually around 2 to 5 percent of the purchase price of the home.
The next term is debt ratio. This ratio compares the amount of debt that you have to your income. The bank will use this ratio to determine how much money they will loan you. The next term that you should know is down payment. Though you can pay for your house with a mortgage, there is a certain amount of the price that must be paid up front. This is referred to as the down payment. It is important to take into account how much the down payment of a home is before choosing a home.
Another term that you should know is earnest money. Earnest money is a deposit. This deposit is paid when you sign a contract with the seller of the home. This shows them that you are serious about purchasing the home. The amount that you pay in earnest money is deducted from the total price of the sale when you close on the home. The next important financial term is equity. This refers to the value that you own in a property. This number is calculated after you take away the money you owe for your loan.
Financing is the term used to refer to the mortgage loan that was used to purchase your home. Interest is the amount of money that you will have to pay the bank on top of repaying the money that was borrowed. This is how the bank makes a profit on loaning out money. The next fee that needs to be addressed is the option fee, although this may not be standard in some areas. This is a fee that you can pay the seller when signing the contract. This fee allows you to get out of the contract that you signed within a certain amount of time.
The origination fee is a one-time charge that is given by the lender in order to loan you the money. Some banks do not charge this fee, so it is important to check which banks charge origination fees before going forward with the purchase. A premium is another term you can encounter when purchasing a home. A premium is the amount of money that you will need to pay for an insurance policy.
The portion of the loan principal that you pay early is called the prepayment. The prepayment allows you to save on the amount of money that you have to pay towards interest. Many loans will allow you to pay extra on your monthly payments without penalties. Though this is true, you may have to pay a penalty fee if you want to pay off the whole balance early and do not give your bank notice. The final financial term is the principal. This is the outstanding balance of the loan that you have at any time. This can also refer to the amount of the loan that is actually paying down your debt and not the portion of the loan that is paying down the interest.