If you’re on the path to buying a home, it can be overwhelming. You are making one of the biggest purchases you have ever or perhaps will ever make. Terms are being thrown around, and you’re not entirely sure what they mean. Are you worried you’re going to make the wrong decision because you aren’t clear on the language of home-buying?
If so, you’re not alone. While certainly not exhaustive, the following are some of the key terminologies to know if you’re thinking about buying a home or you’re already in the process of doing so.
Closing costs are the fees that you will have to pay when you decide on a home, and you complete a transaction. These fees include your attorney’s fees, document preparation fees, appraisal fees, and the fees to record the deed.
Closing costs can also be referred to as the costs that come with the loan process, and most will come from third parties. These fees can range anywhere from 1 to 3% of the purchase price of a property.
The closing itself is a meeting when the ownership of a home is officially transferred to the buyer.
When a real estate contract is created, a contingency may be added. A contingency is a provision that says your contract will change or be voided if something comes up before closing.
As an example, if something happens with the inspection report and you as the buyer don’t approve it, you don’t have to go through with the purchase if there is a contingency.
Escrow is a form of protection for buyers and sellers. An escrow account is a secure way to hold money until a deal is completed successfully. An escrow agent is someone who’s an independent third party to ensure the transaction goes as it should.
Escrow is a way to make sure there is no money changing hands until everyone meets their part of the agreement.
Closing escrow is a term referring to the final transfer of a property when all of the paperwork has been taken care of and delivered. An escrow agent typically takes care of closing escrow, and this may be a company or an attorney.
Loan-to-Value Ratio (LTV)
The loan-to-value ratio or LTV is the amount of a mortgage as compared to the appraised value of a home, and it’s given as a percentage. If you pay less than 20% in a down payment, your LTV is more than 80%. This means you may pay a higher interest rate, and you may have to purchase private mortgage insurance.
Multiple Listing Service or MLS
The multiple listing service is more commonly known as MLS. This is a digital service that lets real estate professionals see listings of what’s currently on the market.
When you have a preapproval, your lender is offering a conditional agreement to let you borrow a specified amount of money. For a preapproval, a lender will have to go over your financial information.
A prequalification is different. This is just an estimate of how much you may be eligible to borrow to buy a home. There is no commitment here from the lender, and they will likely still require you to submit other information before you can receive a loan.
Private Mortgage Insurance
Private mortgage insurance or PMI is insurance that will provide reimbursement to a mortgage lender if a buyer defaults on a loan and the property sells for less in a foreclosure sale than what was owed to the lender. If you make less than a 20% down payment, you will probably have to buy private mortgage insurance.
To learn more about buying a home and to find the perfect realtor® for your journey, contact Effective Agents. We have a team of top-selling realtors® who can help you get started and guide you through the process.