You want to purchase a home but the idea scares you. The cost, financial exposure, maintenance and the prospect of making bad decisions plague many a first-time home buyer. In some cases, there are good reasons for this trepidation. Those in foreclosure or who discover serious structural weaknesses in a house may well wish they had never gone ahead with their purchase. Key to reducing stress and anxiety in acquiring property for the very first time is to become conversant in the language of real estate. Only then can you ask the right questions to avoid pitfalls.
Terms About Property
- APPRAISAL -- An appraisal is an estimate of the subject property's value. If a buyer likes a house and gets a contract to purchase, the mortgage lender wants to know how much the house is worth relative to the purchase price and loan amount. For purchases, a full appraisal report is generally requested for a proper measure of home values. Much of this is done by comparing the home in question with other nearby structures of similar size and condition. Appraisal reports factor in the recent sale prices of these houses to derive a reasonable market value.
- ASSESSED VALUE -- This refers to home values assigned by the local taxing authority independent of the appraisal report. It is good for buyers to know the assessed value in order to estimate what the annual property taxes amount to.
- LISTING -- A listing is a description of the home as expressed by the seller's realtor. Ordinarily, this includes the number of bedrooms and bathrooms, any special features (like an in-ground pool), the sales price and accompanying photographs.
- INSPECTION -- A home inspection is important because it identifies any problems with the property that require significant funds to fix and preserve it intact. Such matters include leaks, foundational cracks, environmental hazards and pests.
Terms About the Transaction
- SALES CONTRACT -- Sometimes called a binder or purchase agreement, the sales contract is the legally binding agreement between seller and buyer, specifying sales price, terms and duration of effect. Before the seller signs it, this document is simply a purchase offer.
- COUNTER-OFFER -- In this case, the seller will present the buyer with terms modified from the original purchase offer, in which case the buyer's signature is needed before both parties are obligated.
- EARNEST MONEY -- These are monies held by a third party, e.g. an attorney or settlement agent, that demonstrate they buyer's sincere intention to proceed with a purchase.
- DEED -- The legal document declaring the transfer of property from seller to buyer. This is usually recorded in searchable county records.
Terms About Financing
- MORTGAGE -- The term is often equated with the home loan itself. Precisely, it is the document that secures the loan with the subject property as collateral.
- NOTE -- This conveys the terms of the loan, e.g. the amount, the interest rate and the duration (also known as the term).
- FIXED-RATE -- This designation applies to loans where the interest rate remains the same each month for the term of the loan.
- VARIABLE RATE -- The interest rate can change each month as lender rates fluctuate.
- AMORTIZATION -- Amortization refers to the repayment of the loan in terms of principal and interest each month.
- PRINCIPAL -- This is the loan amount without any interest.
- TITLE INSURANCE -- This protects the lender against claims to the property by creditors or others.