About 31% of all home buyers this year are first time home buyers. It’s a whirlwind process if you’ve never been through a home purchase before.
There are at least a dozen major steps that you need to take before you finalize the home closing. You also need to brush up on real estate terms.
Taking the time to learn the most important terms will only help you understand what happens in a real estate deal. Keep reading to find out the most important real estate terms and have a happy home buying process.
Table of Contents
Dual-Agency
One of the first steps you’ll take when looking for a home is to look for a real estate agent. You want to find a buyer’s agent who is going to represent you and your interests.
You may find yourself in a situation where you started the home buying process by looking online and came across your dream home. You don’t have an agent yet, and the seller’s agent offered to represent you in the deal.
An agent that represents both the buyer and seller is a dual-agent. This means that they have to carefully balance your needs with the seller’s needs.
Don’t go this route, because you run the risk of losing something in the deal. The dual-agent may not be that willing to negotiate a better price on your behalf.
Pre-Qualified/Pre-Approved
Some homebuyers like to use these terms interchangeably. The problem with that is that they mean completely different things. The one thing they have in common is that they both refer to your mortgage approval.
Pre-qualified for a mortgage means that you give basic information to a lender and they give you a ballpark figure as to what you can borrow. This helps you know your price range when you are shopping for a home.
Getting pre-approved for a mortgage is a little more involved. You submit your financial documentation (tax returns, pay stubs, bank statements), and a lender gives you an exact amount that you can borrow.
Where that can trip you up is that you go have your agent write up an offer saying that you’re pre-approved, when you’re only pre-qualified.
It’s important to remember that getting pre-approved for a loan doesn’t mean that you’ll get the loan. If there are any changes to your income or credit report, a lender can still deny your loan.
Contingency
A home loan purchase usually has contingencies written in the contract. This means that the purchase is conditional upon certain things happening (or not).
For example, one contingency depends on your ability to get a home loan. If you can’t get the home, then the deal falls through.
Other common contingencies are the inspection report and appraisal, and whether or not there’s a clean title.
Abstract of Title
The title is the most important document in your home purchase. That details everything you need to know about the property.
One of the first things you’ll do when a seller accepts your offer is that you purchase title insurance. It’s required by your mortgage company to protect them and you if an issue with the title surfaces after the sale.
Some people will confuse this term with the title search. A title company does a title search and it goes back about 40 years. The main purpose of the title search is to make sure no one else holds a claim to a property.
For example, a title search can reveal that the owners of the house have a lien on the property. The means the company attempting to collect a debt is laying a claim on the property as a way to repay the debt.
An abstract of title is a more in-depth search that covers the entire history of the property. If the title shows that there aren’t any issues or claims to the property, it will transfer to you at closing.
Earnest Money
Most homebuyers are aware that they’ll need something for a deposit on the home. The amount you need to put down depends on your lender and the type of loan you have.
Earnest money is a bit different from a down payment. This is money that you put down (in earnest) to show that your offer should be considered and you’re serious about the purchase.
The amount you put down in earnest money usually goes toward the down payment once the offer is accepted by the seller.
HOA
Some homes and most condos have a homeowner’s association. This is a community that oversees the maintenance and rules of the building or neighborhood.
Homeowners contribute to an HOA through fees, which are paid in addition to the other costs of owning a home. The HOA sets rules about the overall standards of the community, which can impact your ability to paint the house a certain color.
Closing Costs
At the end of the long road to buying a home is the closing. This is when the transaction wraps up and you get the keys to your new home.
What may take you by surprise is that you have to pay a bit of money at closing. A buyer will pay between 3-5% of the purchase price of the home.
This includes appraisal costs, title insurance, taxes, and attorney fees.
Understanding the Important Real Estate Terms
You can avoid a painful real estate transaction just by knowing a few real estate terms. The ones listed here are the ones that new and veteran home buyers confuse most often.
It’s up to you to take the time to learn the terms listed here. This way, you’ll make sure you don’t make a mistake that can cost you more money. You certainly don’t want to scramble to pay for additional costs that you didn’t know you had to pay.
You can now go through a real estate deal like a seasoned pro. Take a look at the Home Decorating section of this site for tips to decorate your new home once you move in.
