Buying or selling a home can be a long and confusing process that is only made worse by confusing terminology only known by people within the industry. Just knowing common real estate terms will help make your experience much less stressful and confusing. Below are some of the most common terminology that you may encounter when buying or selling a home.
An appraisal is an unbiased professional opinion of a home’s value. The lender then uses the appraisal to determine if the home is worth the amount of the loan in question. The opinion of a home’s value is based on recent similar sales, the size of the home, lot, upgrades, and amenities just to name a few.
A selling agent is a real estate professional who represents the buyer in a real estate transaction. An agent who works with buyers and will guide them through the home buying process. From finding the right property, negotiating the offer, helping them find the right lender, inspector and closing attorney for them, and assisting them to overcome any setbacks in order to buy a home.
In a real estate transaction, a conventional loan is one that is not backed by government agencies-you can have conforming or non-conforming loans. Conforming conventional loans follow the lending rules set by Fannie-Mae and Freddie-Mac whereas non-conforming loans have more flexibility.
The Closing is the last step in the real estate transaction process. Once all closing documents have been signed by both parties, all monies have been conveyed, and the Deed is recorded at the courthouse, the transfer of ownership is complete.
Closing costs are the general costs associated with closing, and consist of the down payment, and other fees charged by the lenders, attorneys, real estate agents, homeowner’s associations, taxes and insurance companies. Both buyers and sellers have their own closing cost fees at closing.
The due diligence period is time for the buyer to fully examine the property through inspections, surveys, etc. Sellers are not required to make necessary repairs, but buyers can rescind their offer and pay a nominal fee negotiated in the contract, should they wish to no longer move forward with the purchase of the home.
An earnest money deposit is a good faith deposit made by the buyer when submitting a contract. Please know that earnest money is not required, but indicates to the seller that the buyer is serious in wanting to purchase the home.
Home equity is the monetary value a homeowner has in their property. It is calculated by subtracting the mortgage loan balance against the property from the Fair Market Value.
A Federal Housing Administration Loan or FHA is a government insured loan that helps borrowers buy a home with only a 3.5% down payment. Requirements for credit scores are lower than conventional loans, but because the government ensures the lenders in case of default, borrowers are required to pay a Mortgage Insurance Premium for the duration of the loan.
A loan where the interest rate remains constant for the duration of the loan period.
A private association that manages a community or condominium. When you purchase a property managed by an HOA, you agree to follow their rules and pay the dues.
An inspection occurs when a buyer pays a licensed home inspector to thoroughly look through a home and compile a report of any issue that may need to be repaired in the home. Buyers then use this report to negotiate with the seller the repairs to be completed, a new purchase price, or decide if they still want to proceed with the purchase of the property.
A pre-approval is a document provided by lenders, based on a borrower’s income, credit score and debt. The applicant will then have proof of approval when they make an offer on a home.
Principal is the amount of money still owed to the lender(excluding interest). Payments made on the loan go towards both the principal and interest.
Proof of funds are documents showing that a buyer has the cash available for the down payment, closing costs, or for the purchase of the home. Sometimes the seller will require this from the buyer.
A disclosure from the seller of all the information they know about their home that may affect a buyer’s decision to purchase the property. This includes items specific to the property itself, like age of roof, heating and cooling systems, environmental hazards, etc.
A listing agent is a real estate professional who represents the seller in a real estate transaction. As the name suggests, the listing agent lists the home for sale and works on the seller’s behalf to sell the home at a price and under terms that are best for their client.
If you have a preferred agent to work with, let us know and we will forward your information to them. If not, we will happily introduce you to one of our qualified agents to assist you in the buying or selling process.
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