Regardless of whether you are a first time homebuyer or have bought a house before, it is likely that you will be unfamiliar with some of the real estate terms commonly being used in this process. It is important to educate yourself on some of the key terms you may be hearing throughout your real estate journey so that you can help this process go as smoothly as possible.
While at first glance terms like “escrow” and “amortization” can feel overwhelming, we are here to assure you that real estate terminology is nothing to be afraid of! The sooner you understand the terms that can be included in the fine print of buying a house, the sooner you can close on the perfect home you’ve been looking for.
When thinking about the financial aspect of buying a house, there are several terms you may encounter while having those conversations. Here is a quick guide to assist you with the side of real estate that deals with funds.
Down Payment– A down payment is a portion of the total cost of your home’s price. Generally, a down payment is made with the understanding that the rest of the price will be paid once you officially close on the home. Essentially, the down payment is the difference between the sale price and your mortgage amount.
Appraisal – An appraisal can be described as a professional’s opinion – at any given time – on the market value of a property.
Escrow – Escrow is money placed in the care of a third party until certain conditions are met between the other two parties (generally the buyer and the seller). When buying a home, you may need to place some of your down payment funds into an escrow account until it comes time to close.
Closing Costs – In addition to the selling price of a property, there are also additional costs to be paid at the time of closing that cover other various aspects of the sale. Closing costs can include an array of fees from insurance fees, attorney’s fees, survey fees, and inspection fees, and will vary at any given location. It is important to factor these costs into your budget when planning to buy a house.
Mortgage – A mortgage is a type of loan used to make a purchase on a property. When obtaining a mortgage, you agree to pay the lender in installments over a period of time of either 15 or 30 years.
Balloon Mortgage – This type of mortgage is made to last for a short period of time, typically 5-7 years and often comes with a low interest rate. At the end of this period, you would have a large balloon payment which you could either refinance or pay in full. This type of mortgage provides an additional option to home buyers other than the standard mortgage.
Credit Limit – The credit limit relates to the maximum amount of credit you can use on your credit card or that can be loaned to you. This is something you should keep in mind when purchasing a home because it can vastly determine how much home you can afford.
Amortization – Amortization is what you are doing when you are periodically paying money you’ve borrowed back to the lender. It consists of interest and principal.
Interest – The cost to borrow the money over a period of time is your interest. Interest rates can fluctuate depending on the real estate market, supply, demand, and other additional factors.
Principal – the amount you actually borrowed to purchase your home. This term could also refer to the person that employs an agent.
It’s important to be aware of what kinds of contracts and legal barriers you may be facing when going through the process of buying a home. Staying informed can help streamline this experience and also will help you avoid any surprises that may occur when contracts and the legal transition of home ownership begins.
Deed – A deed is a document showing the title of the property belongs to the property’s owner. Once it has been filed and recorded by the local government, it is public record.
Deed of Trust – A deed of trust is an agreement made between a home buyer and a lender at the time of closing. Its principle is that the mortgage lender will hold the title to the property until the loan has been paid in full or the borrower defaults on the loan. The lender will return the title to the home buyer once the loan has been paid in full.
Default – When you fail to make payments on time for your mortgage or act in a way that is not in accordance with the terms set in place by the contract, you have defaulted on your mortgage. The consequences for this are often severe. Default may also occur when you fail to submit a request to defer or cancel on time.
Forbearance – Forbearance is when a lender does not take legal action when a loan is delinquent, and usually it only occurs when the home buyer makes adequate arrangements to pay the loan at a future date.
Contract of Sale – A contract of sale is a legal document between a buyer and a seller that conveys where the title of the property will fall after terms have been set and payments have been made.
Closing – Closings are the final step in your home buying process. This means the signing of contracts and disbursement of funds necessary to close the sale have occurred. You may also hear this referred to as a “settlement”.
Seller’s Agent – a professional real estate agent that is enlisted by someone to sell their home is often called a seller’s agent. This person represents the person who is selling the property and works to ensure they receive fair offers for the listed home.
Buyer’s Agent – A buyer’s agent is also known as a real estate agent, or the person who represents you and ensures you are treated fairly during the process of buying a home. They will represent you in the transaction of buying a home which may entail making offers on a house for you and finding houses for you to look at.
Encumbrance – An encumbrance is any claim against a property that affects or limits the title to the property. These may include mortgages, leases, easements, or restrictions.
The Holland Home Buying Process
Though the home buying process can feel overwhelming at times, at Holland Homes, we make sure our customers are our top priority. We desire to come alongside you in your home buying process and answer any questions you may have. Our expert agents care about your process and want to invest in your journey to find your perfect home. Consider Holland Homes for a home that you can live in and enjoy, and contact us today to learn more about our available listings.