You’ve decided to move the family out of your one-bedroom, walk-up apartment into a home in the suburbs. First off, congratulations – you’re taking a step many Americans still have yet to achieve. Second, you may be unfamiliar with some of the terms encountered in the course of your home purchase. Here to help you along are a few basic terms to get familiar with.
Agent - This person assists you in finding the right home at the best price for your family. Normally connected to a real estate agency, agents collect all the pertinent information on the home you want, locate those in your price range, sets up appointments to view the residences, and works with the selling agent to come up with the best offer. In the heat of home shopping you may see the real estate agent more than your spouse.
Pre-qualification – The pre-qualification process lets both the agent and the home seller know you can borrow enough money from the lender to cover the purchase price. The process takes a few minutes and can be done through a number of financial institutions.
Earnest Money Deposit - Somewhere along the line you and the home seller will make a deal, and once that happens you need to show good faith that you can close the deal. Hence, the delivery of an earnest money deposit to the agent. The deposit, as little as one percent of the home price, is stored in escrow and normally used as part of the down payment during closing. The deposit is given back to the home buyer if the deal falls through.
Home Inspection. – The process where a certified property inspector goes through your potential new home to check on items such as foundation structure, roofing, electrical wiring, and plumbing. The home inspector provides a report of the residence’s pluses and negatives, and you negotiate with the home seller to determine what repairs can be made ahead of time.
Down Payment - Amount of money put toward the mortgage at the time of home purchase. The standard amount to put down is twenty percent; however, many buyers put down less or, in the case of some mortgages, none at all.
Mortgage – A financial agreement detailing the purchase amount of the home. Factors such as down payment, property taxes, and interest rates determine the final price. Mortgages come in 15-year and a 30-year programs with fixed or adjustable interest rates. Many young families have taken the traditional 30-year mortgage for decades, but the 15-year-mortgage is gaining strength in the post-Great Recession market.
Home Owner’s Insurance – This insurance must be purchased prior to a home closing. The standard home owner’s insurance policy covers fire, theft, and personal injury in and around the property for an annual fee. A portion of the monthly mortgage can be escrowed toward the payment of home insurance.
PMI – Short for Private Mortgage Insurance, this is an extra payment added to a mortgage when the borrower wants to take out a larger amount and avoid putting down a sizable down payment. Should the borrower default, PMI covers the lender for the remaining amount of mortgage owed.
Closing Costs – The extra fees you pay at the time you sign the final paper work to obtain the key to your home. This may include the first month’s mortgage, title search and creation fees, commissions for the real estate agents, and any monies you directly agreed to pay or receive between you and the lender.
Joyous Fear – The feeling you get when you become a first-time homeowner. Enjoy, and good luck.