Do You Know Your Home Buying Lingo?

When you buy a home, there are a lot of words and phrases that seem to get tossed around by the professionals around you. Whether you are a first-time buyer or someone who has navigated these waters before, the terminology surrounding a home purchase can be confusing. While your Realtor can certainly answer any questions you have, and explain the homebuying process step-by-step, if you're anything like me, you would much rather come to the table with some knowledge of what these things mean already. Below are some terms and words that you are likely to find in the coming weeks of your homebuying journey.
Credit Score: A number ranging from 300-850 that is based on an analysis of your credit history. This is used to help lenders decide the likelihood that you'll repay future debts.

Pre-Approval: A lender will evaluate and determine whether you are qualified to purchase a home, and how much you are qualified to borrow. This is an important step-it gives you a starting point for your home search. You know right away what price range you are able to look for houses in. Starting with a pre-approval will also typically move the offer process along faster. (If you are not able to be pre-approved, ask the lender what to work on and when to check in with them again once you have implemented their suggestions.)
Offer: The submission of a bid to purchase something. You will place an offer for the home you want to buy. Sometimes an offer will have contingencies. The offer typically includes your pre-approval information.

Contingent: Things that will be required before the purchase is finalized. The offer on a home has been accepted, but the finalized sale is contingent upon certain criteria, such as an appraisal, inspection, or mortgage approval.

Earnest Money: This is a deposit made to the seller showing the buyer's good faith in the transaction.
Appraisal: Once you make an offer on a home, an appraisal will be ordered to get a professional opinion on the home's market value to validate the worth of the home to the lender. 

Home Inspection: Different from an appraisal, a home inspection is an examination by a professional of the condition of the home. While not a requirement, but it is highly recommended. 

Down Payment: This is the portion of the cost of the home that you are paying upfront to secure the purchase of the property. This is typically 3%-20% of the cost of the home.

Mortgage Rate: The interest rate you pay to borrow the money to purchase your house.
Annual Percentage Rate (APR): This is a broader measure of your cost for borrowing money. The APR includes interest rate, points, broker fees, and certain other credit charges a borrower is required to pay. Because these costs are rolled in, the APR is usually higher than your interest rate. 

Primary Mortgage Insurance (PMI): If you pay less than 20% for your down payment on your conventional loan, your lender will require PMI. This is used to protect the lender if you are unable to pay your mortgage, and can be removed from your payment once you reach 20% equity in your home.

Escrow: A legal arrangement in which a third party temporarily holds money until the transaction is complete or a contract is fulfilled. 
Title: A legal right to ownership of a property, including the right to sell. A title search is done to uncover any limitations on property use such as easements and any unresolved payments tied to the property, such as liens. It also helps determine that the seller truly has a legal right to transfer ownership. 

Closing Cost: Fees paid at the end of a transaction by either the buyer, the seller, or both. They include taxes, insurance, and other lender expenses. 

Insurance: Choose your homeowner's insurance and provide that information to your lender. It is a good practice to get three quotes before choosing an insurance company.
Closing: A meeting at which a property sale is finalized by the buyer signing the mortgage documents and paying closing costs. At this meeting, ownership of the home is transferred from the seller to the buyer.

Hopefully these quick definitions will help eliminate some confusion as you go through the homebuying process. And as always, your trusted Realtor is there to guide you and answer all of your questions. They are a great resource to use when things get confusing or you just need some reassurance. Good luck on your quest to find your new home!



                                                                                                                                ~Jenni Wahl



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