The home buying process can be confusing to a first-time homebuyer. To gain a basic understanding of what to know, we’ve put together a guideline and explanation of 10 common terms to help get you started:
Agent is the shortened term for real estate agent. An agent is the professional representative that represents the buyer and the seller during the home buying process. There will typically be two agents involved, the listing or seller’s agent and the buyer’s agent, although in some instances one agent can represent both. Real estate agents are paid commission based on the sale of the home and commissions are paid by the seller. If you are listing a home for sale, it is important to discuss the percentage beforehand. Commission is typically 6% split between the two agents negotiating the homebuying process.
A mortgage is the loan secured to buy a home or finance a property. While some buyers may pay cash, most do not have the cash on hand and must secure a home loan. There are two primary mortgage types, fixed rate and adjustable rate. A fixed rate mortgage charges a specific interest rate that remains the same throughout the life of the loan. The most common term for a fixed rate mortgage is 15 or 30 years. An adjustable-rate mortgage has an interest rate that is variable and changes with the market. The term for an adjustable-rate mortgage is shorter than that of a fixed rate mortgage and is most commonly for 5 or 7 years. An adjustable-rate mortgage is best suited for someone looking to refinance their home after the initial period of the mortgage. To get the best mortgage available, it is important to establish a strong credit rating and to work with a mortgage broker or banker that can offer a variety of loan options.
Before starting your search in the home buying process, it is valuable to get pre-approved. A pre-approval is a conditional agreement with a bank or mortgage broker that states an estimate of how much you will qualify for or how much you can afford to buy. This amount is determined based on your financial information, which can include income, cash available or liquid, existing debt, credit rating and other assets. The pre-approval amount helps a buyer determine a price range to stay within during the search and final purchase price.
An offer is what your real estate agent will discuss with you and submit on your behalf, when you find a home you would like to buy. After discussing the details of the offer – purchase price, length of escrow, preferred closing date and any special terms or requests – your realtor will submit it to the seller. If the seller does not agree and accept the offer, they will typically counter back. If the first offer is not accepted, it is usually because the seller wants a higher purchase price or a different timeline for closing. The two parties can negotiate to close the sale or the home remains available and the seller can accept other offers.
A home inspection is completed after an offer has been made and accepted. An inspection is done by a professional to check for any issues with the home. The inspector will go through the and check the property for any repairs or concerns related to electrical, plumbing, roof, walls, foundation, heating, and appliances. If anything is found to be defective or broken the buyer can negotiate and ask the seller to fix it or lower the agreed upon price of the home as a credit for repairs.
An appraisal is an estimate of the value of a home. The appraisal is completed by a licensed appraiser. They will look at the features of the property such as the square footage, design amenities, and what surrounding properties recently sold for. The lender requires an appraisal is to make sure the amount of loan matches the property’s value. It is possible to waive the appraisal of a home if a loan is not needed to purchase or the buyer is willing to pay the difference between the appraisal and the purchase price.
Contingencies are the conditions that must be met for the sale of the home to continue. A few common contingencies include the appraised value supports the sales price, the home passes the inspection, the buyers’ home must sell, or the buyer must be approved for their loan.
Escrow is when funds are deposited with a third party and the period they are held until the specific date or specific conditions are met. After you make an offer, your good faith payment made at the time of the offer is held in escrow until closing.
Closing is the final step in the home buying process, and it requires a variety of fees. These fees are typically 3-5% of the loan. Closing costs include property taxes, courier fees, processing costs, fees to the mortgage lender and title insurance.
Title insurance is a policy that will protect you against financial losses due to defects in the title to a property. It will protect you against things such as tax liens or other legal claims that could affect the ownership of the home or property.
Landmark Title has a team of experienced and knowledgeable title and escrow professionals that are available to answer any questions you may have. Contact us today if you are in need of title or escrow services for a residential or commercial real estate transaction.