Buying a home is an exciting and often complex process. Whether you’re a first-time homebuyer or you’ve done it before, there are certain real estate terminologies that you should familiarize yourself with to ensure the process goes smoothly. Knowing these terms will help you understand what your agent or lender is talking about, so that nothing gets lost in translation when discussing important topics like mortgages, inspections, and closing costs. In this blog post we’ll cover some of the most common real estate terms that come up during the journey of buying a home.
Prepare your finances
- Annual income—all of the Money you receive over the course of a year, no matter
- Conforming loan— A mortgage loan that meets guidelines established by Fannie Mae and Freddie Mac and falls below a loan amount specified by the Federal Housing Finance Agency.
- Debt-to-income ratio (DTI)—One way to measure your ability to repay debt. DTI is the percentage of your monthly debt payments to your monthly income before taxes.
- Down payment—The amount of cash you can put toward the purchase price of a home. Down payments often range from 3 to 20 percent of the home price.
- Loan-to-value ratio (LTV)—The percentage of your mortgage compared to your home’s appraised value.
Prequalifying and getting a loan
- Loan Estimate- a loan estimate can help you understand your mortgage from the amount type and term that is applied. It will show you projected closing costs monthly payments and your annual percentage rate.
- Preapproval- a preliminary evaluation that your lender provides, this is essentially an estimate of what you can afford. This is conditional and dependent on underwriting but provides a great idea of what price range you are in
- prequalification- when a lender estimates in advance how much you can borrow to buy a home, based on financial information you have provided
- PITI- an acronym for principal, interest, taxes and insurance. Sometimes called your monthly housing expense it includes your mortgage payment and a monthly portion of your real estate taxes and homeowners insurance
- PMI- an acronym for private mortgage insurance which protects then lender against losses if you cannot repay your loan. Your lender may require it if your down payment is less than 20%
Find a property and submit a winning offer
- Comps—Short for “comparables.” These are recently sold properties similar to the home you want in size, location and amenities. They help determine a property’s fair market value.
- Contingencies—Conditions in a sales contract that must be met before the home sale can occur.
- Inspection—A visual and mechanical examination of a home to assess the home’s condition.
Getting through the mortgage process
- Appraisal—An estimate of a home’s value. It is typically required by the lender on the mortgage application.
- Closing costs—The costs incurred when getting a mortgage. These could include attorney fees, preparation and title search fees, discount points, appraisal fees, title insurance, or credit report charges.
- Escrow—Funds deposited with a third party and held until a specific date is reached and/or a specific condition is met. For example, when you make an offer on a home, your earnest money deposit may be held in an escrow account until closing. Some lenders may require borrowers to establish an escrow account at closing comprised of future tax and insurance payments. The loan servicer then makes your property tax and insurance payments on your behalf.
- Mortgage points (or discount points)—An amount paid to the lender, typically at closing, to lower (or buy down) the interest rate if the buyer chooses to do so.
- Origination fee—A fee from the lender that covers expenses of processing a mortgage loan.
- Title insurance—Insurance that protects against any issues that could affect ownership of the property.
- Underwriting—The lender reviews submitted documents to verify the borrower’s finances and other factors related to the home, such as the title search and appraisal, then decides to approve or deny the loan.
Coast into your closing
- Closing—The last step of home buying where you sign all of the necessary documents to finalize the sale and take responsibility for the mortgage loan.
- Closing Disclosure (CD)—A document that provides key information about your loan, such as the interest rate, monthly payments and closing costs.
- Deed—A document that legally transfers ownership of real estate.
Buying a home can seem like an overwhelming process, but understanding the different steps involved and what each term means is key to making sure that you get the best deal on your dream house. By familiarizing yourself with terms such as PITI, PMI, escrow, appraisal value and more, you’ll be better prepared for every step of the mortgage process. With knowledge in hand and a great real estate agent by your side, you’re ready to coast into closing!