If you are planning to buy your first home, you might feel overwhelmed by the unfamiliar terms and jargon used in the process. To help you navigate the home buying journey, we have compiled a list of some of the most common home buying terms and what they mean.
Appraisal: An appraisal is an estimate of the market value of a property based on its condition, features, location, and comparable sales. An appraisal is usually required by lenders to determine how much they are willing to lend for a mortgage.
Closing: Closing is the final step in the home buying process, where the buyer and seller sign all the necessary documents, exchange funds, and transfer ownership of the property. Closing usually takes place at a title company or an attorney’s office.
Contingency: A contingency is a condition that must be met before a contract becomes binding. For example, a home inspection contingency allows the buyer to back out of the deal or negotiate repairs if the inspection reveals major issues with the property.
Down payment: A down payment is the amount of money that the buyer pays upfront for a home purchase. The down payment is usually expressed as a percentage of the purchase price. For example, a 20% down payment on a $300,000 home would be $60,000.
Escrow: Escrow is a third-party account that holds funds or documents until certain conditions are met. For example, the buyer’s earnest money deposit and the seller’s deed are usually held in escrow until closing.
Earnest money deposit: An earnest money deposit is a sum of money that the buyer pays to the seller or escrow agent as a sign of good faith and commitment to the purchase. The earnest money deposit is typically applied toward the down payment or closing costs at closing.
Home inspection: A home inspection is a thorough examination of the physical condition and systems of a property by a licensed professional. A home inspection usually covers aspects such as the roof, foundation, plumbing, electrical, heating, cooling, appliances, and more.
Mortgage: A mortgage is a loan that is used to finance the purchase of a property. The borrower (buyer) agrees to repay the lender (bank) over a period of time with interest. The property serves as collateral for the loan.
Pre-approval: A pre-approval is a letter from a lender that states how much money they are willing to lend to a potential buyer based on their credit history, income, assets, and debts. A pre-approval can help buyers determine their budget and show sellers that they are serious and qualified.
Title: A title is a legal document that proves ownership of a property. A title search is a process of verifying that the seller has a clear and valid title to the property and that there are no liens or claims against it.
We hope this guide has helped you understand some of the key home buying terms and what they mean. If you have any questions or need more information, feel free to contact us anytime. We are here to help you find your dream home!