Top 10 Terms You’ll Likely Run Into In A Real Estate Purchase
When a person is looking to buy or sell a home or even if they have an interest in real estate some terms are specific to the market that a person needs to learn. These are some common terms to the real estate market that a person should be familiar with. If a person is familiar with these terms they will be able to understand the entire process and make it go smoother.
1. Adjustable Rate Mortgage
When a person is applying for a mortgage they can get a fixed-rate loan or they can get a loan that has an adjustable rate. The interest rates on the adjustable-rate mortgages may change throughout the loan. It can change at five, seven, or even ten-year intervals. This loan may be risky over the long run. Depending on the condition of the economy the loans may increase and a person would have to pay a higher rate. If a person is going to stay in the home for the long run they may end up paying a higher rate. This may be good for those that are going to stay in the home for a shorter duration as it may save them money.
To get a loan from a bank or a mortgage company to purchase a home the home will need to be appraised. The appraiser will assess the home and determine the value of the home and if the lender will be lending the buyer the correct amount of money. There are several factors they will look at to determine the value of the home. They will look at the property and the size of the property and look at the prices that similar homes are sold for in the area.
3. Closing Costs
In addition to the price of the home, there are additional fees at closing which are called closing costs. This amount will be between two and five percent of the purpose price. This amount does not include the down payment. Closing costs include additional fees such as taxes, processing costs, and title insurance. A seller may be eligible to help with the closing costs.
4. Fixed Rate Mortgage
This is one of the other types of conventional loans. This mortgage has an interest rate that will stay the same throughout the loan. It will not change. This is good for people that want to stay in their homes over the long run.
This term refers to specific conditions and the terms of these conditions being met for the sale of the home to be completed and the sale to be finalized. For the loan to be approved certain conditions must be met. The appraised value of the home also needs to be near the final sale price that the home is going to sell for.
Equity is another term for ownership. When dealing with real estate equity is the amount of the home that a person owns at a specific time. This is based on the amount of the principal a person has paid off on their loan. It does not include the amount of interest that was paid. The more equity a person has in their home the more reliable they will have with refinancing. Equity can be considered the market value of the home and the difference between the amount of money that is still owed on the home. For example, if a person borrowed $100,000 to purchase their home and they still have a loan balance of $50,000, the equity that they have in their home is $50,000.
7. Private Mortgage Insurance
Private mortgage insurance is the cost of the insurance that the buyer pays to the lender. This insurance will protect the lender if the buyer defaults on the mortgage and they are not able to pay their bill. There may be a period for this insurance. Some lenders require that the buyer pays this insurance until they have built up equity in their home. They may need to pay 20 percent of the equity to drop this insurance. This insurance is for the protection of the lender.
8. Title Insurance
This is another type of insurance that is required at closing and is often part of the closing costs. When a person pays for the title insurance they are paying for research on the public records of the home. This will make sure that the title is clear and there are no liens against it that can slow down the sale process. If there is a lien on a home this can lead to big problems down the road. This search is well worth it before the sale is completed.
9. Real Estate Agent
This is the person that has a real estate license and can help a buyer find a home they want to live in. They can also help a seller purchase their home. They will assist with the entire process up to the closing. A realtor is an agent that is a member of the National Association of Realtors. This organization has specific standards and an ethical code that all members must follow. All those working as an agent need to have the proper education before they get hired by a firm.
This is the amount of money that a buyer needs to borrow to purchase the home. As they make payments and pay off the principal amount they will be able to build up equity in the home. The principal includes the interest rate on the loan. This figure is used the help determine the monthly payment that the buyer will make on the home.
These are some of the common terms used in the real estate industry. If a person is looking to buy or sell their home they need to understand all of the terms to make sure they are educated about the home purchase, selling, and closing process.