Buying a home is almost like learning a new sport or game because of the terminology that's involved. Knowing what these termsmean and how they apply to you can help you make better decisions and make your home buying experience go smoother. In no certain order, the following are terms like you'll likely hear at some point when you buy a home:
1. Loan Pre-Approval
This crucial document is a written guarantee generated by a lender. It states that the financial institution approves of a loan to you up to a certain amount. While the final approval depends on the financial institution receiving all the documents needed to support the information you give them in the application, having a loan pre-approval can boost your power to negotiate.
2. Earnest Money
Earnest money might also be referred to as a good faith deposit. These funds demonstrate that you have a serious interest in buying a particular property. Earnest money is held by a neutral third party. As the buyer, you forfeit the earnest money if you don't produce the remaining payment by the closing date or if you breach the agreement in another way.
3. Fixed-Rate Mortgage
A fixed-rate mortgage is a conventional loan that is designed to locked in the same pre-determined interest rate for its entirety. Many fixed-rate mortgages are for a term of 30 years, but the duration can also be 10 years, 15 years or another length of time.
4. Annual Percentage Rate (APR)
The annual percentage rate -- often referred to as simply the APR -- is the yearly interest rate of your mortgage loan. This figure includes the costs and upfront fees that are necessary in order for you to acquire the loan. These are then calculated by using the average compound interest rate and distributing it over the length of the loan. In order to make it easier for home buyers to accurately compare the actual costs of loans with differing fees, mortgage lenders are required to tell you the APR.
5. Contingency
A contingency is a contractual provision that states that all or part of the contract will be either voided or altered unless a specific event occurs. This event usually has a specific date attached to it. One common example of a contingency is when the seller delays closing until they are able to sell their current home or purchase another one. A contingency that a buyer might want in the contract might stipulate that an unsatisfactory inspection report means that they are no longer obligated to complete the purchase.
6. Private Mortgage Insurance
Often referred to as PMI, private mortgage insurance is often required by a financial institution if a buyer makes a down payment of less than 20 percent. This type of insurance protects the lender in the event that you default on the loan. Its cost is paid on a monthly basis.
7. Title Report
Before a financial institution agrees to finance the purchase of a particular home or property, a title search and subsequent report is necessary. Performed by an attorney, title company, escrow company or abstracter, the title report contains such identifying information such as a description of the property, the names of the title holders, liens, real estate taxes and more.
These are only a few of the many terms that you'll hear as you navigate the home buying process. Knowing them gives you a firm grasp on the knowledge you need to be successful.
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