Understanding some of the most common real estate terminology is essential when buying or selling a home. The preferred real estate terms will be utilized throughout the process to help you make better decisions. If you are new to real estate, some language can be highly confusing; knowing these basic terms will make things much more manageable.
Mortgage
A mortgage is a type of loan used to buy a house. Since purchasing a home in one go is difficult, most people depend on mortgages from different banks or lenders. The loan amount is returned by making monthly installments, often with interest.
Some mortgages are up to 15 years and even extend to 30 years. When you fail to pay, the lender has every right to possess the house, a process legally termed foreclosure. If you’re preparing to buy a home and wondering how financing fits, check out our detailed guide: What is the Role of a Mortgage Broker?
Down Payment
A down payment is a share of the cost paid upfront. It is usually a percentage of the full money that costs the home. For example, if the house costs $200,000 and the down payment is 10%, you must pay $20,000 when you buy the home. The larger the down payment, the less you have to borrow. This can lower your monthly mortgage payments.
Closing Costs
Closing costs are all the various fees and expenses one has to pay to buy a home. Examples include closing costs related to property taxes, title insurance, and lawyers. All these and other costs associated with the processing of this deal are paid right at the very end of the home-buying process when the home’s title will be transferred to you. In general, these vary from 2 to 5 percent of the overall purchase price of your home.
Equity
Equity is the portion of the house that you own. When you buy it for the first time, this is the amount of your down payment. With time, your equity increases as every payment goes against your mortgage. If the value of the house rises, then so does your equity.
For example, if your home is valued at $250,000 and you still owe $150,000 on the mortgage, then you have $100,000 in equity.
Quick Tip for Homebuyers:
Pay off a mortgage over time and build equity while improving or at least maintaining your home to enhance the value of your investment.
Appraisal
An appraisal is a professional opinion as to the value of the home. The lender will typically require an appraiser before approving the purchase so that a decision can be made as to whether they are providing more than the home value.
The appraiser looks at the condition of the home, its size, location, and recent sales of homes similar to your own in the area. If that appraisal is low compared to the sale price, the buyer may have to renegotiate the price or come up with a much larger down payment.
Inspection
A home inspection is an expert examining the house to check for problems. The inspector will inspect the plumbing, electrical system, roof, foundation, and other house parts. This will prevent buyers from any surprise repairs after they move in.
Depending on how severe the issues from the home inspection are, the buyer may ask the seller to fix them before closing or adjust the price.
Title
The title is a legal document that proves ownership of property. When you purchase a house, ownership or title is transferred to you. Before the home is sold to you, a title search is conducted to ensure there are no legal claims or debts on the property that could raise problems sometime down the line. Once this title gets transferred to you, you become the rightful owner of that house.
Visit NW Realty Group Today
Knowing these simple words in real estate will make buying a house more manageable and less stressful. Whether buying your first home or selling a property, knowing what those terms mean may make all the difference in your decisions. When the time has come to purchase or sell a home, let NW Realty Group take the lead with professional advice and personal service.
