Terms to Know When Buying a Home

The process of buying a home for the first time can sometimes feel like learning a whole new language. Contingency? Equity? Escrow? What does it all mean?

Here are some key terms to know:

 Credit Score

Mortgage lenders use your credit score to determine how likely you are to pay your future debts. “The number ranges from a low of 300 to a high of 850. The higher your number, the safer that bet that you will pay bills,” says David Jackson, Sales Associate at ERA Justin Realty.

 Pre-Approval

When you’re ready to start house hunting, your lender will arm you with a pre-approval letter that indicates how much you can afford to spend. This will give you a leg up over other buyers who are not pre-approved for a mortgage.

 Mortgage Rate

This is the interest you will pay on the money you borrow to buy your home. It varies and can be locked in ahead of your closing date.

 Appraisal

This is the estimated value of a property as evaluated by a qualified third party (so not the seller, nor the buyer’s estimation.) “Mortgage brokers rely on appraisals,” says Jennifer Darby Metzger, Broker/Owner of ERA Justin Realty, “They’re making sure they’re not lending more than the home is worth.”

 Down Payment

Down payments are typically between 3.5% and 20% of the home’s purchase price. Some 0% programs are available for certain buyers, including veterans. Ask your lender for information.

 Escrow

Escrow is the period of time between entering a purchasing agreement and closing. Buyers place your down payment into an escrow account to bind the contract. The money is held by a neutral third party until contractual conditions are met.

 Inspection Contingency

Some of those escrow contingencies are dependent on the home passing inspection by another neutral third party. An inspector gives the buyer a full report on the home’s condition and potential repairs.

 Closing Costs

There are fees required to complete the real estate transaction on closing day. They include taxes, title insurance and more. Some are paid by the buyer, some by the seller. Your lender can give you a full list to expect.

 Equity

Now that you’re a homeowner, you can enjoy watching the equity in your home grow. That’s how much your house is worth over what you owe. It grows not only every time you pay your mortgage, but as home prices go up year after year.

If you are ready to buy or sell, David or any of the professionals at ERA Justin Realty can help make sure you understand the real estate lingo. Give us a call at 201-939-7500.