When you are purchasing a home, you will probably hear words that you have no idea what they mean. Sometimes it makes you think that you do not know what language the people are speaking. Here are a few of the most common terms used in a real estate transaction along with what they mean. Hope this helps.
Annual percentage rate ( APR)
This is a good idea of the true cost of borrowing money. It combines the simple interest rate, with points, financing fees and other credit charges that you would be required to pay. Because these costs are rolled into the mortgage, the APR is usually higher than your interest rate.
Appraisal
A third-party independent appraiser is tasked with the job to determine the value of the property to be purchased.
Closing Costs.
These are costs that are necessary to close the real estate transaction. Closing costs can include attorney fees, title insurance, financing cost, appraisal, among others.
Credit Score.
The three major credit bureaus assign a number ranging from 350 to 800, which is used by lenders as an analysis of your credit worthiness. It helps lenders determine a likelihood that you will repay future debts.
Discount points.
By pre paying interest on the mortgage before the closing, you can reduce your interest rate. One point equals 1% of the loan value. Basically it’s way to lower your mortgage payment.
Down Payment.
This is the amount of cash that you will be using to purchase a property. A typical down payment would be between 3% and 20% of the purchase price. 80% of first-time buyers put down less than 20% when purchasing a home. In the past year, the typical buyer put down 6%.
Escrow.
This is where a neutral third-party, typically the seller’s attorney, holds the down payment money until closing. At the closing the money gets dispersed to the seller.
Fixed Rate Mortgage.
This is a mortgage where the interest rate will not change for the entire life of the loan.
Home Inspection.
After the contract is signed, a professional home inspector is hired to determine the condition of the property/ A proper inspection will give a full evaluation of the heating and cooling systems, electrical and plumbing systems, also the roof, foundation, the appliances included in the sale, and the overall condition of the property. This inspection is typically paid by the buyer.
Mortgage rate.
This is the interest rate that you will pay to borrow the money that you need to purchase your home.
Pre-Approval Letter. This is a document from a mortgage lender that says that you are qualified to receive a mortgage for a specific amount. This shows the home seller that you are a serious buyer.
Primary Mortgage Insurance (PMI). If your down payment is less than 20%, your lender will require PMI. This is an insurance policy that protects the lender in case you default on the mortgage. The payments will be added to your monthly mortgage payment.