Having a basic understanding of important real estate terms and concepts before you start the looking for a home will give you peace of mind now and could save you a fortune in the future. Here are five real estate terms you should know before you start looking for a home.
Fixed Rate vs. Adjustable Rate Mortgages
Conventional loans include “fixed rate” and “adjustable rate” mortgages. A fixed rate mortgage has a predetermined interest rate throughout the life of the loan; the most common are for 30 years. An adjustable rate mortgage has a variable interest rate; the most common are for 5, 7, or 10 years.
Contingencies
When you put in an offer on a home, you can specify certain conditions that must be met before the deal will go through, these are called contingencies. Some examples of contingencies are:
Financing contingency – allows you to make sure you are able to obtain a loan.
Inspection Contingency – Makes sure the inspection doesn’t show any cause of concern.
Appraisal Contingency – The appraised value is close to what you are offering to pay.
Offers and Contracts
Once you find the right home, you’ll make an offer on the property with the help of an agent or attorney. The seller may counter your offer because they want more money or a faster timeline for closing the deal. At this point, you will have to negotiate with them. When submitting an offer, it’s a good idea to add a personal touch by including a cover letter that explains why you want to buy the home.
Closing Costs
Be prepared to pay a lot of fees when you purchase a home. Typically, closing costs will amount to 2-5% of the purchase price of the home, and that doesn’t include the down payment. Common fees include excise tax, loan-processing costs and title insurance.
Title Insurance
After all the negotiations are done and the seller has accepted your offer, you should receive a home title report within a week. Most mortgage lenders require you to pay title insurance as part of the closing costs; title insurers search the public records to make sure the home seller actually had rights to the title and that there are no liens on the home (like an unpaid contractor or unpaid taxes).