Don’t let buying a home intimidate you… get familiar with the lingo used during the home buying process! Your REALTORS® at NextHome Metro Group have compiled a list of some of the most common terms used when buying a home. Be sure to bookmark this handy home buyer’s glossary for future reference!
This is a broader measure of cost for borrowing money.
The APR includes certain closing costs (points and broker fees, for example), interest rate and certain other credit finance charges a borrower can be expected to pay over the full term of the loan. The APR is usually higher than then interest rate due to of all these costs added in together.
The appraisal is a professional analysis that includes examples of similar property sales in the area of the home being purchased. It is used to estimate the property’s value that is a necessary step in securing financing. This verify’s the home’s worth to the home buyer and lender.
Closing costs reflect the amount needed to complete the real estate transaction. These costs are in addition to the price of the home and are paid at closing. They include several items such as financing costs, taxes, title insurance and points; essentially all items that must be paid in advance or escrowed and other costs. Your lender should provide a complete list of all items included in the closing costs.
A credit score is a number ranging from 300 to 850, that’s based on an examination of your credit history. It plays an important role when securing a mortgage as it helps lenders determine the probability that you’ll repay subsequent debts. The higher the score, the better, however many home buyers mistakenly believe they need a credit score of at least 780 to qualify for a mortgage when, in fact, over 55% of approved loans had a score below 750!
One discount point equals 1% of the loan amount (for example, 1 point with a $300,000 loan = $3,000). To get a lower interest rate on a mortgage, you can pay points. A discount point is virtually an upfront interest payment enabling the borrower to lock in a mortgage at a lower rate.
A down payment is a portion of the property’s cost that is paid in advance to secure the home’s purchase. Typically, it is approximately 3 to 20% of the purchase price. Although, there are zero-down programs available. Your mortgage lender can provide more information on these loan types. 80% of first-time home buyers actually put less than 20% down in recent months!
An escrow is when a neutral 3rd party, such as a real estate broker or lawyer, retains money or documents prior to the closing. It can also be in the form of an account held by the mortgage lender that a homeowner pays money for taxes and insurance into.
A mortgage with an interest rate that does not change for the entire term of the loan. Fixed-rate mortgages are typically 15 or 30 years.
A professional home inspection is performed to assess a property’s condition. The inspection should include, but is not limited to, an evaluation of the home’s foundation, heating and air conditioning systems, electrical wiring, plumbing, roof, appliances and if a possible pest infestation exists. Home inspections can provide a potential home buyer with items that might be in disrepair.
A mortgage rate is the interest rate paid to borrow money for the property. Lower rates are more desirable. Recently, interest rates on a 30-year fixed-rate mortgage have lingered around 4 and 4.25% since the beginning of 2017.
A mortgage lender can provide a pre-approval letter indicating your qualifications for a specific mortgage amount. The letter also demonstrates to a home seller that you’re a serious buyer. When shopping for properties, having a pre-approval letter in-hand can help you move faster, and with greater confidence, in competitive markets such as today’s.
PMI is required on a loan if the down payment is lower than 20% on a conventional loan, at a rate of about .51%. Primary mortgage insurance also serves as an added insurance policy that protects the lender if the borrower is not able to pay the mortgage. PMI can be cancelled from your mortgage loan payment once 20% equity in the home is reached. Select here for more information on how this mortgage insurance can impact your monthly housing cost.
An individual who provides services in buying and selling homes. They are available to to guide you through the complex paperwork, to help you find your perfect home, to negotiate any issues that arise and to ensure you know the current status of the housing market. Real estate professionals can refer you to local mortgage lenders or brokers in addition to other specialists that you might need throughout the home buying process. NextHome Metro Group’s real estate agents are licensed in the state of Wisconsin and members of the National Association of REALTORS® (NAR), and abide by a strict code of ethics.
The best way to ensure that your home buying process is a confident one is to find a real estate pro who will guide you through every aspect of the real estate transaction and who remains in constant communication and puts you and your family’s needs first.
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