The process of buying your first home can be intimidating enough, until you realize there’s an entire language of terms you need to learn to fully understand the process and then things become even more daunting. From the different types of mortgages to the process of putting in an offer and then closing on a property, real estate brokers will toss around terms and phrases that may go right over your head. Fear not. We polled some experts and compiled a list of must-know lingo to help you navigate this intense but exciting process. Read on for an education.
Addendum
A separate document form describing a change or addition to the initial purchase agreement. Addendums can be used for many items, for example changing the closing date.
Adjustable Rate Mortgage (ARM)
A mortgage that has a fluctuating interest rate. ARMs may have lower initial interest rates for a set time and then start to adjust according to an index.
Appraisal
The appraisal is the process of determining the value of a home. This is required by the lender and organized by its choice of an impartial professional appraiser. The results may not be the same amount as the selling price. If the value comes back lower, it could result in additional negotiations between the buyer and seller.
Certificate of Title
This proves that that property is legally owned by the seller and no other institution or party has any claims.
Closing
This is when the buyer, agent or lawyer, and the escrow agent (more on that later) meet with the seller and their representatives to finalize the purchase. This will incur fees known as closing costs which include attorney’s fees, a loan origination fee, and other charges totaling around six percent of the house.
Comparative Market Analysis (CMA)
This is when a home’s market value is determined in order to come up with a fair asking price. This will be done by a broker who will find the CMA by comparing the home to other similar properties in the vicinity that have recently sold.
Comps
The term for properties that are comparable (in size, amenities, location, and more) to the property being analyzed.
Deed
The deed is the legal document that proves the transfer of ownership from the seller to the buyer.
Disclosures
Information about the home (not always flattering) that a seller must provide to a buyer. Examples might include noting the the basement often floods in heavy rain or if there is lead paint anywhere in the house.
Down Payment
This is a percentage of the purchase price that the buyer pays in cash. It usually ranges from as low as three percent up to 20.
Due Diligence
This is the responsibility of the buyer to take all necessary care before closing on the purchase. For example, it would include confirming the seller’s broker and attorney are legitimate and confirming there are no issues that have yet to be disclosed that would prevent the buyer from wanting to proceed with the purchase.
Escrow
This refers to the time period and process where the purchase funds are released and the transfer of the house between parties is completed. The escrow company is a neutral third party and executes the transaction utilizing the purchase agreement and other documents as the directive.
Fiduciary Duty
This refers to the obligation your broker or real estate agent has to act solely in your interest. Examples of these duties are disclosure, confidentiality, and loyalty.
Fixed-Rate Mortgage
A type of mortgage in which the interest rate does not change over the course of the loan.
Fixture
Anything of value that is permanently attached to or a part of the property. This can include lighting, carpet, or landscaping. These items can be a source of dispute between buyer and seller and can be leverage for negotiations.
HOA Docs
The short form of Homeowner’s Association Documents. These apply when purchasing a condo and include HOA meeting minutes, a copy of the building’s yearly budget, and/or rules for shared spaces.
MLS
This stands for Multiple Listing Service and is where brokers to share their listings with other brokers.
Mortgage
A document that pledges the property to the lender as security for the loan needed to purchase the home.
Principal, Interest, Tax and Insurance (PITI)
This is another way of describing your monthly mortgage payment. Principal is the portion of the payment that goes toward paying down the loan and interest is the portion that pays the lender for loaning the money to purchase the property.
Pre-Qualification
The process the loaner goes through to confirm if a borrower qualifies for a loan based on their credit history and current financial status as well as the amount of money a recipient qualifies to receive.
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