Lingo to Know as a First-Time Homebuyer
Jumping into the world of real estate can be quite overwhelming, especially as a first-time homebuyer. Having some background knowledge could help you navigate the waters of purchasing (we recommend you’re represented by an agent, no matter how experienced you are!), making it easier to understand the ins and outs of the transaction.
Adjustable-Rate Mortgage - A mortgage that has an interest rate that adjusts based on a specified index during the duration of the loan.
Appraisal - The opinion of a home’s value. This is performed by a licensed appraiser who follows established guidelines.
Closing Costs - Fees related to buying a house that your lender charges or that you rack up from third parties such as home inspectors. Some other examples include a loan origination fee, title insurance, survey, attorney’s fee and credit report fees.
CMA - Comparative Market Analysis.This tool is used by real estate agents with data from the Multiple Listing Service (MLS)to determine the value of a home based on recent comps (listed, sold and withdrawn properties in the area that feature similar attributes.)
Conventional Loan - A type of loan that has advantages such as lower interest rates, fewer fees and flexible mortgage insurance options. This type of loan isn’t common for first-time homebuyers as it typically requires a 20% down payment.
Earnest Money - A deposit given by the buyer to the seller to secure the contract until closing that allows a seller to feel confident in how serious you are about the transaction. This money is normally held in an escrow account until closing, where it may be applied to your down payment or closing costs.
Escrow - In real estate, this means putting something (such as a deed or money) in custody of a neutral third party until certain conditions are met. Escrow or title companies oversee a real estate transaction from initial deposit to final funding to make sure the process goes smoothly.
Federal Housing Administration (FHA) Loan - An FHA is a government loan that requires 3.5% down payment. This loan is more flexible in terms of credit score, making it easier for first-time homebuyers to obtain (especially if the homebuyer has a lower credit score.)
Fixed-Rate Mortgage - A mortgage that has the same interest rate through the term of the loan.
MLS - Multiple Listing Service, used by real estate brokers to list and see one another’s listings of properties for sale. MLS allows sellers to receive wider exposure when they list their house for sale.
Pre-qualified - To be pre-qualified, the first-time homebuyer must supply a bank or lender with their overall financial picture including debt, income and assets. This is a good indication of creditworthiness and your ability to borrow.
Pre-approved - To be pre-approved, you must complete an official mortgage application and supply the lender with the necessary documentation to perform an extensive financial background check. After reviewing your finances, the lender can pre-approve you for a mortgage up to a specified amount -- This will also give you an idea of your interest rate.
Private Mortgage Insurance (PMI) - If you’re putting down less than 20% of the sale price of a home, you’ll likely have to pay a PMI fee as a monthly insurance payment. PMI payments can typically be removed from your mortgage once you pay off 20% of your house.
Title Insurance - An insurance policy that protects the buyer or lender against problems with the title when ownership is transferred.
Title Company - Title companies ensure the title to a piece of real estate is legitimate and issue title insurance for the property to protect the lender and/or owner against lawsuits or claims against the property resulting in disputes over the title. Title companies will often maintain escrow accounts as well.
If you’re a first-time homebuyer in the Austin area and are looking for someone to represent you in the process, click here to contact one of our agents today. To learn more about different types of loans for first-time homebuyers, click here to read a guest post from one of Austin’s mortgage loan officers: What Type of Home Loan is Best for First-Time Buyers?