Buying a home is one of the biggest financial investments a person can make, and it can be a complex process with many terms and concepts that can be confusing for first-time buyers. If you’re thinking of purchasing a property, it’s important to understand common homebuying terms to make informed decisions. In this blog post, we’ll cover some of the most essential terms you should know.
- Pre-approval
Before you start looking for your dream home, it’s important to get pre-approved for a mortgage. Pre-approval means that a lender has evaluated your creditworthiness and financial situation, and has determined how much they are willing to lend you to buy a home. It’s important to note that pre-approval is not the same as approval for a mortgage, but it does show sellers that you’re a serious buyer who can afford the property.
- Pre-qualification
Pre-qualification is an estimate of how much home you can afford based on your financial situation. This process is less rigorous than pre-approval and typically involves providing basic information about your income, assets, and debts. While pre-qualification doesn’t guarantee that you’ll be approved for a mortgage, it can help you understand what kind of homes you should be considering.
- Adjustable-rate vs. fixed-rate mortgage
A mortgage is a loan that you take out to buy a home, and it comes with an interest rate that determines how much you’ll pay in interest over the life of the loan. With a fixed-rate mortgage, your interest rate stays the same for the duration of the loan. With an adjustable-rate mortgage, your interest rate can fluctuate based on market conditions.
- Earnest money deposit (EMD)
When you make an offer on a home, you’ll typically need to put down an earnest money deposit (EMD) to show that you’re serious about buying the property. The EMD is usually a percentage of the purchase price and is held in an escrow account until closing. If the sale falls through for reasons outlined in the contract, you may be entitled to a refund of your EMD.
5. Contingency
A contingency is a condition that must be met before a sale can be completed. Common contingencies include obtaining financing, completing a home inspection, and selling an existing property. If a contingency is not met, the sale may fall through.
6. Counter offer
When you make an offer on a home, the seller may respond with a counter offer. This means that they are willing to sell the home for a different price or on different terms than what you offered. You can then choose to accept, reject, or make a counter offer of your own.
7. Closing costs
Closing costs are fees and expenses associated with buying a home that are in addition to the purchase price. They can include things like loan origination fees, appraisal fees, title search fees, and more. It’s important to budget for closing costs in addition to your down payment and monthly mortgage payments.
In conclusion, buying a home can be a complex process, but understanding these common homebuying terms can help you navigate the process with more confidence. It’s always a good idea to work with a trusted real estate agent and mortgage lender who can guide you through the process and answer any questions you may have.