Common Real Estate Terms to Learn
When it comes time to search and buy a home, home buyers are often immediately hit with jargon they may have heard before but might not entirely understand. This can be a detriment for buyers because it's not always easy (or practical) to speak up every time you hear an unfamiliar word. This list of terms is by no means exhaustive, but it can empower a buyer who's new to the home-buying journey.
This is the idea of paying the principal on a loan as well as the interest. The amortization formula will tell a buyer the total they'll pay over the lifetime of the loan (taking into account all fees and even anticipating potential interest rate fluctuations).
Closing costs are any costs involved to purchase the home. The buyer's closing costs may include real estate agent fees, title fees, home inspection costs, and application fees. Closing costs are negotiable, meaning buyers can ask sellers to pay for them.
A down payment is how much money a buyer puts down of their own money. Lenders want buyers to cover at least 20% of the home's purchase price. However, considering the inflated cost of real estate in the modern era, few buyers actually meet these terms.
Escrow is the time period that occurs after a buyer makes an offer but before they finally take possession of the home. Some escrows can stretch for months, but the standard time period is 30 days. During this time, lenders are finalizing the loan, sellers are readying the home, and buyers are getting ready to move.
Equity refers to how much a buyer owns of the home. For example, if the buyer had saved up 50% of the home's total purchase price, they would have 50% equity. The other half of the home would belong to the lender. The more equity a buyer has, the more stable their financial situation is.
This term refers to the seller's real estate agent. A buyer's agent is the professional the buyer hires to help them navigate the home search and purchasing paperwork. Buyer's agents take a percentage of the home sale as their commission.
There are several mortgage types available, but the two most common are adjustable-rate (ARM) and fixed-rate. An ARM will usually look more attractive in terms of initial interest rates, but they're also subject to go up over the course of the loan. A fixed-rate loan can help homeowners better plan their finances, regardless of how the market performs.
PMI stands for Private Mortgage Insurance, a type of policy a lender can take out on behalf of their client. The lender is the one who pays the insurance company, but the home buyer is the one who is charged for the amount of the policy. PMI usually applies to buyers who are unable to produce a 20% down payment.
This term refers to an insurance policy a buyer can take out to cover the legitimacy of the title. If an ex-spouse contests the sale, the title insurance company will find this out before the sale goes through. It can help eliminate potential legal hiccups for the buyer.
Researching different terms is highly recommended for a Maple Grove home buyer, even if they go through an agent. Knowing the terms can help put buyers in the driver's seat, giving them more confidence to negotiate the best terms.