Being a first-time homebuyer is such an exciting time! It’s a huge accomplishment and perhaps the most significant investment you will have made up until this point. While homeownership can be exciting, the process can also be overwhelming if it’s your first time.
There are many real estate-specific terms that you may have heard before but aren’t quite familiar with the meaning. Today, we wanted to take a look at some of the most common real estate vocabulary that would be important to a first-time homebuyer.
Adjustable-Rate Mortgage (ARM)
Like many first-time home buyers, you may be financing your home. An Adjustable-Rate Mortgage, commonly referred to as an ARM, is a loan where the interest rate will adjust in accordance with current interest rates. This can be any period of time, but it is generally between three and ten years.
Annual Percentage Rate (APR)
Just like your credit cards, a home loan has an Annual Percentage Rate (APR) associated with it. Think of the APR as the total cost of borrowing money for your new home. It’s a combo of the interest rate that your creditor charges and any fees you may be charged.
During your home buying journey, there will be an appraisal of the home you are purchasing. Appraisals are conducted by professionals who offer their insight into the market value of a property using various methods that take into account current market value and nearby comps (sale prices for homes sold nearby).
Working with your realtor, you will no doubt become familiar with the term contingency. These are the parts of an agreement that keep it from becoming legally binding until conditions are met. Generally speaking, prospective home buyers will conduct a home inspection before purchasing a home. This is where contingencies are discovered and written into the contract for the current homeowner to fix or pay for in the form of a credit.
Closing costs encompass a number of fees that arise after the sale has been completed. These can include things like insurance fees, attorney fees, survey fees, and more, and they are variable depending on location.
Your down payment will vary depending on how much cash you can afford to put down at the time of purchase, but traditionally, down payments are 20% of the purchase price. While it is possible to put down less than 20%, mortgage insurance is then required.
An escrow account is used to set aside monthly funds for expenses that accompany homeownership. These include things like property taxes, homeowners insurance, etc. Your lender will use your escrow account to pay these bills for you directly with the money you’ve accumulated in your account.
You learned about an ARM above, and a Fixed-Rate Mortgage is the exact opposite: a mortgage rate that is set and will not change. Typically, Fixed-Rate Mortgages have long terms associated with them, and 15- and 30-year mortgages are common.
Once your down payment is complete, the remaining money you owe on the home is called the principal. Your principal is what you will be paying off, monthly, over the lifetime of your mortgage. This can last anywhere from five to 30 years.
Title insurance is a policy that serves to protect a lender or owner’s interest in a property. Unexpected claims about ownership can arise, and title insurance will manage any issues that occur in this area. It’s customary for the buyer to pay for the lender’s title insurance policy.
Under contract (UC)
Once you are under contract on a property, it means that the seller has agreed upon the terms of the sale with you as the potential buyer. It’s important to keep in mind that being under contract does not mean the deal is complete.
For assistance with your escrow questions or to learn more about our services, please reach out. We would love the opportunity to support you and your escrow needs.