Home Buying Basics

Buying a home is one of the most important events in a person’s life. It's a stressful but exciting time, especially for a first-time home buyer.

If this is your first home purchase, or perhaps your first home purchase in a long time, you’ll want to make sure you brush up on a little home-buying lingo to help you communicate with your real estate agent and lender team. I’ve included a few terms that you’ll want to be familiar with before embarking on the process of buying your new home:

Prequalification: One of the first things you’ll want to do is to talk to a mortgage specialist to determine how much house you can afford and if you "pre-qualify" for a home loan. A prequalification letter is a tentative agreement that the mortgage specialist can obtain a loan for you to buy a house for a specified price.

Mortgage: A mortgage is simply an amount of money a lender loans to you to buy a house. The loan will have certain terms, such as the amount of time you have to pay back the loan, the interest rate on the loan, and if that interest rate may change over the life of the loan. Your interest on the loan can be set at either a FIXED rate or it can change over time, usually once a year, known as an ADJUSTABLE rate.

Credit Score: Your credit score is a numerical value that attempts to quantify the credit risk for lenders. It is based on your credit payment history, your outstanding debt, and current credit limits among other factors. Your mortgage specialist can help you determine your credit score, or you can get it yourself at www.AnnualCreditReport.com (you’ll pay a nominal fee to obtain the credit score). Your credit score will determine the interest rate you’ll pay on a loan, so it is an important piece of information for both you and your mortgage specialist to know.

Buyer’s agent: A buyer’s agent is a real estate agent who works for you, but normally gets paid by the seller. If you walk into an open house, or into a model home in a new development, the agent that greets you will most likely be the seller’s agent. There are cases where the seller’s agent will represent both you and the seller. But in most cases it makes sense that you have your own buyer’s agent when you start looking for a home. More about Buyer's Agents.

Earnest deposit: When you find a home you like, you’ll demonstrate your interest in buying a home with a purchase contract and an earnest deposit. The earnest deposit is an amount of money that shows you are interested in buying the home. It is usually held in a neutral account, and depending upon the terms of the contract, may be forfeited to the seller in case you decide not to purchase the home. Most contracts will have a period of time, usually called an inspection period, where the earnest deposit is refundable to you if you decide to cancel. Make sure your buyer’s agent explains these contract terms carefully, before you sign.

Escrow: When you sign a purchase contract for a home and give an earnest deposit, you enter a period called “escrow”. During the escrow period, there are several tasks that are carried out, including inspections of the home and a title search. At the end of the escrow period, the buyer and his lender pay the seller the remaining purchase amount, and any other creditors are paid by either buyer or seller. The "close of escrow" signals the moment where ownership of the property changes hands from the seller to the buyer.

 

 

Information Deemed Reliable But Not Guaranteed. The Fair Housing Act prohibits discrimination in housing based on color, race, religion, national origin, sex, familial status, or disability.