Home Buying Terms You Need to Know

Home buying can be a tricky process. Here are some home buying terms that you will most likely encounter as you purchase your home. Familiarizing yourself with these home buying terms will help you make decisions regarding your purchase.

Amortization

This is a schedule that outlines your loan payments for the duration of the home buying loan. It details how much of each monthly payment goes toward the principal and how much goes toward the loan. Initially, the bulk of your payments will be applied toward the interest.

Appraisal

Generally paid for by the home buyer, the appraisal provides an estimate of the property's worth. Required by most lenders, it must be performed by a licensed appraiser before your home loan will be approved.

Buyer's Agent

A buyer's agent, as opposed to a seller's agent, represents only the interests of the home buyer. For an agent to be considered a buyer's agent, an agreement must be made between the buyer and the agent. Without such an agreement, the agent could end up representing the seller in a real estate transaction.

Closing

This is the final step in the home buying process in which the transfer of the deed is made from the buyer to the seller. The mortgage is also finalized at this point.

Closing Costs

These costs are required to be paid at the time of closing. Closing costs are usually between 3% and 5% of the price of the home and include such fees as loan origination fees, attorney fees, and recording fees. As part of your home buying negotiation, you might get the seller to pay some, or all, of the closing costs.

Earnest Money

Along with an offer, buyers can make a deposit on the home to demonstrate the seriousness of the offer. When an earnest money deposit is made, it is held by an escrow until closing. It is then added to the down payment.

Escrow

Funds held before closing by a third party, usually including the earnest money deposit. Future taxes and homeowners insurance, held by the mortgage company after closing, are also considered escrow.

FSBO, For Sale By Owner

This term refers to property that is being sold without a real estate agent. FSBO is also used to refer to the home owner who is selling the property.

Foreclosure

The process after home buying is complete by which a lender repossesses and resells a property after the owner has defaulted.

Lien

This is a legal claim that keeps the property from being sold until the lien is paid off.

Loan Origination Fee

This is the fee charged by the lender for processing the loan. The loan origination fee is due at closing.

Private Mortgage Insurance

When you make a down payment less than 20 percent of the loan amount, the home buying lender requires you to pay private mortgage insurance. This insurance protects the lender if you default on the loan.

Title Insurance

This insurance protects your title from claims against it.

Keep these terms in mind as you go through the home buying process.

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