How many times do you thank the education system for the in-depth explanation of the Pythagorean Theorem? Almost always never. All of that memorization and stressing over those tests seems pretty useless post-schooling. However, most really start criticizing their teachers when faced with life hurdles that seem foreign, like navigating the healthcare system, negotiating car insurance, doing taxes, and last but not least- buying a home. These are skills the ‘real world’ expects us to just know but where do you actually learn them?
When it comes to purchasing a home, it often sounds like real estate agents are speaking a foreign language. Therefore, here are some essential real estate terms to familiarize yourself with:
APR: The annual percentage rate represents the interest on your home each year until it is paid in full and includes any fees you pay upfront, including loan origination fees. As a buyer, you can use this to compare offers from different lenders.
Appraisal: An appraisal determines how much your home is worth. Lenders won’t offer a loan that exceeds the value of your home, so they will ask for this information. This value can include factors like the location, condition of the property, any home upgrades, and selling prices of similar homes in the neighborhood.
Closing Costs: These are costs you pay aside from the property, which could include property condition, location, upgrades, and selling prices of similar homes in the neighborhood. These will all be itemized in your paperwork.
Conventional Loans: These are your most basic form of home loans and pose fewer obstacles than FHA or VA mortgages. However, one must have an excellent credit score to qualify.
Emergency fund: Owning a home comes with a lot of hidden costs that won’t be uncovered until a couple months after you purchase. Therefore, it is important to create and emergency fund account, solely dedicated to those additional costs.
Escrow: Funds are held in escrow so the seller can verify you have the money to purchase a home.
Equity: Equity is the total ownership you have over your home, which can be found by subtracting what you owe on your mortgage from your home’s market value.
Federal Housing Administration loan: This loan is excellent for first-time homebuyers with lower credit scores (580 and lower). However, FHA premiums usually are higher than premiums for private mortgage insurance, and you must refinance the loan in order to get rid of the premium.
HOA fees: The homeowners association fees are monthly or annual fees to upkeep common areas which could be areas like a clubhouse in a neighborhood or a community center in a condominium complex.
Home inspection: During the home inspection process, the buyer evaluates the home entirely. Be extremely meticulous and take an excessive amount of pictures during this stage of the process.
Homeowners insurance: It is a package policy that covers your property and members of the household while on the property. Shop around for a tailored policy that best fits your needs.
LTV: Loan-to-Value is the percentage of the value of your home in which you owe. For example, if your home is $500,000 and you owe $375,000, your LTV is 75%.
MLS: The Multiple Listing Service is a suite of services real estate agents can access to see all the details related to a house.
Mortgage Rates: A mortgage rate is the rate of interest charged by a mortgage lender. It is important to calculate mortgage rates from various lenders to determine your best deal when selecting a loan option.
PMI: Private mortgage insurance is a premium required if you are unable to put at least a 20% down payment on a home. This insurance protects the lender and once your home reaches 80% LTV, the PMI premium will end.
Prequalified Loan: Before you even begin to look at homes, it is important to get prequalified for a loan which entails providing information about your income and debts. Many sellers won’t even consider a bid unless you’re prequalified for a loan.