Home Buying Terms You Need to Know As Homebuyers
Before you go house hunting, learn key home buying terms you will most likely encounter when purchasing your dream home.
So you’re planning to buy a new home? If you’ve purchased a property before, you know how overwhelming and convoluted the buying process could be, especially if you don’t understand real estate jargon. If you’re a first-time home buyer, you might get confused with many terms.
To help you, we have listed some of the home buying terms (and their definitions) you will most likely encounter when you purchase a house. You might be familiar with some of these home buying terms, but it wouldn’t hurt to brush up on your real estate vocabulary.
Amortization is the process of paying off your mortgage by paying your principal and interest in regular installments over time. Each payment installment will partly go to the principal and partly to the interest. Your amortization schedule will show a table of your scheduled monthly payments (listed individually by month), principal repayment, and interest dues.
Appraisal means the written estimate of the market value of a property (such as houses and condos) as of a given date based on a professional opinion.
In real estate, closing (also called “settlement”) refers to the delivery of financial adjustments, deeds, signing of a note, and disbursement of the funds needed to close the sale or loan transaction.
Collateral is any property or asset you own, that the lender will accept as a security for your loan. If you’re buying a home on loan, the house you buy with borrowed money usually becomes the collateral.
Contract of sale
This is the contract between the seller and buyer of a property (e.g., house) to convey the title after successfully completing the sale transaction.
The deed is the document that shows an owner of a property has title to that property. The deed becomes a public record after it is filed and recorded by your local government.
This is a portion of the sales price buyers pay to the seller to close a sale. The buyer and seller will then agree on when and how the balance will be paid.
A foreclosure is a legal action of taking back property that was bought with borrowed money, but the money was not paid back based on the written agreement. The creditor can sell the property to pay off the buyer’s unpaid mortgage.
FSBO (For sale by owner)
This is used when a home or property is being sold by the owner, without having any assistance from a real estate agent or broker.
This is a close-ended, secured loan where your home is used as collateral. This is also known as a second mortgage.
This is the tax you pay to your local and state government for owning property within their jurisdiction.
Most commonly known as “real estate,” this property includes land and the objects permanently attached to it (e.g., buildings, houses, fences).
This is the process of revising and replacing the terms of an existing loan agreement, while still using the same property as collateral.
Real estate agent or broker
A real estate agent or broker is a licensed real estate professional who usually represents buyers and sellers in real estate transactions.
If you’re not planning to buy a house with cash, chances are you’re considering getting a mortgage.
A mortgage is a loan from a bank or any financial institution used to buy or finance a home, land, and other real estate properties. You can even mortgage a car. As the borrower, you agree to pay the lender regularly over a specific period. The payment is divided into two: principal and interest.
The principal is the amount you borrowed from a lender to buy a property. For example, if you borrowed $200,000 to finance a home, the principal you owe is $200,000.
The interest is the percentage the lender charges you to borrow the principal, also known as the interest rate. Simply, it is the fee that you pay for borrowing money. Your monthly interest payment is calculated by multiplying your remaining loan balance by your monthly interest rate.
Your mortgage term is the length of time (usually in years) that your mortgage agreement is legally in effect. To fully own your home, you must abide by the mortgage conditions and pay your mortgage (both principal and interest) within the agreed mortgage term. Mortgage terms can be as short as 5 years or as long as 40 years. The most common types of mortgages are fixed-rate mortgages with 30- or 15-year terms.
The mortgage cost will depend on the type of loan you apply for, the mortgage term, and the interest rate.
When you apply for a mortgage, the lender will ask for collateral.
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