While the prospect of buying a new home can be exciting for first-time buyers, it can also be a daunting experience filled with confusion and questions on the homeowner process. For those of you with clients who are tackling their very first home purchase, here’s our ultimate vocabulary sheet to help familiarize them with the terms they’ll most likely hear during the buying process.
1. Appraisal – The estimated value of a property which is determined by an impartial professional appraiser. The appraisal is required by the lender if you are financing the purchase of your home.
2. Conventional Mortgage – A mortgage that is not insured by the Federal Government. The loan is subject to the conditions set by the lender and State statutes.
3. FHA Loan – A loan insured by the Federal Housing Administration. Benefits of this type of loan include lower down payment requirements and easier credit qualifications
4. Title – A report showing the activity of ownership for the property. The title also shows what mortgages or liens exist on the property. A clean title means there are no other claims by third parties to the property.
5. Certificate of Title – A certificate issued by a title company or an attorney, indicating that the title of the property is insurable.
6. Agreement of Sale – A contract between the buyer and seller. The terms and conditions are set in the contract and include items such as the purchase price, the address of the property, financing contingencies, etc.
7. Commission – The money paid by the seller to a real estate agent to find a buyer and complete the sale of property. Typical commission rates are between 5-10%.
8. Deed – A legal document that transfers ownership of the property from the seller to the buyer. To be legally binding, the deed must be recorded with the local government where it becomes public record.
9. Documentary Stamps – A state tax required on deeds and mortgages when the title changes ownership.
10. Down Payment – The amount of money paid by the buyer towards the purchase of property. The down payment amount is recorded in the agreement of sale.
11. Escrow – An account where funds are held until the occurrence of a specific event, usually the closing.
12. Earnest Money – A deposit the buyer gives to the seller to show good faith in purchasing the property. The earnest money funds are held in escrow and applied to the down payment at the time of closing. If the sale does not go through, the money is forfeited, unless otherwise stated in the contract.
13. Easement Rights – A property easement is a right of way given to a person or company to access the land of the property holder. A common example is an electric company needing to enter a property to gain access to power lines that run through a yard. Easement rights are commonly an issue on properties where oil & gas mineral rights are sold or severed from the surface estate. In this case, the mineral rights owner is given an easement to use the surface estate to access the mineral properties.
14. Closing – The transfer of the ownership of the property where the seller signs the deed to the buyer. The buyer will then sign all required mortgage documents and pay any necessary closing costs.
15. Closing Costs – A list of expenses necessary to transfer ownership of the property. Both the buyer and seller are responsible for closing costs and are paid on the day of closing in addition to the price of the property.