Back HomeHome-buying terminologies every buyer should know
If you’re buying a home for the first time, it’s common to hear terms like “underwriting” and “escrow” throughout the process. To help you navigate your way through your first property search in Brazos County, here are some technical real estate terms you need to learn.
Pre-approval versus pre-qualification
While these two terms often get confused for each other, they refer to different processes. In real estate, pre-approval refers to the initial process in which the lender reviews your financial records, such as income and credit history, to estimate how much home you can afford. It is often recommended to get pre-approval before house hunting – getting a pre-approval letter sends the signal that you’re a serious buyer working towards securing a mortgage.
Pre-qualification, on the other hand, is a process in which the lender provides an estimate of the potential loan amount that you may qualify for. They will also discuss different mortgage products depending on your needs and financial goals.
Down payment
This is the upfront payment that is deducted from the final sale price. This ensures that the buyer has cash reserves and that they can afford to purchase a home. This fee varies with each mortgage type, as well as the agreed-upon sale price. In general, most buyers may be asked to make a 20% down payment or more depending on their credit score, financial circumstances, the final sale price, the terms of their mortgage, and other variables.
However, government-backed mortgages such as a Federal Housing Administration (FHA) loan may require a smaller down payment while Department of Veteran Affairs (VA) loans require zero down payment for eligible borrowers.
Mortgage
This financing method makes it possible for buyers to purchase a home. Borrowers could choose from a variety of conventional and government loans depending on their eligibility and financial capability. There are several factors that can impact the terms, rates, and loan amount, such as your financial standing, credit score, and more.
Mortgages can make homeownership more accessible to buyers. If you get approved for one, you have to repay the loan amount through monthly mortgage payments over a 15 or 30-year duration depending on the terms and mortgage type. However, if you are unable to make timely and consistent monthly payments, the lender may be forced to initiate the foreclosure process on your home.
Mortgage insurance
This particular insurance protects the lender in case you default on your mortgage payments. If a borrower makes a down payment of less than 20% of the sale price, they may be asked to pay mortgage insurance. If you apply for a conventional loan, you may be asked to purchase Private Mortgage Insurance (PMI) and if you have a government-backed FHA loan, you may be asked to pay for a Mortgage Insurance Premium (MIP).
Underwriting
In this process, the lender assesses your eligibility as a borrower via a thorough investigation of your financial background. They will scrutinize your financial capabilities and ability to repay loans to determine whether or not you’re a high-risk borrower.
Principal
In mortgages, this refers to the initial amount that you must borrow to finance a home purchase. It refers to the original loan amount that you will receive from the lender. Mortgage payments are usually structured to repay both the principal and interest over the lifespan of the home loan.
Refinancing
Refinancing an existing mortgage means replacing it with another mortgage that has better or more suitable terms. Refinancing can help you take advantage of lower interest rates or other changes in the real estate market. It can also help you shorten the duration of the loan and access the equity in the property.
Appraisal
This refers to the assessment of a property’s value. In many instances, the lender may require a licensed appraiser to examine the size, location, and condition of the home to determine its market value. This helps them to make sure that the value truly reflects the amount of money being borrowed for the purchase.
Home inspection
This is conducted by a licensed home inspector to assess the overall condition of the property. This professional will examine various structural components and systems to uncover any major issues or defects with the property. If the inspection report indicates major issues, you must reconsider the purchase, ask the seller to make repairs, or negotiate a lower sale price.
Escrow
Once you finalize the terms of the sale, you have to place funds for the down payment into escrow. During this time, a neutral third party will hold and safeguard the funds and documents on behalf of both parties in the transaction. They will hold the funds in an escrow account until all of the agreed-upon conditions are fulfilled and the home is successfully transferred to your name.
Buy a home in the Brazos Valley with Berkshire Hathaway HomeServices Caliber Realty. As a top-rated real estate brokerage firm, they provide professional guidance and expert advice throughout the buying process. Call the team at 979.694.8844 or send a message here.
