Happy June from the office of Goldfinch Realty! Here’s to a bright, fun and hopefully adventurous summer for everyone!
Living in the real estate world, I often forget that there are a lot of industry terms and names that aren’t familiar to most people. Even though a majority of Americans own a home (just over 65%, in fact), the homebuying process can be a dizzying journey.
There’s a lot of steps and terms between getting a mortgage pre-approval and closing on your home, and there’s a lot of parts that can go right over our heads. Of course, having a professional real estate broker and mortgage professional make missing some of these details no problem.
Still, I think it’s very important for my clients to know exactly what’s going on every step of the way, and being able to explain certain industry terms can help make the process easier for homebuyers and sellers.
Whether you own a home already or are just starting the process to homeownership, or if you’re already deep in the process, being familiar with real estate jargon will help you understand and better navigate your journey.
That’s why this month I’m breaking down some of the most common terms used in real estate. For current homeowners some of these terms might be familiar, but I expect many of them will be a welcome refresher.
The first term we’ll discuss is a mortgage pre-approval letter. This is a letter from a lender expressing how much they’re willing to give you for a mortgage on a home. This is a necessary first step for all homebuyers.
Another important term in real estate is a Home Appraisal. This is a professional report completed by an appraiser that determines a home’s value. Lenders will use an appraisal to help them evaluate the risk and to ensure the mortgage on the home isn’t greater than the home’s value. An appraisal usually takes place in the weeks leading up to the closing on the home.
Next let’s go over Contingencies. These are the conditions agreed on in a signed offer on a home and that must be met within a timeframe or on a specific date prior to closing. Contingencies are not a part of every real estate transaction but are still common. For example, a buyer might request a home inspection period, allowing them to hire a home inspector to come in and check various components of the house.
Next up are closing costs. Closing costs are a list of payments to various parties involved in a real estate purchase. These can include attorney fees, property taxes, title insurance, among many other potential items. Some of these costs can be rolled into your home mortgage, so it’s important to know that your closing costs aren’t a bill that needs to be paid on closing day. Your lender will be a good resource in helping you better understand any costs or money required of you at your closing.
Moving on to a Down Payment: this is the amount of money you are putting toward the purchase of your home. Many lenders require a certain percentage of the overall loan to be paid upfront, but the percentage can vary, and there are some lenders and types of loans that don’t require any down payment at all. Regardless of what your lender requires, you should know that higher down payments usually mean lower interest rates and a more beneficial loan for you.
Mortgage Rate is another important term. This is the interest rate set on your home mortgage. I recently talked about mortgage rates, not only what they are but important factors determining rates.
The final term I want to discuss is an escalation clause. Escalation clauses are becoming more and more common, especially in highly competitive markets like what we’ve been seeing in Maine and New Hampshire. This is an optional add-on in an offer to buy a home where the buyer agrees to pay more if higher offers are presented to the seller.
Escalation clauses can be tricky and usually involve specific language about how much the buyer is willing to go over their initial offer. For example, a buyer might place an initial offer but add an escalation clause agreeing to pay $5,000 over the highest bid. The buyer might also include a maximum they’re willing to pay.
There are a lot of real estate terms and jargon, and this list only scratches the surface. But these are some of the more common ones, and becoming familiar with them will help clarify and demystify the home buying and selling process.
Of course, having an experienced and trusted real estate professional is the ultimate assurance that your real estate questions will get answered. I’m always available to answer any questions or concerns that you might have.
If you want to talk more about any of these terms, or if there are other terms and jargon that you’re not familiar with, reach out to me today!
