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Essential Real Estate Terms Buyers Should Know

Updated: Jan 23, 2023

You, like the majority of people, may be unfamiliar with real estate terminology. Do you want to purchase, sell, or learn more about real estate? Look no further.

Here are some common real estate terms to know when getting ready to buy a home.

An adjustable-rate mortgage's interest rate varies on a regular basis. You may begin with lower monthly payments than you would with a fixed-rate mortgage, but as interest rates fluctuate, those payments will most certainly increase in the future.

An appraisal is an unbiased assessment of how much your home is worth. When purchasing a home, the lender will request an appraisal from a third party (an appraiser) to ensure that the loan amount sought is correct. If the appraised value of the home is less than what the buyer has provided, the lender may ask the buyer to pay the difference.

Closing costs are a collection of fees imposed by a lender, title company, attorneys, insurance companies, taxation agencies, homeowner's associations, real estate brokers, and other closing settlement-related businesses. Closing costs are often paid when a real estate deal is completed.

Earnest money is a deposit made by a homebuyer (typically 1-2 percent of the total purchase price) when they enter into a contract with a seller. Earnest money is typically withheld from your total down payment and closing costs to demonstrate the buyer's interest in the property.

The EMD is often held by an escrow company, or as otherwise provided for under the purchase and sale agreement (PSA).

Determining your listing price, also known as your asking price, is a critical step in attracting the ideal buyer to make an offer. If you get your listing price right from the start, you'll have a faster sale and, more than likely, the best price the market will bear.

All house pricing strategies start with determining the projected market value of your home based on recent comparable sales. Recent comparable sales will set the tone for what buyers in the present market should expect to pay for homes. Then, based on your timeframe and goals, you'll be able to compare your property to others and factor in any market circumstances that are growing or declining to determine a listing price that is market value, above market value, or below market value.

To get pre-approved, homebuyers must complete an application that allows a lender to assess their financial situation, including their debt-to-income ratio, repayment capabilities, and creditworthiness. Once this is completed, the lender can issue a letter to the buyer detailing the specific loan amount as well as the total sales price for which they have been pre-approved.

In most cases, the letter will state the buyer's expected down payment as well as the potential interest rate. Most sellers like to see a pre-approval letter with an offer because it is far more complete than a pre-qualification letter.

The majority of buyers must sell their current home in order to acquire a new one, especially when "trading up" to a more expensive home. A home sale contingency allows buyers to wait until their current home sells and closes before making a decision on a new home. While waiting for their own property to sell, buyers can avoid owning two properties and having two mortgages at the same time. A home sale contingency can also facilitate a smooth transaction by allowing the buyer to sell one home and immediately move into the next because the new home is already "locked in."

Even though a home sale contingency gives the buyer peace of mind, it does not eliminate other fees associated with home buying. Home inspections, bank fees, and appraisal fees must all be paid by the buyer. If the sale falls through owing to the property not selling on time, these costs are not refunded.

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