Educating Yourself on Real Estate Lingo Keeps Stress at a Minimum
Lender: Banking institution that lends money for mortgages.
Credit Score: A scale of 300-850 based on your credit files that determines your creditworthiness.
Pre-qualification Letter: This is your starting point for purchasing a home; especially for first-time homebuyers. Working with a lender, the pre-qualification gives you an idea of how much buying power you have. It is an informal process where you submit basic information without your credit being affected, the lender will give you an idea of what you can afford.
Pre-approval Letter: When you are serious about purchasing a home, it is time for a pre-approval letter. The lender will verify your income, debts, banking accounts and credit score to give you a specific amount of money you are approved to borrow. This gives you buying power, most sellers require a pre-approval letter before accepting an offer.
Earnest Money Deposit: Also known as the EMD, this is negotiated good-faith funds that you will go through with the transaction once your offer is accepted. The Escrow Agent, often the closing attorney, holds the funds in escrow until closing. At closing the EMD is credited back to the buyer towards the purchase of the home. If there is a breach of contract, the party at fault surrenders the EMD. If the seller breaches, the money is returned to the buyer; if the buyer breaches, the money is disbursed to the seller.
Due Diligence Funds: Paid directly to the seller, these negotiated funds buy a period of time for the buyer to perform all inspections of the home and secure any/all financing. The buyer has until 5 pm the last day of the Due Diligence Period to cancel the contract for any or no reason or to move forward with the purchase. The fee is credited back to the buyer at closing towards the purchase. Should the buyer cancel during this period, the seller keeps the fee and the buyer will receive a credit of the EMD.
Down Payment: A decided percentage of your loan amount paid at closing. The type of loan will determine your down payment, your lender will be able to review all of your options.
Mortgage: An interest-bearing home loan used by a banking institution where they hold title until the debt is paid in full.
Escrow: An account set up by your lender to pay taxes and insurance for your property on your behalf. Escrow is rolled into your monthly mortgage payment.
PMI: Private Mortgage Insurance, a supplemental insurance for your lender, used when there is less than 20% equity in your property. This monthly fee is rolled into your mortgage payment.
Closing Costs: Expenses outside the purchase price of the property. They can include attorney’s fees, inspections, insurance, title search, title insurance, lender costs, etc.
Appraisal: An expert assessment of the value of the property. Lenders can require an appraisal to ensure the property is worth the loan amount.
Inspection: A third party hired by the buyer to evaluate the condition of the property and reveal any issues.