You don’t need a college degree in real estate to make the home buying experience an easy one, but understanding certain real estate terms can certainly make the process easier! Noah Webster never created a specific real estate dictionary like he did with the Merriam-Webster Dictionary in the early 19th century, but buyers back then might not have found it so useful. Of course, the transfer of property was less complicated at that time, but with a foundational understanding of some common real estate terms, your process can be just as simple.
Down Payment: If you’ve been thinking about purchasing a home, chances are, you’ve been depositing money into your savings account. Having a down payment is one of the best things you can do for yourself in this competitive real estate landscape, and it’s important to start saving early. Generally, buyers will put away 5 to 25 percent of the value of the home they’re eyeing.
Pre-Approval: At the same time you’re saving for a down payment, it’s a good idea to meet with a mortgage broker or your local bank and discuss a pre-approval letter. Having one in hand demonstrates to sellers that you’re a serious buyer who is capable of closing on a home. Pre-approval letters are valid for a certain period of time and lock you into a specific interest rate so you’re covered if they begin to increase.
Underwriting: Your lender needs to make sure that they are covered before they loan you money, and the process of determining whether or not a buyer is qualified is called underwriting. Lenders will review your credit score and history, your debt-to-income ratio, outstanding debt to other creditors and so forth.
Escrow: Once you’ve entered into a contract with a seller for a home, you and your real estate agent will employ the services of an escrow company. In a real estate transaction, the escrow company will act as a third-party liaison between you and the seller. They will hold onto both money and the property title for a specified period of time, and once all conditions have been satisfied, they will distribute the assets accordingly. At this point, you’re ready to close on your home!
Lien: As far as real estate goes, “lien” is not a friendly term. Buyers who default on their financial obligations can have a lien placed on their home. It’s a legal claim on a property that can occur if you miss payments or fail to pay for services.