Are you planning to move into a new home? If you haven’t purchased a home before, you’re likely to encounter many new words and phrases that are specific to the real estate industry. Some real estate terms are simply abbreviations for longer phrases, while others describe various pieces of equipment or features in a home. Additionally, there are legal terms that hold significance in the sales contract.
Whether you are in the process of buying a new property or constructing a new home with the assistance of a home builder like Hyde Homes (hyde-homes.com), having a solid understanding of these real estate terms can help you navigate the property acquisition process with confidence and clarity.
1. Mortgage Insurance
Mortgage insurance is one of the basic real estate terms every home buyer should know. It is insurance that protects the lender in case the borrower defaults on their loan payments. Usually, the lender requires it if the loan amount is greater than 80% of the purchase price of the property.
Generally, you need to pay the insurance monthly, and it is a small percentage of the total loan amount. Depending on the lender, the cost of the mortgage insurance can be folded into the monthly payment, and the borrower does not have to incur additional costs.
Knowing about mortgage insurance is essential to understanding the loan that you are taking out when buying a home.
2. Seller’s Disclosure
One important term that home buyers should understand is “seller disclosure.” This is the document that outlines all the known defects in a home and can help you immediately determine whether or not you have found yourself one of the maintenance free homes in Lenexa KS (or elsewhere).
This document typically includes structural issues, systems, fixtures, and appliances. Keep in mind that these disclosures must be completed accurately and truthfully. It is the seller’s responsibility to present the buyer with a detailed account of known problems with the home.
The document also includes details about any significant repairs the seller has completed within the past few years. This can be valuable information for home buyers, as they can investigate any reported issues. Buyers need to read and understand this document before making an offer or buying a home.
3. Earnest Money
Earnest money is a security deposit, typically ranging between 1-3 percent of the total purchase price, paid by the potential home buyer to the seller of the home to show that the buyer is serious about purchasing the house. When the closing process is complete, the earnest money will be applied toward the home buyer’s down payment.
If the buyer chooses not to proceed with the purchase, the earnest money is forfeited to the seller as liquidated damages’ return. Home buyers need to understand this term as it helps ensure that all parties are held accountable in the home-buying process.
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5. Tax Assessment
Tax assessment is a necessary term to understand when shopping for a home. It is a value placed by local governments on real estate property for taxation. This is based on the fair market value.
When the tax assessment is too high, the homeowner can appeal it and reduce the amount of taxes owed. When it is too low, the new homeowner would benefit from paying lower taxes. It’s crucial to understand the assessment because it could influence the amount of your property taxes.
It’s not only important to receive a fair assessment from the government, but it also affects the lender’s assessment of risk, which affects the agreement to loan you money. Knowing the basics of real estate terminology will ensure you find the best purchase for you and your family.
Escrow is a contractual arrangement in which a third party (the escrow agent) receives and delivers the payment of funds for two separate parties who are involved in a real estate transaction. The escrow agent ensures they meet the condition before dispersing payment from the buyer to the seller.
This helps ensure both parties receive what they agreed upon and avoid any issues with the sale.
Know These Real Estate Terms That Every Buyer Should Know
In buying real estate, having a comprehensive understanding of the most common terms is essential. Knowing the basics of financial jargon, such as mortgage insurance, seller’s disclosure, earnest money, closing costs, tax assessment, and escrow, will equip you with the knowledge you need to make a wise purchase.
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