It’s already that time – back-to-school. Since your kids are going back to school to gain more knowledge, now it a perfect time for you learn more about real estate! The more you know, the less intimidating it will seem when you go to buy or sell a home. And, who knows, maybe you will decide you want to be a real estate investor, broker or even a realtor!
The home buying processes seems scary because most the time you don’t really know what’s happening. Professionals throw all kinds of jargon and acronyms at you, which can leave you feeling very uneasy. To alleviate this stress, the best thing to do is educate yourself on common vocabulary, how a sale works and local resources where you can learn even more.
Common Real Estate Vocabulary
ARM – Adjustable Rate Mortgage. This type of home loan has an interest rate that will change over time. They usually start out with a very low interest rate that is set for a certain number of years (up to 10 years). But after that, they change depending on the market – the interest rate can go up or down.
Assessed Value. This is the value of a piece of property that a public tax assessor gives for the purpose of taxation. It is rarely ever the same as the list or purchase price.
Appraisal. A home appraisal is an unbiased estimate of the true (or fair market) value of what a home is worth. All lenders order an appraisal during the mortgage loan process so that there is an objective way to assess the home’s market value and ensure that the amount of money requested by the borrower is appropriate. Often this is confused with Assessed Value.
Broker. A broker brings parties together to negotiate a contract between them. The broker gets a fee or a commission for providing the service.
Closing. The sale of the property is finalized, mortgage papers are signed and all “closing costs” are paid.
Closing Costs. These are expenses that are involved in the transfer of a property from the seller to the buyer. They normally include attorney’s fee, taxes, a sum of money in escrow, title insurance and survey fees and an origination fee. The amount is usually a percentage of the purchase price.
Down payment. A sum of cash you must pay upfront towards the purchase price of the home. Usually the down payment is a percentage of the purchase price and depends on the type of mortgage.
Conventional Mortgage. A mortgage that is not insured or guaranteed by the federal government.
Earnest Money. The sum of money given at the time the seller accepts the buyer’s offer to show that the buyer is serious about buying the property. The amount goes towards the down payment sum.
Equity. This is the difference between the fair market value of a property and how much the current owner still owes on the mortgage. For example, if the house was valued at $500,000 and the home owner owed $300,000, the equity is $200,000.
Escrow. Funds and documents that are held by a third party which are then dispersed once conditions are met. For example, a down payment goes into an escrow account and then is given to the seller after closing.
Fair Market Value. The highest price a buyer would be willing to pay and the lowest price a seller would accept.
Fixed-Rate Mortgage. Unlike the ARM defined above, a fixed-rate mortgage has a set interest rate that does not chance for the life of the loan.
Government Mortgage (FHA). These are mortgages insured by the Federal Housing Administration (FHA). – (VA). A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA). The loan may be issued by qualified lenders. The VA loan was designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry).
Home Inspection. An inspection done by a certified professional that evaluates the structural and mechanical condition of a property. Most home sales are done contingent upon a home inspection.
HUD-1 Statement. This document provides an itemized list of the funds at closing. The statement includes real estate commissions, loan fee, points and initial escrow amounts. Also called a closing statement.
Insured Mortgage / Mortgage Insurance. A mortgage that is insured by the FHA or a private mortgage company. Buyer will pay a mortgage insurance premium bundled with the monthly mortgage payment for a certain time period. Loans where the borrower had less than 20 percent of the purchase price as a down payment usually are insured.
Point. A one-time fee by the lender for originating the loan – a point is 1% of the mortgage amount.
Pre-approval Letter. This is a letter from a bank or lending company that gives an estimate of how much they are willing to give you as a loan. While not a guarantee that you will be given final approval, they do make your offer stronger than someone who has not even approached a bank.
Chronology of a Sale
The following diagram will give you a visual reference on how the sale/purchase of a home works, from listing to close. While the diagram looks complicated, having a licensed real estate agent by your side can really help make the process go smoother by explaining to you the steps along the way.
Looking for more information on buying and selling homes here in Lewis County? Here are some great resources for both information as well as professional services that you will need during the process.
- LewisCountywa.gov – this site can give you information on properties, including easements, flood zones and other important information.
- Lewis County Community Development – here you can learn about building or land use permits so you can make sure the property you are buying will work for your needs before you purchase.
- L&I Inspections – Electrical permits, fees and inspections. Especially important for manufactured homes as many older ones are not up to code.
- Lewis County PUD – if you have questions about utilities in our county, these are the people to ask.
- Local city government offices – if you are moving from out of the area and have questions about the area, city offices can be a great resource.
And of course, real estate agents are great local resources. Have a question? Don’t hesitate to contact me that is what I am here for – to help you navigate the home buying and selling process.