Home Buying Phrases You Should Know When Buying A Home

There is a great deal of lingo used in the field of real estate. It can cause the home buying process to be confusing for newcomers. Even if you've purchased real estate in the past, there may be some terms you're unfamiliar with. In order to make the experience less intimidating, take a look at these common homebuying phrases you should know when buying a home.

Adjustable-Rate Mortgage

As the name implies, an adjustable-rate mortgage is one in which you can expect the interest rate to change on a regular basis. It will likely be different from year to year. This can be an advantage, depending upon your circumstances. Your mortgage broker can talk to you about these as well as those of a fixed-rate mortgage.

Closing Costs

There are transaction costs put into place when a property is transferred at closing. Either the buyer or seller must pay them, depending on the terms of the contract. These costs are usually between two and five percent of the total purchase price of the home.

Contingency

A contingency is a clause in the contract that states certain terms may be voided or altered should a particular stated event occur. It can be put in place by either the buyer or the seller.

Escrow

This term refers to a neutral third party between the buyer and seller that holds funds when an offer is placed. These funds will be held in escrow until the official closing of the property. The purpose of escrow is meant to ensure that the buyer is serious about making the purchase and that the seller will hold the property throughout the finalization of the sale.

Fixed-Rate Mortgage

With a fixed-rate mortgage, the interest rate will never change for the remainder of the loan's terms. It will remain the same unless a new loan contract is initiated. A 30-year fixed-rate mortgage is a common choice because it offers the lowest payments.

Private Mortgage Insurance

Private mortgage insurance, or PMI, is put in place to assure that a lender is reimbursed in the event that a homebuyer defaults on the loan. Federal Housing Administration (FHA) loans require you to have private mortgage insurance if you do not have a sufficient downpayment. Typically, a downpayment of 20 percent eliminates the need to purchase private mortgage insurance. PMI is useful for those buyers who do not have that much to put down at the onset because it allows them to make smaller payments over time. Just bear in mind that will amount will be added to your monthly mortgage costs.

These are just some of the more commonly-used terms used in real estate transactions. Now that you have a general understanding of the terms, you're ready to move forward in the process with more confidence.