The home buying process doesn't have to feel like a pop quiz.
“I’m sorry, what?”
“I don’t know what that means…”.
“Where’s my dictionary?”
Buying a home can be a confusing process — not just because of all the steps it takes, but because of the lingo!
From acronyms like ARM to words like “contingent,” it’s important that you understand some of the language real estate professionals use when you’re buying (or selling!) a home. Knowledge is power when it comes to big transactions like these.
You should feel comfortable enough with your real estate professional to ask any question — even the ones that feel silly to ask. On the flip side, your agent should be understanding and patient in answering every one of your questions.
In addition to using the glossary below, we recommend that you attend our upcoming webinar, "How Trends Impact the Housing Market" at noon on Wednesday, March 20. Also, remember that our Member Advantage Mortgage Loan Officers are always available to answer questions for you. Request a free mortgage consultation.
To help you get started, though, here are seven terms you might come across:
ARM: ARM stands for adjustable-rate mortgage. This type of mortgage — the loan you get to pay for your home — offers a lower rate for an introductory period, and then it adjusts (up or down, depending on the prime rate). You can switch from an ARM to a fixed-rate mortgage when you think rates are at their lowest.
Appraisal: This is an evaluation of the value of a home. Often, a mortgage company will require an appraisal to ensure you aren’t paying way too much for a home.
Escrow: An escrow account is an account usually attached to your mortgage. Part of your total payment is set aside (into an escrow account) to pay for insurance and taxes and usually is billed with your mortgage payment.
FHA: Federal Housing Administration. This branch of the U.S. government is part of the Housing and Urban Development Administration. Usually, you come across FHA in the context of mortgages, since the FHA offers insurance for mortgages. With an FHA-backed loan, you can have a lower down payment, but you will pay mortgage insurance.
LTV: This stands for loan-to-value, and it is a ratio that compares total loan to the value of the property. Banks consider high LTV loans to be riskier, and might increase your rate or require mortgage insurance.
Points: A point is a percentage point (or 1 percent) of your mortgage rate. When you’re closing on a home, you can “buy down” your mortgage by paying a fee to lower your mortgage rate.
Pre-Qualified or Pre-Approved: These are both related to your mortgage, but they mean different things! If you pre-qualify for a mortgage, that means a mortgage lender has given your finances a cursory look and determined you can probably get a mortgage for a certain amount. This is much less rigorous than a pre-approval, which means that a financial institution will give you a mortgage up to a certain amount. Most sellers prefer that buyers are pre-approved, not just pre-qualified.
If you have questions, remember that CommonWealth One is here FOR YOU, FOR LIFE. Don’t hesitate to reach out to us for answers to any of your financial questions!
