When you buy a home for the first time, you're likely to run into a variety of terms that you've never heard before. Knowing what these terms are can help you throughout the home-buying process. This article will go over some of the most common and confusing terms that you'll see when buying a home.
Appraisal and Assessed Value
Appraisal and assessed value seem to refer to the same things, but in reality, they're very different. The appraisal happens during the escrow process. Before a bank will loan a home buyer money, they must first determine whether the house is worth the amount given in the purchase agreement.
The lender determines this by sending an appraiser to the house to conduct an appraisal. The appraisal is an assessment of the home's market value. If the home does not appraise for the right amount, the lender will not approve the loan. The assessed value is the value of the house according to the tax assessor. Usually the assessment is not performed until after the house has been purchased. The tax assessment determines how much the new home owner must pay in annual property taxes.
Pre-Approved and Pre-Qualified
Pre-approval and pre-qualification are both steps in the mortgage application process. Pre-qualification is the first step. To become pre-qualified, the home buyer must answer some basic questions about their financial status. Pre-qualification is a quick process that can help a home buyer gauge their ability to borrow money.
Pre-approval is the second step of the mortgage application process. To get pre-approved, the home buyer must provide supporting documents to the lender. Pre-approval is a much more accurate gauge of the home buyer's ability to qualify for a mortgage. Because of this, offers from buyers who are pre-approved are often more attractive to sellers.
Fixed-Rate Mortgage, Adjustable-Rate Mortgage
A fixed-rate mortgage is a type of mortgage that is paid back with one fixed payment over the life of the mortgage. Adjustable-rate mortgages have an adjustable interest rate. The amount the homeowner owes for their monthly mortgage payment depends on the interest rate.
Adjustable-rate mortgages often start with a lower payment than fixed-rate mortgages, but the amount is likely to raise over time. Different adjustable-rate mortgages have different terms. It's important for the home buyer to read and understand the terms of the mortgage before signing the final documents.
Escrow, Closing, and Closing Costs
Escrow is the period that occurs after an offer is accepted on a home, and before the home is sold. During the escrow period, the home buyer may perform inspections of the property, find a homeowners insurance policy, and perform other tasks.
Closing refers to the close of the escrow period. When the escrow period "closes," this usually means that the house is sold to the buyer.
Closing costs are the costs that a home buyer incurs when they buy their new home. Closing costs are separate from the down payment, and often consist of an additional 2% to 5% of the purchase price.
Home Warranty and Homeowner's Insurance
The home warranty is a policy that many home buyers get when they purchase a new house. Often, the home warranty is provided to the buyer by the seller. The warranty will pay to make repairs to some types of fixtures and appliances.
Homeowner's insurance will pay for repairs or replacement of certain parts of the home's structure in case a covered event occurs. Homeowner's insurance also pays to replace the homeowner's personal belongings if a covered event occurs.
Contact Your Real Estate Professional
If you're a Brentwood new home buyer who has questions about the home-buying experience, talk to your real estate professional. Your real estate agent can give you information about the different terms that are used when you are interested in purchasing real estate.
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