Every industry has its own list of terms which may be confusing to the everyday person and real estate is no exception. Let’s discuss some of the most common to help you feel more at ease as you begin your home buying or selling experience!
Real Estate Agent vs a Realtor
A Realtor is a licensed real estate agent who specifically is a member of the National Association of Realtors and must abide by their code of ethics.
Multiple Listing Service (or MLS)
A Multiple Listing Service is a database of real estate listings in regional areas where realtors and brokers can see each other’s listings and is considered the most comprehensive service for listings. Only licensed realtors have access and is commonly used to market a property, check availability, access disclosures and determine what similar homes have sold for.
Pre-Qualified vs Pre-Approved
Pre-qualification is a precursor to becoming pre-approved in the lending process. To be pre-qualified, your mortgage lender will look at an overview of your finances and then decide if you are eligible for a loan of a certain amount. The pre-approval process is more in-depth as it verifies your W-2’s, debts, assets, etc. to determine the amount the lender is willing to let you borrow. The pre-approval is typically valid for a specific loan amount for up to 90 days and shows the seller you are ready to move forward with obtaining a loan.
Congratulations, your offer was accepted and you are ready to open escrow! But what is escrow? A neutral third party, such as a title company, holds your payment while you and the seller continue to negotiate the terms of the transaction and complete the necessary paperwork. Once the transaction has closed, the third party will release the funds being held.
You may also hear your lender refer to an escrow pertaining to your mortgage. If elected, an escrow can be used to pay your home insurance and property taxes in one monthly payment.
Earnest Money Deposit
An earnest money deposit (EMD), sometimes referred to a “good faith deposit”, is the initial amount that a buyer places in escrow once their offer has been accepted. Typically, 1-5% of the sales price is used to show that the buyer is serious about buying the home. This money then becomes part of the down payment.
A contingency specifies certain conditions that must be met during an agreed upon period of time before the transaction will close. There are a few types of contingencies that can be involved in a real estate transaction such as appraisal, inspection, loan and home sale. If you are competing against other offers, sometimes it can help to shorten contingency periods or waive them altogether.
Appraisal – Verify the home is worth close to what the buyer is willing to pay
Inspections – Verify the condition of the property
Loan – The buyer must make sure that they can get a loan from their lender
Home Sale – The buyer must sell their current home in order to fund the purchase of their new home in contract
A home appraisal determines how much a home is worth. Banks and mortgage lenders rely on this information to help determine how much money they are willing to lend on a given property. Typically the home appraisal occurs during the transaction and is preformed by a licensed third party based on comparable homes that have sold in the area. If a home’s appraised value is less than what the buyer offered, the lender can request the buyer to cover the difference.
There are two types of conventional loans: the fixed-rate and the adjustable-rate mortgage. In a fixed-rate mortgage, the interest rate remains the same throughout the loan’s lifetime and are typically the most common type due to their reliability. Adjustable-rate mortgages have interest rates which change periodically. A homebuyer with an adjustable-rate mortgage can start with lower monthly payments but monthly payments can go up later on as the interest rates increase. Make sure to check with different lenders to insure you receive the best rates and type for your situation.
Expenses incurred to finalize a real estate transaction are known as closing costs. Examples can include appraisal fees, taxes, loan fees, credit report fees, title insurance, and so on making up about 2-5% of the purchase price. Closing costs can be paid by either buyer or seller and are typically negotiated at the beginning of the transaction.
During a transaction, title insurers look at public records to make sure the home seller has the authority to sell the property at hand and that there are no liens on the home. Title insurance would cover you for any loss on the property if there is a dispute over who owns the property. Mortgage lenders require you to pay title insurance as part of the closing costs.
Rent-back refers to an arrangement where the buyer agrees to allow the seller to remain in the house beyond the close of escrow. The terms are negotiated prior to the close of the transaction and often involve a deposit, time period and a rental rate. The rental rate can be determined by looking at the new homeowner’s monthly mortgage, property taxes and insurance payments.
Don’t let real estate jargon prevent you from starting your home buying or selling process. Contact Arrive Real Estate Group to discuss any of these terms in more detail or learn how we can help you!