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Home Buying Terms Every First Time Buyer Should Know

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Photo of small chalk board with message about home sweet homeNothing about buying a home is normal. It’s not like buying a purse or a TV. After all, buying a house is one of the largest purchases of your life. It’s also a process that’s full of foreign-sounding terms that make you feel like you’re in over your head.

One way you can stay on top of the home-buying process is to hire a good real estate agent to guide you. Another way is to do your research and know common home buying terms you’re sure to encounter as you search for and purchase your first home.

Buyer’s Agent

As straightforward as the home buying process can be (basic steps of buying a home here), there can be snags along the way (i.e. issue during home inspection, negotiation problems, etc.). That’s when it’s helpful to have a contracted agent that works for you. The good news is a buyer’s agent is typically free. In most cases, the buyer’s agent commission comes from the seller.

Pre-approval

Pre-approval is a vital part of the mortgage process, and can give you insight into how much home you can (or want to) afford. Once you have chosen your mortgage lender, they’ll inevitably ask for documents that prove you are able to pay for the home. Those documents typically include W-2’s, income taxes, bank statements, and these other documents. From those documents, your mortgage lender pre-approves you for a mortgage and gives you the maximum amount the institution is willing to lend.

Purchase Agreement

A purchase agreement, or offer, is the document submitted to the home seller that includes important information, such as the amount you are offering for the property, conditions of the sale, and proposed closing date.

Contingencies

Your offer should contain a proposed price and any contingencies, or conditions, of the sale. For example, a common contingency is a financing contingency which means your loan must go through for the sale to be final. Another common contingency is an inspection contingency where the house must pass a home inspection or both parties come to an agreement on how to handle an issue that arises during the home inspection. There are other contingencies that can be included in your offer; discuss your options with your real estate agent.

Earnest Money

This term describes funds that you put down on a property to show you are serious about the transaction. An earnest money sets your offer apart, and applies to the final sale at closing. For example, if you are purchasing a $300,000 home, you may put $10,000 down to show you are earnest about the property. At closing, that $10,000 is applied to the sale. To determine the amount of earnest money right for your sale, ask your real estate agent for their recommendation.

Condition Report

A condition report may seem like another document in a pile of paperwork, but a condition report is full of useful disclosures about a potential property. The Condition Report contains information about any current or past property issues. In the report, home sellers are required to include any problems they’ve dealt with and how they have fixed it.

Home Inspection

A home inspection is a going-over of your potential property, performed by a home inspector before closing day. After the home inspection, the home inspector provides a report of issues that need to be addressed or repairs that need to be made in the future. It is important to note that home inspectors can only find issues they can see, such as a roof in poor condition or water damage from a leaky pipe. If the home inspector finds any issues, your real estate agent can inform you of the options you have if you want to proceed forward with the sale.

Closing

Closing day is the day when all the paperwork is completed for the sale of the property. You may have to bring payments to the closing; ask your financial lender for the exact documents and fees you need to provide at closing. Once all the paperwork is completed, you get to receive the keys for your new home. You’re officially a homeowner.