Buying a new home can be a frightening prospect for many – and even more frightening when it’s your first home. But it doesn’t have to be. As long as you’re armed with general knowledge and an awareness of the real estate process, purchasing your first home can be an enjoyable and exciting experience.
There are some necessary real estate terms you should know when moving forward in your initial home-buying process, and have no fear, we’ve compiled some of the most important ones right here. Refer back to these to feel sure and ready when speaking with agents and industry professionals.
15 Important Real Estate Terms Every Homebuyer Should Know
An approximation of a home’s current value based on a range of factors, such as the price of similar properties in the area.
Appreciation is the amount a home increases in value over time. Most often shown as a percentage, to calculate how much a home’s value has appreciated, you can use this formula.
Subtract the home’s original value from its current market value. Let’s say your home was worth $100,000 when you purchased it, and it now has an estimated market value of $150,000.
The value of your home has increased by $50,000. To convert that into a percentage, divide the increase in value amount by the original value amount — so $50,000 divided by $100,000 = 0.5. Multiply that by 100 to find that the value of your home appreciated by 50%.
The final step of a real estate transaction, when a property is finally transferred from the seller to the buyer.
#4. Closing Costs
The costs and fees that come along with the purchase of a property. While these vary by state, and even by sale, most closing costs cover fees like:
- The application fee to process your loan request
- The cost of your home’s appraisal
- Attorney fees required to close on a housing loan
- Closing fees due to the escrow company
- Homeowners insurance fees
- And more!
Since these fees are often an addition of a number of small, little items that add up throughout the closing process, it’s a good idea to talk to your realtor about the rundown of your likely closing costs when purchasing a home.
Home equity is the part of your property you actually own. While you do “own” your home, your mortgage lender has interest in the property until it’s paid off. Your home’s equity is the portion of your home that you own free and clear, which (if you purchased your home with a loan) you’ve already paid off, either in your down payment or in your monthly mortgage payments.
To calculate your home’s equity, subtract your outstanding loan balance from the current market value of your property. Home equity will increase as you pay down your loan or the market value of your home increases.
In real estate, the lender refers to the individual, financial institution, or private group lending money to a buyer to purchase property with the expectation the loan will be repaid with interest, in agreed upon increments, by a certain date.
A mortgage is the agreement between a borrower and a lender. It is the legal agreement that gives the lender the right to the borrower’s property if the borrower is unable to make loan payments (with interest) within an agreed upon timeline.
Before submitting an offer on a home (or even engaging with a real estate agent) you’ll likely be required to get pre-approval. This means a lender has checked your credit, verified your information, and approved you for up to a specific loan amount for a period of up to 90 days.
#9. Prime interest rate
Banks offer customers who have proven to be creditworthy their best, or prime, interest rate. If you have a great credit score and a long history of paying back loans, debts, and credit cards on time, you are likely to get a prime interest rate on a home loan.
The principal is the original amount of money you borrowed from a lender for your home loan. Principal excludes the interest on that loan.
Refinancing replaces an existing loan with a new one. Debt is not eliminated when a borrower refinances. Instead, it typically offers better terms, including a lower interest rate, lower monthly mortgage payments, or a faster loan term.
#12. Right of Refusal
A lease or contract might include “right of refusal” (also known as “right of first refusal,” or ROFL) to note that an individual has the right to put an offer on a property before the seller can negotiate any other offers. The right of refusal is typically written before a property owner puts a property on the market.
One easy way to understand right of refusal is in the case of condo or homeowners’ associations. Sometimes these boards or associations will put an ROFL clause into governing documents to ensure they can vet potential buyers before the homeowner accepts an offer. Because of the ROFL clause, if they feel the sale will lower the value of the community, in some cases, they can reject the offer.
A servicer is a company that monitors and manages mortgage loans.
A home’s title represents the rights to the property. Those rights are transferred from the seller to the buyer during a real estate transaction and give the buyer legal rights to the property upon closing.
#15 Transfer tax
A tax that is charged by a state, county, or city when ownership of a property is transferred.
Have More Questions on Real Estate Terms? BlueWest Can Help
Navigating the real estate market can be a little tricky — but at BlueWest Properties, we’re here to guide you through! Our agents are friendly, knowledgeable, and passionate about helping you find your next home. To get started on your buying journey in the West Michigan and lakeshore areas, contact our team.