Tuesday, November 4, 2014


          When buying your first home, one of the stumbling blocks you may experience is understanding some of the real estate terminology. If real estate terms are not be part of your day to day vocabulary, then they may seem strange or even confusing. So learning a few key terms in advance may reduce some of your stress of your home buying process. In the following transaction scenario, a brief definition is given for real estate terms you will encounter. If you want to learn more, just click on the link for a more detailed explanation.

          For example, many buyers confuse the terms broker and agent or salesperson. A broker is a properly licensed individual, or corporation, who serves as a special agent in the purchase and sale of real estate, a salesperson is an individual employed or associated by written agreement by the broker as an independent contractor. The salesperson facilitates the purchase or sale of real estate.

          Once you decide to purchase, a salesperson will prepare a sales contract
to present to the seller along with your earnest money deposit. The sales contract is the document through which the seller agrees to give possession and title of property to the buyer upon full payment of the purchase price and performance of agreed-upon conditions. The earnest money is a buyer’s partial payment, as a show of good faith, to make the contract binding. Often, the earnest money is held in an escrow account. Escrow is the process by which money is held by a disinterested party until the terms of the escrow instructions are fulfilled.

          After the buyer and seller have signed the contract, the buyer must obtain a mortgage note by presenting the contract to a mortgage lender. The note is the buyer’s promise to pay the purchase price of the real estate in addition to a stated interest rate over a specified period of time. A mortgage lender places a lien on the property. Depending on the state, the document may be called a deed of trust or a mortgage, this secures the mortgage note.

          The buyer pays interest money to the lender exchange for the use of money borrowed. Interest is usually referred to as APR or annual percentage rate. Interest is paid on the principle, the capital sum the buyer owes. Interest payments may be disguised in the form of points. Points are an up-front cost which may be paid by either the buyer or seller or both in conventional loans.

          In general, there are two types of conventional loans that a buyer can obtain. A fixed rate loan has the same rate of interest for the life of the loan, usually 14 to 30 years. An adjustable rate loan or adjustable rate mortgage (ARM) provides a discounted initial rate, which changes after a set period of time. The rate can’t exceed the interest rate cap or ceiling allowed on such loans for any one adjustment period. Some ARMs have a lifetime cap on interest. The buyer makes the loan and interest payments to the lender through amortization, the systematic payment and retirement of debt over a set period of time.

          Once the contract has been signed and a mortgage note obtained, the buyer and seller must legally close the real estate transaction. The closing is a meeting where the buyer, seller and their attorneys review, sign and exchange the final documents. At the closing, the buyer receives the appraisal report, an estimate of the property’s value with the appraiser’s signature, certification and sporting documents. The buyer also receives the title and the deed. The title shows evidence of the buyer’s ownership of the property while the deed legally transfers the title from the seller to the buyer. The final document the buyer receives at closing is a title insurance policy, insurance against the loss of the title if it’s found to be imperfect.

          The typical real estate transaction may take anywhere from four to twelve
weeks. Though the process may be a bit difficult at times, listen to and rely on your agent to guide you through.  And anytime you don't understand a real estate term, ask you agent or click here for a real estate glossary.  A basic understanding of real estate terminology and the chronology of the transaction will help you to buy your first home with confidence.

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