You’re ready to leave apartment living behind and search for the perfect house to call home. But before you pack the moving boxes and rent the U-Haul, you’ll want to take some preliminary steps toward understanding the home buying process. While you may be thrilled to pick out paint colors and revive the backyard, you’re probably less animated about the ins and outs of credit scores and property taxes. Applying for a mortgage loan, closing on a home, and navigating industry jargon can feel daunting—especially for first-time buyers.
That’s why we’ve decided to ease the process for you with a list of 24 useful home ownership terms every new home buyer should know.
The agreed-upon terms from which a contract is drafted. After signing, there may be penalties in the event that either party chooses to withdraw.
The increased value of a home over time. This may be due to economic factors or improvements made to the home.
A mortgage with a low but temporary interest rate. Includes a large, final interest rate payment (hence the term “balloon”). In this case, home buyers must refinance or pay in full.
A comprehensive rating of your financial health and spending habits. This three-digit score reflects your likelihood of paying bills on time. When you apply for a home or auto loan, lenders will look at your credit score to determine loan eligibility. A credit score between 670-739 is considered good, 740-799 is very good, and 800-850 is excellent.
Additional costs outside of a property’s list value. This may include a loan origination fee, discount points, insurance fees, attorney fees, and survey fees.
Requirements upon which the terms of the contract rely. This includes factors such as a seller’s approval deadline, proof that a buyer is able to close on a home.
Debt-to-Income (DTI) Ratio
Measures the ratio of a person’s income that goes toward paying off debt. It’s used by lenders to determine an individual’s borrowing ability and/or risk.
Demonstrates a property’s title. This is considered an official public record.
Gradual loss of a value of property over time. This is due to factors such as age, wear and tear, natural disasters (degradation), and home location.
The portion of sales price home buyers must pay at closing. This is also described as the balance paid at settlement.
Earnest Money Deposit (EMD)
Deposit paid to the seller to demonstrate good faith. In some cases, this payment is refundable, but not always. A portion of monthly mortgage payments is often held here to account for property taxes and insurance.
Money that’s placed with a third party for safekeeping. The buyer typically pays the down payment in the escrow account.
Home mortgage loans insured through the Federal Housing Administration (FHA) and issued by an FHA-approved lender.
Fixed Interest Rate
An interest rate that does not change for the duration of the loan. The interest rate is consistent over the span of a 20- or 30-year mortgage.
Homeowners Association (HOA)
Nonprofit organization or association that manages common areas in a condominium or neighborhood.
Also referred to as a “home loan.” This is the agreement in which a lender lends money to the home owner while charging interest toward the purchase of a home.
Includes the buyer’s completed application, fees, and accompanying documents to the lender. The lender performs an extensive financial background check before offering, in writing, the loan amount. Preapproval doesn’t guarantee a buyer a loan.
An acronym to describe the principal, interest, taxes (property), and insurance (homeowners).
Private Mortgage Insurance (PMI)
Insurance through a private company that protects a mortgage lender in the event that the borrower defaults on the mortgage.
Money that’s paid to local and state governments based on home value and to reside within a specific jurisdiction.
Written confirmation of a home owner’s right to purchase. A title is most often acquired directly through a purchase, although it may also be obtained as part of an inheritance, gift, or foreclosure. A title insurance policy protects the home buyer in the case of a faulty title (due to undisclosed taxes and assessments, unreleased mortgages, fraud, and so on) after the point of purchase.
Seller’s acceptance of the buyer’s offer. Contingencies have yet to be met.
Local laws by which home owners must adhere. Zoning laws are related to commercial, industrial, and residential properties. The purpose of zoning is to uphold a neighborhood’s condition as it relates to traffic and livability. As a new home owner, you may recognize zoning regulations on things such as remodels, paint colors, stairways, fencing, community rules, and so forth.
Purchasing a home is a major milestone, especially for first-time buyers. FSCB is here to guide you through the process and ease your concerns as you turn the page on this new chapter in your life. Speak with one of our advisors today.