Seven Important Definitions to Learn During the Home Buying Process
The home buying process can be exciting and overwhelming at the same time. There is so much to learn, especially if this is your first real estate purchase. The good news is that you can learn a lot of the important terminology as you go through the process. And, if you work with a Realtor®, you will have someone to help you when questions arise. But, there are a few terms you should familiarize yourself with at the beginning of the process because they are sure to come up as you start your search for a new home.
- Realtor® – Sometimes the word Realtor® is used as a general term to describe any professional in the real estate business. In actuality, a Realtor® is a real estate professional who is a member of the National Association of Realtors® (NAR). The reason this distinction matters is that Realtors® agree to follow the Code of Ethics established by NAR. The main goal of the Code of Ethics is to hold Realtors® to the standard of always working in the best interest of their clients.
- Pre-Approval – If you plan on using a mortgage to purchase a home then it is important that you become familiar with the term pre-approval. You can talk with your lending institution and find out how much of a mortgage they will lend you when the time comes. They can provide you with a pre-approval letter to show your agent and home sellers when you decide to make an offer. A pre-approval is a way to show sellers that you are serious about buying a home and that you can get the financing necessary to pay the amount you offer.
- Inspection – Once you make an offer on a house and have it accepted, you will order an inspection. You should hire a professional residential inspector. Inspectors are trained to take a close look at the house and notify you of any current or potential problems. Depending on the size of the house, inspections can take several hours and cost hundreds of dollars. But, the cost is well worth it because they may catch a problem that impacts whether you still want the house or if you want to adjust your offer price.
- Option period – When you make an offer to purchase a home you can include an option period which is a time frame within the contract that allows you to terminate the contract for any reason. It basically allows you to walk away from the deal. You will negotiate the length of the option period as part of your contract and then pay an agreed upon price for those days. The option period gives you time to have an inspection done and take a more in-depth look at the house.
- Appraisal – An appraisal is a professional opinion of the market value of your house. Your realtor will be able to help you estimate the value of the house you want to purchase but the appraisal assigns an official value to your property. This value is then used by your lender to make sure that they are not lending more money for a property than it is worth.
- Closing date – The closing date is the estimated date when you will officially purchase the home. There are a number of things that have to happen in order to hit that target date, especially if you are getting a mortgage. Sometimes the closing date has to be adjusted because of unforeseen complications. As the closing date gets closer your lender can let you know if it looks like the date is going to change.
- Closing costs – Closing costs is one phrase that encompasses a number of fees required to ‘close’ a real estate transaction. The exact closing costs you have will depend on what type of mortgage you are using and what type of deal you negotiated with the sellers. You can estimate your closing costs at the beginning and you will get a breakdown of the actual costs before you close on the house.
Understanding these seven definitions can help you confidently start the home buying process. This basic understanding can be the foundation on which you continue to build your real estate knowledge in your search for your first home.