Homebuying 101: The Terms You Need to Know
May 3, 2022
If you’re in the market to buy a home for the first time, hearing all the jargon and lingo in the real estate industry can feel a bit overwhelming at times.
APR? PMI? HOA? It’s true … some of these acronyms might even feel completely foreign when you’re first getting started in the homebuying process. Which is why Homes for Heroes, a non-profit dedicated to helping first responders, military personnel, and teachers secure homes, has put together an extensive glossary to assist any new homebuyer on their journey.
We invite you to take a peek at this list of terminology, here. For anyone in a hurry to get moving soon, consider this post your shorter, friendly CliffsNotes version.
- Annual Percentage Rate (APR) – This number explains how much interest to pay on any home loan, calculated as a percentage. The lower the number, the better!
- Appraisal – A dollar figure that estimates how much the property you are looking at, or selling, is worth. The mortgage company sends an official appraiser out to look over the home to determine a fair market value or estimated selling price. (That number is key to how much you can borrow for a purchase.)
- ARM, Adjustable Rate Mortgage – This means the terms of a house loan will adjust to the national prime rate. For a house loan where the interest rates can change or are “variable,” it can look good up front, in terms of lower monthly payments, but it can be far less predictable for your monthly budget, if rates should go up in the future. It’s a good idea to speak with your real estate agent about the pros and cons before you sign.
- Closing – This is the final meeting that “closes” the sale of the home … it includes documents, signatures, checks, and everything you need to officially buy or sell the house and complete the mortgage. After the closing, the buyer owns the house — and has the keys.
- Closing Costs – This is a key term to know, as it includes all the costs of the sale apart from the home sale price. These includes insurance fees, discount points, origination fees, cost of the transaction, and more. Experts suggest it’s a good idea to set aside between 2 and 5 percent of the price of the home for your closing costs.
- Disclosure – This is when a homeowner legally informs the buyer about known defects in the home, e.g. a leak, lead paint, or other problems with the structure. (If these are known and not disclosed, it could put the seller at legal risk.) The home buyer must be aware of the problem to be responsible for the disclosure.
- Homeowner Association (HOA) – In certain neighborhoods or buildings, this is a private association that takes care of the property around a condominium complex or a subdivision. It issues rules and collects dues that should be included in either the monthly or annual homeowner expenses.
- Points – No, this is not a score to keep; these are pre-payments on the interest for a mortgage. Some might pay points up front to get a better overall interest rate on the lifetime of a mortgage. If you can afford it, paying points up front potentially saves you a lot of money long-term, as it lowers your interest rate — and therefore decreases the amount you pay over the life of the loan.
- Private Mortgage Insurance PMI – PMI is something that a mortgage company can require buyers to pay to protect the lender. It typically kicks in if you don’t have a 20 percent down payment for the loan, but it’s not always necessary for the life of the mortgage. If you secure a VA or an FHA loan with a lower initial down payment, you should factor in some PMI to your monthly payment.
- Title Insurance – Used to protect the mortgage company against any unknown debts or liens (where someone owes money) against a property and its title. The buyer typically pays for this. Occasionally, buyers also can buy title insurance to protect themselves (dubbed owner’s title insurance).
Contact Beltmann Moving and Storage
As always, if you need help starting your next chapter, Beltmann would love to be a part of your move. Simply call us at (866) 252-2383, or visit our website for your free, no-obligation estimate today.
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