|
|
Purchasing a home can be a complicated and confusing
process">
UNDERSTANDING REAL ESTATE
TERMINOLOGY Purchasing a home can be a complicated and confusing
process, especially for first-time buyers. Throughout the process, first-time
home buyers will encounter a variety of unfamiliar real state terms. There are
several key terms associates with purchasing real estate that are helpful to
learn. For example, many buyers confuse the terms broker
and 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, or mortgage, and
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. |