A home is so much more than a house. It’s where you share all the joys of life with your family. Birthdays, holidays, special events, family dinners, movie nights, backyard barbecues, you name it: They all happen at home.
When you’re looking for a new home, you imagine all those special occasions as you wander through the rooms of every open house. This makes the process of finding and buying a home—especially your first home—one of the most memorable experiences you’ll ever have.
Of course, finding that perfect home also comes with no small amount of uncertainty. Just as with any other large purchase—a new car, for instance—your best bet is to learn as much as you can about the process from the very start. That’s why we’ve decided to bring you this two-part series to help you work through the home buying process, whether you’re buying your first home or your forever home.
Consider this first part a kind of first time home buying 101 where we cover some real estate terms to know that you’ll encounter on your homebuying journey. Just remember that, while buying your first home can be daunting, it’s also a fun and rewarding experience that ends with you as a homeowner. Don’t forget to join us for part two of the series, where we’ll look at some expert tips for first time home buyers that you won’t want to do without!
Real Estate Terms To Know:
Appraisal Contingencies – This one sounds a little intimidating, but don’t worry, it’s actually very simple—and good for you! An appraisal contingency is simply a clause that allows you to pass on buying a house if the appraiser determines that it’s worth less than the sale price. Many mortgage lenders insist on such a clause to help protect themselves from over-lending on a property that won’t retain its value.
Closing Costs – For most people, a home is the largest single purchase they will make in their lives, and any purchase that involves so much is also going to incur certain incidental fees. When you get a new cell phone, for example, various little fees usually are included in the final price. The same is true with buying a house. Closing costs may include things like fees for appraisals, document prep and recording, credit reports, and so on.
Home Sale Contingencies – Like the appraisal contingencies we mentioned above, a home sale contingency is a clause that protects one of the parties involved in the sale. It’s less likely to come up for first time home buyers, though, because a home sale contingency states that the purchase of the new home is contingent on the buyer first selling their previous home. This is sometimes necessary for the buyer to have the promised down payment on the new house, for example.
Home Loans – A home loan is, in many ways, like any other loan. Also known as a mortgage, it’s money that you borrow in order to buy a house which you then repay, with interest. Most home loans are one of two kinds: An adjustable-rate mortgage (ARM) is popular for homes that people plan to live in for only a few years, because it starts with a relatively low initial interest rate that can later go up or down as the market fluctuates. A fixed-rate mortgage, on the other hand, “locks in” an interest rate for the duration of the loan. Most fixed-rate mortgages come in durations of 15 or 30 years, but other loan lengths also exist.
HOA or Homeowners Association – Many homes today are located in homeowners associations, organizations that collect monthly, quarterly, or yearly dues in order to pay for maintenance of shared community spaces such as swimming pools, parking areas, parks, playgrounds, and so on. Many homeowners associations also handle issues such as snow removal or even some lawn care, and may have rules regarding what sorts of architectural or landscaping changes can be made within the neighborhood.
Home Inspection – Before you buy a home, you’ll want to have a home inspector check it out to make sure that there aren’t any unpleasant surprises waiting for you in the home’s roof, foundation, plumbing, electrical system, and so on. Many lenders require a home inspection to be performed, and you should certainly demand one before you close on a sale. It is, after all, much better to be safe than sorry!
Inspection Contingencies – More contingencies! Once again, these are there to protect you. An inspection contingency means that you have some time during escrow to perform a home inspection before you actually close on the house. It’s also sometimes called a “due diligence contingency.”
Listing – This may be how you found the property that you’re hoping to buy. Listings are printed or online descriptions of homes that are for sale. They’ll usually include a lot of the details about the home, such as square footage and the number of bedrooms and bathrooms, as well as what else might be included on the property.
Mortgage Contingencies – These are the last contingencies, we promise. In this case, the clause simply allows you to back out of the sale and still keep your deposit in the event that you can’t secure a home loan that meets the terms specified in the contingency.
Offer – When you’ve found the home of your dreams, you’ll start the buying process by making an offer. Sometimes, this will simply be the seller’s asking price. Other times it may be lower and start a negotiation process.
Pre-qualification or Pre-approval – It’s often a good idea to reach out to your lender of choice before you find the home that you want to buy. They can then review your finances and credit history to determine how much money they’d be willing to lend, which can help give you an idea of what houses you can afford. This is the pre-qualification or pre-approval process.
Private Mortgage Insurance (PMI) – Most lenders require that a mortgage be secured with PMI, which protects them in the event that you don’t pay off your loan.
Sales Contract – Once you’ve made an offer and the buyer has accepted, then it’s time to finalize a sales contract. These legally binding agreements stipulate the price and terms that you’ve both agreed to, and they set the actual closing of the sale into motion. Once you’ve signed one of these, you’re pretty much a homeowner!
Title Insurance – Titles and deeds are used to prove ownership of property, and title insurance is simply additional insurance that helps to protect mortgage lenders in the event that there are legal disputes about the title.
Now you’re familiar with some of the more common terms associated with the homebuying process. It may seem like a lot right now, but don’t worry. Once you get started, it all goes surprisingly smoothly. And don’t forget to join us in part two of our series, where we’ll bring you some expert tips for first time home buyers!
In the meantime, The Highlands is now open for pre-sales of new homes. Once you’re ready to start shopping, just sign up below to join the interest list, and you’ll be notified of all the latest news coming to our master-planned community in Montgomery County, TX just north of Houston.