The real estate world can be a daunting place to navigate. Whether you’re looking to buy a property or you’re thinking of selling, it can be beneficial to learn a little bit of real estate jargon and terminology.
Knowing key terms that are frequently used can help you better understand the real estate process once you begin engaging in a transaction. These key terms are some of the most commonly used, and they’re pretty simple to comprehend at a very basic level of dipping your toes into the world of real estate.
A mortgage is a type of real estate loan backed by a lender that allows you or a specific party to borrow money with the intent of purchasing or refinancing a property. This loan is a mutually agreed upon decision that uses the property as collateral and ensures the ability to occupy a property as your own until the loan is fully paid back. Different types of mortgages can expand over different periods, and each agreement is unique between the borrower and the lender.
An appraisal is an unbiased assessment of a property’s value by a professional appraiser. This evaluation considers various factors, including the property’s condition, location, size, and comparable sales in the area. Appraisals are often required by lenders to ensure the property is worth the amount being borrowed and can greatly impact whether a sale goes through or not.
For example, if you put an offer in on a home higher than what the property appraises for, the sellers have the option to negotiate selling at a lower price, or they may have to forfeit selling at all. Appraisals are a great way to protect both buyers and sellers in a real estate transaction, and they can help keep lenders from providing loans that aren’t financially logical.
When you apply for a loan, depending on the loan type you’ll likely be asked to put down a set percentage of the purchase price. The down payment refers to the initial amount of money paid by the buyer towards the purchase of a property and is paid upfront at the time of closing the deal. A larger down payment can result in better loan terms and a lower mortgage, and all money put down as part of this payment goes towards the purchase of the home, the loan itself, and potential fees during the transaction.
Escrow and Earnest Money
Additionally, when you make an offer on a home you’ll likely hear the terms earnest money and escrow. Not to be confused with down payment, earnest money is usually a type of security deposit that goes towards your final purchase of the home. It’s a set amount of money used to show sellers ‘good faith’ towards the transaction and is typically a small percentage of the purchase price that will be held in an escrow account until closing.
Escrow is a third-party account typically held by a title company an attorney, or a real estate brokerage. It acts as a neutral intermediary during real estate transactions. The escrow account holds funds, documents, and other relevant assets until the transaction is completed, ensuring that both parties fulfill their obligations before the final transfer of ownership.
Finally, closing costs refer to the fees and expenses associated with finalizing a real estate transaction. These costs may include appraisal fees, title search fees, attorney fees, insurance premiums, taxes, and other administrative expenses. Buyers and sellers are typically responsible for different closing costs. In all real estate transactions, closing costs can be negotiated towards one party or another via contract and are unique to that transaction, so they may not always be the same cost. However, many times, for buyers, closing costs can be added to the mortgage loan.
Now that you understand these essential real estate terms, this knowledge can help you have a more informed and successful real estate journey. Whether you’re buying, selling, or investing in property, having a grasp of this terminology will allow you to navigate the process confidently and make well-informed decisions.
When it comes to a real estate transaction, never hesitate to ask your real estate agent or attorney to further explain terminology. Even if you have experience in the real estate world, the market is constantly changing, and these experts can help keep you up to date with all the confusing jargon you may come across when buying or selling property in areas like Toccoa, GA.