Knowing key housing terms and how they relate to today’s market is important. When mortgage rates and home prices rise, it impacts how much home you can afford. Terms like appraisal (what lenders rely on to validate a home's value) and the inspection contingency ( which gives buyers essential information on a home's condition) directly impact the transaction.
The homebuying process can be intimidating if you're not familiar with certain key terms used throughout the process. That's why we've complied this quick guide to help get you started! Let’s dive right in.
Appraisal
A report highlighting the estimated value of the property completed by a qualified third party. Lenders rely on appraisal to validate a home’s value and ensure they’re not lending more than the home is worth. All in all, the appraisal is a critical step when buying a home!
Closing Costs
The fees required to complete the real estate transaction. They are paid at closing. It’s important not to get caught off guard by closing costs. Closing costs encompass a variety of expenses above your property’s purchase price. They include things like lender fees, title insurance, government processing fees, upfront tax payments, and homeowners’ insurance. Keep in mind that closing costs are typically between 2% and 5% of the total purchase price of your home.
You can ask your EHL Loan Officer for a complete list of closing cost items, including points, taxes, title insurance and more!
Credit Score
A number ranging from 300-850 that’s based on an analysis of your credit history. This helps lenders determine the likelihood you’ll repay future debts.
Learn how to manage your credit score here so you can establish and maintain a healthy and legitimate credit score.
The better your credit score, the better the interest rate you’ll receive. In fact, a good credit score can save you hundreds of dollars a month on mortgage payments and possibly tens and thousands over the course of your loan.
Down Payment
Down payments are typically 3.5%-20% of the purchase price of the home. Some 0% down programs are available to eligible borrowers. Here are a few programs:
- No Money Down FHA Loan
- FHA Down Payment Assistance Program
- USDA Home Loan
- Check out all our Loan Programs here
Mortgage Rate
The interest rate you pay to borrow money when buying a home. The lower the rate, the better!
Pre-Approval Letter
A letter from your mortgage lender that shows what they are willing to lend for your home loan. This is a critical step in today’s competitive market and should always be step number one.
Getting an upfront loan approval will help you:
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Beat out the competition
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Negotiate with power
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Know how much you can afford
Click here to know what documents you’ll need to gather in order to get a pre-approval.
Inspection Contingency
A provision in a contract requiring an inspection to be completed. While it can be tempting to waive in a competitive market, the home inspection is essential. It will give you information on the home’s condition and potential repairs. Bottom line: Don’t skip the home inspection.
Affordability
A measure of whether someone earns enough to qualify for a loan on a typical home based on the most recent price, income, and mortgage rate data. As prices and mortgage rates continue to rise, that will impact how much home you can afford.
Equity
The value in your home above the total amount of liens against your home. With today’s price appreciation, many homeowners are realizing they have more equity than they thought and they’re using it to move!
Bottom Line:
If you’re ready to get started on the home buying journey let’s connect! One of our EHL Loan Officers can guide you every step of the way and answer any questions that may come up.
