Understanding real-estate terminology
special to the daily
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 estate terms. There are several key terms associated with purchasing real estate that are helpful to learn.
The first term buyers will probably encounter will be Real Estate Broker. A broker is a properly licensed individual, who serves as a special agent and helps facilitate the purchase or sale of real estate. The Real Estate Broker’s compensation is typically paid by the home seller in the form of a commission, once a property actually sells.
Once you decide to purchase, the broker 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 a 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, and a loan application, 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 in exchange for the use of the 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 the buyer, to get the loan, or better loan terms.
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 15 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 also 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 brokers review, sign and exchange the final documents. Closings in Summit County are usually performed by a Title Company.
Buyers should plan on at least four to six weeks for a typical real estate transaction. The process is difficult, and at times intimidating. A general understanding of real estate terminology, and chronology of the transaction, will help any real estate novice to confidently buy his, or her, first home.
Marketa Jonas-Hagy is a Real Estate Broker with Century 21 Gold. You can reach Marketa at (970 )389-2817, or (800) 548-0021 ext.6791, or via e-mail at firstname.lastname@example.org. To search all Summit County properties for sale in the MLS: http://www.MLSGOTO.com.
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