5 real estate terms every first-time home buyer should be aware of

Buying a home is a dream of many. It’s all more special when it’s your first house and is celebrated as a milestone. But let’s agree, it is also an overwhelming experience, especially when the world of real estate has its own complex language. Not many can understand. And that’s why it can also lead to confusion and delays. Sometimes people also end up making even mistakes that cost them both financially and mentally.

Understanding real estate terms is as crucial as choosing the house as certain terms such as Contingency and Escrow might confuse a first-time buyer. Therefore, a little knowledge goes a long way to make the process easy-peasy and stress-free. On this note, let’s have a look at five important terms that people should be aware of.

It might look like a difficult word but it is quite important in the real estate field as contingencies act as a safety net for buyers. In simple English, a contingency is a condition written into the home purchase agreement that must be met before the sale can be completed. It is important because it protects the homebuyer by allowing them to back out of the deal in case some conditions are not met (satisfied). Some of the common contingencies include, Financing (loan) contingency and home inspection contingency, among other. Without contingencies, buyers may be forced to proceed with a risky or overpriced buy.

A Pre-Approval Letter is a document issued by a bank or lender. It mentions how much loan amount you are eligible for. It is calculated through your income, credit score, and other crucial financial documents. Pre-approval involves document verification as it shows sellers how much you are financially capable. It helps you in setting a realistic budget.

Then there are closing costs which are the additional expenses. These costs are paid at the final stage and are apart from the property price. These costs typically range between 2% and 5% of the home’s value. In normal cases, closing costs may include, registration/stamp duty charges, legal documentation fees and loan processing fees, among others. It is important to know these costs before signing any papers.

An appraisal means a professional assessment of a property’s market value. It is conducted by a certified appraiser who comes on behalf of the lender and does checks such as size of the property, its condition, location and other related things. It is important because lenders depend on appraisals to ensure they are not lending more money than the home is worth.

Escrow is another important word which every home buyer should know. It makes sure that buyer and seller, neither of them are cheated. It refers to a neutral third party that temporarily holds money and documents, along with other assets. It holds them until all terms of the property are completed. In simple language, when we buy a home, the token money and later the full payment are held in an escrow account. It is held until all legalities are completed and loan approvals are done.
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