Buying a home can be exciting, but the experience can also be daunting, especially for first-time buyers. Even if you work with a realtor, you’re likely to be faced with learning a lot of new lingoes. Some terms you may have heard before, but you aren’t quite clear on exact definitions, and others may be completely foreign concepts.
Thankfully, with a little bit of knowledge, you can learn the lingo of home buying fairly quickly and feel more confident as you approach the closing table. Below are some common terms for buyers who want to get ahead of the curve:
Private Mortgage Insurance
Private mortgage insurance, also known as PMI, is a type of insurance paid by a buyer to protect the lender in the event of foreclosure. Traditionally, PMI has been a requirement for borrowers who put down less than 20% of the purchase price. This often occurs when someone takes out a Federal Housing Administration (FHA) loan. The good news is that not all lenders require PMI, and in most cases, you can remove PMI from your loan term once you have paid off at least 20% of the loan.
Fixed-Rate and Variable-Rate Mortgage
The rate you pay on your loan represents that percent of the loan total in interest that you pay each year on top of paying off the principal. A fixed-rate mortgage is one that maintains a consistent percentage value throughout the life of the loan. Essentially, you will be paying the same interest rate from start to finish.
A variable-rate mortgage, also known as an adjustable-rate mortgage, has an interest rate that can change over time. These loans may provide a low introductory rate that gradually increases, so make sure you fully understand the terms of your loan by discussing options with your lender.
Whether you’re looking at homes for sale in Macomb County or anywhere else in the country, you’ll likely be faced with placing funds in escrow as part of the buying process. An escrow account is managed by an independent third party to the sale, and these funds are deposited to be disbursed to the proper entities. Funds in escrow are usually required to pay certain costs associated with the sale of a home, including homeowner’s insurance and property taxes.
Closing and Closing Costs
Once you’ve secured financing or you have the funds available to outright purchase a home, you need to make an offer. If your offer is accepted and a sale contract is signed, you will then move on to the closing. Closing a loan is the process of finalizing the sale and recording the details of the transaction. It’s basically the event that signifies the official sale of the home. A closing will usually be handled by an attorney who specializes in real estate transactions.
Closing costs vary by state, by sale, by attorney, and by the situation. In many cases, the closing costs are partly determined based on the amount of your loan, but other factors can affect the amount. The buyer is usually responsible for the bulk of closing costs, but this can also change depending on your sale contract. Your attorney should be able to provide a detailed breakdown of your closing schedule, closing costs, and any additional financial obligations required to facilitate the closing.