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By W. Troy Swezey
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 state terms. There are several key
terms associates with purchasing real estate that are helpful to learn.
For example, many buyers confuse the terms broker and salesperson. A broker is
a properly licensed individual, or corporation, who serves as a special agent
in the purchase and sale of real estate, a salesperson is an individual
employed or associated by written agreement by the broker as an independent
contractor. The salesperson facilitates the purchase or sale of real estate.
Once you decide to purchase, a salesperson 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 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 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 exchange for the use of 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 either the buyer or seller or both in conventional loans.
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 14 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 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 attorneys review, sign and exchange
the final documents. At the closing, the buyer receives the appraisal report,
an estimate of the property’s value with the appraiser’s signature,
certification and sporting documents. The buyer also receives the title and
the deed. The title shows evidence of the buyer’s ownership of the property
while the deed legally transfers the title from the seller to the buyer. The
final document the buyer receives at closing is a title insurance policy,
insurance against the loss of the title if it’s found to be imperfect.
Buyers should plan on a least four to twelve 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,
however, will help any real estate novice to confidently buy his or her first
home.
W. Troy Swezey is the author of “UNDERSTANDING REAL ESTATE TERMINOLOGY." As a
Realtor at Century 21 Paul & Associates, he has helped many individuals with
their real estate needs. Visit his web site to download his free e-book,
“REAL ESTATE SECRETS EXPOSED.” http://www.TroyIsMyRealtor.com (http://www.
TroyIsMyRealtor.com) or mail to: TroyC21@usa.net (mailto:TroyC21@usa.
net)
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