Learning the Lingo
Home-buying jargon can be confusing, especially if your realty and mortgage company reps assume you already know the ropes. Below are a few key terms to help first-time buyers smoothly sail through the house-hunting process:
Appraisal: An objective, third-party estimate of how much a property is worth. Your lender will require an appraisal before they sign off on a mortgage. The buyer usually pays for this.
Comparable Market Analysis (CMA) or “Comps:” The price at which similarly sized homes in your neighborhood were listed and sold. Your real estate agent will pull comps to help you know what to offer.
Contingencies: Conditions written into your offer that protect you from purchase obligation if the inspection turns up major problems or if the appraisal comes back lower than the sales price.
Earnest Money: Submitting earnest money, often around $500, makes your offer stronger and shows serious interest in buying a home. This money stays in escrow and goes toward your down payment.
Home Warranty: A home warranty covers most of the major systems (electrical, heating and air-conditioning) and some appliances for one year. It depends on your contract, but try to get the seller to pay for it, as warranties often cost between $300 and $400.
Private Mortgage Insurance (PMI): An additional fee on top of your monthly mortgage payment if you don’t put at least a 20% down payment on your new home. PMI protects the lender in case you default on your payments. PMI usually disappears after you’ve reached the 20% vested mark in your mortgage payment.