Gen Z: These Are the Homebuying Terms You Need To Know
There’s nothing quite like the process of buying a house, especially for first-timers.
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It’s a lengthy, involved process that can sometimes take months and has a lot of moving parts that can seem overwhelming at times. The fact that there’s so much home-buying jargon won’t necessarily help, either. While there’s a lot of jargon that’s specific to the world of residential real estate, knowing the key terms can help clarify what it means, and where they fit into the overall process.
Here’s a look at 15 of the most important homebuying jargon that you should know.
Debt-to-Income Ratio
A key element when starting the home-buying process is the term debt-to-income is a measure a bank or lending institution will use to gauge your ability to pay things back. Also known as DTI, it’s the amount of income the buyer or buyers have versus the amount of total debt held. Generally speaking, the DTI should be at 35% or lower to qualify for a home loan.
Pre-Approval
This is a written agreement from a lender guaranteeing you a set amount. It’s typically used as a way to help give potential buyers some leverage when shopping for a new home.
Pre-Qualification
This is a less-official version of pre-approval. While it does promise a potential mortgage loan up to a certain amount, the lender isn’t under any obligation to follow through. It’s used less for leverage when buying in a competitive market and more to give buyers an idea of their general price range before they start seriously shopping around.
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FHA Loan
Designed for interested buyers with lower income or credit scores, FHA loans are secured by the Federal Housing Administration and are often a little more lenient on certain terms and conditions. The caveat is they require two types of mortgage insurance: an upfront and an annual premium. Though both payments are wrapped up in the mortgage.
Listing
A listing is any property that’s available for sale. With a price range in mind, buyers can start looking around based on location, style, and other amenities to see what’s available.
Real Estate Agents
A fairly common term, but one that’ll play a big factor when looking for a home. Agents are licensed professionals whose job involves buying and selling homes. Oftentimes, there will be agents representing a seller’s best interest, while others will assist potential buyers with finding a dream home in their price range.
Appraisal
An appraisal is the estimated value of a house as well as the land it sits on determined by a licensed independent professional. These are often required by lenders as a primary factor in determining the terms of a potential mortgage.
Home Inspection
The inspection is usually required in the homebuying process, though even if it’s not, it’s strongly recommended. This is when a third-party licensed home inspector comes and assesses the basics of the home in question, which is paid for by the buyer. The inspector will point out structural flaws and other issues that could impact the asking price (or the sale itself). If the house is in good shape, however, they can give you a helpful rundown of the problems you’ll want to address down the road.
Contingencies
These are stipulations, like a home inspection or appraisal, that get written into the sales contract and must be met before the sale is finalized. These also vary widely and can include requirements from both the buyer and the seller.
Escrow
An escrow is one of two types of transactions where funds are held by a third party as a means to benefit both the buyer and the seller. One is to hold a buyer’s money until certain conditions of the home purchase have been met. The other pertains to the life of the loan, specifically when funds are held to pay for things like insurance and property taxes.
Closing Costs
This is a big one and for good reason. It’s the most expensive cost (or, more accurately, a bundle of costs) that’ll come with buying a home outside of the down payment. This includes realtor fees and commissions, taxes, inspection, and any other number of various taxes and other costs that vary depending on where the sale takes place.
Down Payment
The down payment is the initial amount of cash put down on a property. First-time homebuyers can qualify for down payments as low as 3% of the total cost, though they can range from 8 to 20% of the cost.
Adjustable-Rate Mortgage
Known as an ARM, this is a mortgage that often has a lower interest rate at the beginning, which can (and likely will) grow over time, though there is often a pre-set limit that it can grow to. The low rate will stay the same for a certain period of time, with the common types lasting 7 or 10 years.
Fixed-Rate Mortgage
Unlike an ARM, a fixed-rate mortgage, or FRT, is a mortgage with a set interest rate throughout its duration. They also often have much longer lifespans, typically around 30 years.
Closing
The final stage of the homebuying process. After all, the terms have been met and conditions approved, the sale is finalized and the home becomes the property of the buyer. It’s fairly straightforward, but it does involve signing one’s name more times than anyone could have ever thought possible.
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This article originally appeared on GOBankingRates.com: Gen Z: These Are the Homebuying Terms You Need To Know
