If you’re unfamiliar with the real estate world, it’s easy to feel lost during the home buying or selling process. Since this is likely one of the biggest investments you’ll make in your life, it’s important to make sure that you’re informed and that you understand the jargon.
Here are a few of the most common terms that my clients have questions about:
1. Preapproval – A preapproval letter from a bank is usually one of the first things that a seller asks for. Contrary to popular belief, a preapproval letter is NOT a guarantee of funds from a lender. All a preapproval letter does is show that a mortgage company would consider lending the buyer that much money based on their credit score and income. If you’re looking for a home, start by finding a lender and obtaining a preapproval letter. The letter will give you a price range of how much you could potentially afford to spend, and it also shows sellers that you’re serious about the home buying process.
2. Contingent on Finance and Inspection – Whenever a home is put into contract, it’s usually contingent on financing and inspection. That means that if the buyer cannot provide adequate financing or if the home inspection goes poorly, the contract can be cancelled.
3. Home Inspection – As I’ve said before, a home inspection is a crucial part of the home buying process. During a home inspection, a certified inspector will spend several hours going through the home and making sure that there are no major problems with it. I always tell my home buyers to get an inspection done on the home, even if it appears to be problem free. Spending money on an inspection before you purchase a home prevents you from spending a lot more money later to fix a problem that you could have identified and had the seller repair.
4. PITI – PITI refers to the sum of the mortgage, principal, interest, taxes, and insurance. It is the total amount that you will owe every month for your mortgage payment.
5. Closing – The closing is the final step of the home buying and selling process. At closing, money, documents, and keys (depending on occupancy) are exchanged and the deal is completed.
If you ever come across a term or phrase that you don’t understand, ask your realtor for clarification. The process will feel a lot less daunting if you make an effort to stay informed.