Understanding Homebuying Lingo 101
Homebuying has a language all its own. Some of the terms sound scary until you understand them. When you’re ready to take that leap into homeownership, a little brushing up on the lingo will help you feel more confident.
You’ve probably heard that word hundreds of times over the years, but it never applied to you until now. You have the money. The seller wants the money. Escrow is when you give your money to a third party to hold on tight to it until the sale is complete. It is decided ahead of time how long escrow will go on. That means how long do you have to get everything done that is necessary for the sale to be completed like inspections and repairs as well as other fees and unknown expenditures.
This is money paid when all is said and done. Responsibility for closing costs is decided upfront. It can be buyer, seller, or both. Closing costs are generally a percentage of the purchase price. This can differ depending on where you live and a multitude of other reasons.
Closing costs could include home inspection fees, attorney fees, and fees to the county where you are purchasing to record the sale. Also included could be escrow fees. That is an amount you pay your escrow company upfront in case taxes come due on your soon-to-be home. Since you’re all in limbo right now with ownership up in the air, the escrow company would pay the taxes that are due with the money you paid ahead of time.
This is one of the most important steps of homebuying. This is a thorough check of the title to make sure the owner is actually the owner. Sometimes details can slip through the cracks and change of ownership is overlooked. The title search also makes sure that there is not a lien against the property. That would be if the current homeowner owed money but couldn’t pay, so the creditor puts a lien on the home saying they have to be paid before the home can be sold.
Private Mortgage Insurance (PMI)
PMI is added to an FHA loan or other loan that requires less than 20% down. It is to assure the lender that the loan will be paid off in the event the buyer loses the home to default or foreclosure. The buyer also cannot be late on mortgage payments.
The amount of the PMI is generally less than 2% of the mortgage balance. As the buyer, you will most likely be required to pay a premium when your escrow closes. After that, the monthly fee can be added to your mortgage payment or paid yearly. You can stop paying PMI after you have paid a certain amount of the total owed on your home.
Homebuying can be frustrating, but hopefully worth it in the end. As you continue to learn more about purchasing a home in general, you will feel like you can contribute to the conversations with lenders, escrow officers, and other banking and real estate professionals you will work with on your road to homeownership.