9 Homebuyer Tips & Terms You Need To Know
Our first homebuyer term is ‘Appraisal’.
Appraisals are generated as reports and highlight the estimated value of a home. Appraisals are prepared by third-party licensed appraisers. Lenders rely on appraisals to validate a home’s value and ensure they are not lending more money than a home is worth.
Homebuyers are typically responsible for providing the payment for these third-party appraisals. In some cases, lenders may offer to pay for an appraisal. The cost for an appraisal fluctuates with market conditions and the availability of appraisers to complete orders.
Our second homebuyer term is ‘Closing Cost’.
Closing costs are the fees associated with purchasing a home. These fees should not be confused with ‘downpayment’. Closing costs can include discount points paid to lenders, prorated property taxes due at closing, title fees, commissions, surveys, and more.
In order for you to get the most accurate estimate of the closing cost, you will need a property address and price first. Next, you will need to consult with your lender about the estimated cost associated with that property.
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The next term is ‘Credit Score’
Credit scores are calculated in numbers ranging from 300 to 850. Lenders use credit scores to gauge the likelihood a borrower will pay on time. In general the higher the score the easier the loan process usually is. Many lenders adopt a minimum standard score ranging from 620 to 640, while a few also offer loans to mid 500s borrowers.
Term number four on our list is ‘Down Payment’
Down payment is your actual equity required to be paid at closing. This amount can range from 3.5% to 20% depending on your loan type. In some cases, $0 down payment programs are available for home buyers. Consulting with your realtor and lender is crucial in selecting a product because not all programs are alike and may impact your purchase process differently.
Term number five is ‘Mortgage Rate’
Your mortgage rate is the interest you pay to borrow money when buying a home. Mortgage rates will vary depending on the type of loan you are using, your credit score points paid at closing, and the market rate at the time of loan lock.
Term number six is ‘Pre-Approval Letter’
Obtaining a pre-approval letter is one of the most important pieces in securing a contract for a home. Pre-approval letters are typically stronger than prequalification letters. In a pre-approval letter, you will typically see that a borrower has submitted a written application for a loan and supplied various hard copies of financial paperwork for review.
A pre-qualification letter on the other hand usually only indicates that a borrower’s credit has been reviewed and some verbal information supplied from the borrower to the lender.
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Our seventh homebuyer term is ‘Inspection Contingency’
Inspection contingency here in Texas is also known as an ‘option period’. This inspection contingency or option period is a set amount of time agreed upon in the contract that allows a buyer to terminate the contract for any reason. This right to terminate is typically purchased from the seller for a relatively small fee.
Homebuyers should know however that even if a contract does not have an inspection contingency, you can still have an inspection at any time. But you will not be able to terminate the contract due to the inspection results.
Our next to last term is ‘Affordability’
Affordability is how lenders measure whether someone earns enough to qualify for a loan. When calculating affordability lenders will consider earnings, price, and interest rate to make this determination. Each loan product has guidelines that determine how much of your income can be allocated for a monthly payment.
Our last homebuyer term is ‘Equity’
Equity in its simplest term is the value in your home above the total amount of liens filed against your home. Your liens may include a mortgage, collections for unpaid taxes, contractors doing work on your home, and others.