If you are preparing to enter the mysterious world of real estate, you will need to know and understand the property jargon, and for someone who knows nothing of this, the whole buying experience can be a bit hit and miss, and you’ll end up not really knowing what’s going on.
For the beginners, here is a list of 5 terms you will encounter, along with their meanings.
Mortgage is just another way of saying a loan for a house. It’s just the technical term for a loan used to buy property, and unless you happen to be rich, you will require a mortgage to buy your first property.
When you pay rent, you only pay one flat fee per month. But when you own a house, there are more fees to be concerned about. When you make your monthly payment, it will be comprised of the principal and interest. In addition to that, there are property taxes and homeowners insurance as well. Plus, if you didn’t make a large down payment, you’ll pay private mortgage insurance as well. All of these things can be combined into one payment you make to your lender and is known as your mortgage payment.
That one was easy. Let’s move on to some more difficult definitions.
A title deed is the official document that certifies you as the owner of the property. This document also details the precise area and perimeters of the land, and the deeds can be used as collateral for a loan with most banks, providing there are no outstanding mortgages on the property.
So even though you are living in your house, you do not have the title deed. The bank who borrowed the money has it, and they are the true owner of the house until you are finished paying off the loan.
Of course, if you default on the loan, the bank takes possession of the deed, and thus the house (called a foreclosure), which would then be offered up by auction to the high bidder.
This refers to a mortgage, and if you are about to enter into discussions with a seller, you should first apply for pre-qualification for a mortgage. This basically tells you, and the seller, that you are able to obtain the required loan, and without this, a seller would be reluctant to go any further than initial discussions.
By applying for a prequalified mortgage, you are not actually entering into an agreement. Rather, it’s just the bank saying that in the event you do wish to borrow that amount of money, they are prepared to lend it. It acts as a guarantee for the seller that you can, in fact, go ahead with the purchase.
While we all understand the word tax, this is not income taxes. There are other taxes to pay other than your state and federal income taxes. When it comes to houses, you also pay property taxes which are also sometimes referred to as real estate taxes. This is a fee that is paid twice per year to your county.
If you “escrow” your property taxes, then your lender will pay the taxes for you by adding it to monthly mortgage fee.
These are things like legal charges, inspections and approvals, title and escrow costs. A novice might not be aware that there will be other costs when buying a house and may not budget for that. But remember that the cost of a house includes the home itself plus the fees (also known as closing costs).