If you’re a homebuyer, there are five terms you need to know that will help you understand the home buying process far better.
Here are five terms that will help you navigate the home buying process by understanding what they mean:
1. Appraisal: This is a professional valuation of a property done by an appraiser. If you’re obtaining a loan to purchase your home, they’ll be hired by your lender. If you’re purchasing the home with cash, you can also hire the appraiser yourself. The appraisal will determine the proper value of the home by pulling comparable properties.
2. Closing costs: This is a bulk term for all the costs you’ll need to close your loan and get to the closing table. The lender’s fee, tax costs, and insurance costs are examples of what’s included in the closing costs. There may be other costs involved, too. If you’re buying a property within a homeowners association, for example, there may be a fee to transfer your name into ownership.
3. Down payment: This is how much money you’ll put down in order to purchase the home. The more you put down, the less of a risk you represent to the lending institution giving you your loan. Some people pay 5% to 10% down, while others go as high as 20% in order to avoid mortgage insurance. Certain FHA loans allow you to put down as little as 3%, and if you’re a veteran, you can qualify for a VA loan and put no money down. There are many programs out there that can help first-time homebuyers get into a home.
4. Credit score: This is another way a lender can examine your credit history and determine how likely you are to repay the loan they give you. A credit score can range anywhere from 350 to 850. Only about 55% of loans used to purchase a home are for scores lower than 750. Don’t worry, though—if your score isn’t above 750, you can still get a great loan.
5. Pre-approval letter: This is a letter you provide to the seller stating that you’ve already been approved by a lender. In order for you to be approved, a lender will look at your assets and income and, more importantly, they’ll start collecting data. The more information you can give to a lender before you start house hunting, the more successful you will be.
THE MORE INFORMATION YOU CAN GIVE TO A LENDER BEFORE YOU START HOUSE HUNTING, THE MORE SUCCESSFUL YOU WILL BE.
If you have any questions about these terms or you’re thinking of buying a home in our Denver market, don’t hesitate to reach out to me. I’d be happy to help you.