What you need to sort through the home buying jargon
Ever gotten frustrated when reading an article filled with unfamiliar terms and jargon? It’s like it might as well be written in a foreign language. Now imagine running into that when you’re trying to make the biggest purchase of your life.
Home buying terminology shouldn’t be a source of frustration for us. So before digging into all the details of buying a home, it’s important to understand the phrases that will be thrown around - and how they can save you some cash up front or in the future.
Here are some key terms to know before you get started.
Closing costs
These are charges for the process of getting a loan - mostly from third parties - for things like title fees or a home appraisal. Your lender can help you understand them all.
Down payment
The down payment is the part of the home’s sale price that you’ll pay up front. The money can come from the cash you’ve saved up, the amount you’ve made off the sale of another home, a gift from a relative, or other sources.
Equity
This is the value of the home you own after taking away what you owe in loans. If your home is worth $150,000 and your mortgage loan balance is $110,000, you have $40,000 in equity.
Escrow
This is an extra amount that gets added to your monthly payment so your lender can take care of paying things like property taxes and insurance costs for your home.
Interest rates
This is what you’re paying to borrow money from a lender. It’s usually talked about as an annual percentage. The lower the interest rate, the less you pay for the money you borrow.
Loan-to-value
This describes the size of the loan you’re getting (or already have) versus the value of the home you’re buying (or already own). It’s expressed as a percentage (loan size divided by home value equals LTV%) and is a key to understanding how much you may be able to borrow, or where you stand with your existing loan.
That’s just a sampling of the terms you might run into during the home-buying process. We have a downloadable resource that includes these terms and many more. And if you’re looking for more about borrowing and how to do it like a boss, check out our ebook.
