When you’re buying a home for the first time, you expect there will be a learning curve. But if you find yourself wishing for a pocket dictionary just to translate the terms that get thrown around, consider this your study guide.
Also, remember, there is no such thing as a “dumb question” for your REALTOR®. A qualified one will be glad to hold your hand through the entire home-buying process and will take the time to explain anything that might seem confusing.
Comparative Market Analysis (CMA):
In order to make an educated offer, it helps to have a “comparative market analysis” from the area. This will show the listing and sale price of comparable (or “comp”) properties in the area as well as details like square footage, bedrooms, baths and more.
When a buyer sets sights on a home, the first step is to submit an “offer” to the sellers with the proposed purchase price. If they desire, the sellers will then have an opportunity to counter and initiate negotiations on the offer. Once an offer or “sales agreement” is accepted, the buyer and seller are in contract on the home.
Often written into the offer on a home, a “contingency” means that in order for the sale to be finalized another condition must first be met—such as a closing that is contingent on the home inspection going well, the buyer’s mortgage approval or the home appraising for a price the lender will approve.
After an offer is accepted, buyers generally agree to put down “earnest money” to demonstrate their intentions to see the deal through. Depending on the market, this could be as little as $500 or as much as 5% of the purchase price. During the contract period, this money is held in escrow and can then be applied to the down payment on the home.
In the majority of cases, buyers will hire an independent home inspector to examine the home during the contract period. Inspectors are trained to look at a variety of issues—big and small—within the home. If the inspection turns up anything concerning the buyer, they may go back to the seller and request the issue is fixed to proceed with the sale. Depending on the size of the house, an inspection typically costs between $300-$600.
An appraisal is an estimate of the property’s “fair market price,” which lenders generally require before signing off on a mortgage amount. If the negotiated price exceeds the appraisal amount, the lender may not approve the loan.
Fees such as taxes, insurance and lender expenses, which are paid at the time of closing. There are generally fees for both the buyer and seller, so this is an important expense to keep in mind when budgeting for the purchase of a home. For buyers, closing costs generally run between 2% and 5% of the purchase price.