Buying a home is a big purchase and involves many conversations between buyers, mortgage companies, realtors, and builders. For anyone buying their first home ever or their first home in a decade or so, keeping all the homebuying vocabulary straight can be a challenge. That’s why we compiled this list of Homebuying ABCs as a cheat sheet and quick reference guide. We hope this list helps you in your homebuying journey!
Amortization: Amortization refers to the process of gradually paying off a debt over a period of time through regular payments. Each payment covers both interest and principal, with the interest portion decreasing over time and the principal portion increasing.
Appraisal: An evaluation of a property’s value, performed by a licensed appraiser, based on recent sales of similar properties, current market conditions, and the property’s features.
Architectural Control: The oversight and regulation of the design, construction, and appearance of buildings and structures within a certain area, typically enforced by a homeowners’ association or a similar governing body to maintain aesthetic consistency and property values.
Assessed Value: The dollar value assigned to a property by a public tax assessor for the purposes of taxation. This value is used to determine the amount of property tax that the owner must pay.
Appreciation: The increase in the value of an asset over time. In real estate, it typically means the increase in the market value of a property due to factors like demand, improvements, or economic conditions.
Certificate of Occupancy: A document issued by the local government certifying that the home has passed all inspections and is ready and safe for occupancy.
Change Order: An agreement offered in some communities by the builder to record any changes or modifications to the construction plans or specifications, typically involving an adjustment in cost and/or timeline.
Closing: The final step in a real estate transaction, where the buyer and seller complete all necessary paperwork, payments are made, and ownership of the property is officially transferred from the seller to the buyer.
Closing Costs: Fees and expenses, over and above the price of the property, incurred by buyers and sellers in the property transfer process. These can include loan origination fees, title insurance, appraisal fees, and attorney fees
Condominium: A condominium, or condo, is a type of real estate divided into several units that are each separately owned, while common areas are jointly owned and maintained by the condominium association.
Contingency: A condition or clause in a real estate contract that must be met for the contract to become legally binding. Common contingencies include financing, inspections, and the sale of the buyer’s current home.
Declaration of Condominium Regime: A legal document that establishes a condominium and its governance. It includes details about the property, individual units, common areas, and the rights and responsibilities of the unit owners and the condominium association.
Down Payment: The upfront payment made by a buyer, usually a percentage of the property’s total purchase price, which reduces the mortgage loan amount.
Earnest Money: A check or money wire deposit made by a buyer to show their serious intent to purchase a property, typically held in escrow and applied toward the down payment or closing costs if the sale proceeds.
Elevation: A drawing that shows the exterior view of a home from one side, illustrating height, design, and the finished appearance.
Equity: The difference between a property’s market value and its outstanding mortgage balance amount.
Fixed-Rate Mortgage: A mortgage with a consistent interest rate for the entire loan term, providing stable and predictable monthly payments.
Floor Plan: A scaled diagram of the home’s layout, showing the arrangement of rooms, doors, windows, and other interior features.
Homeowners Insurance: A type of property insurance that covers a private residence providing financial protection against losses and damages to the home and personal belongings due to events like fire, theft, and natural disasters. It also typically includes liability coverage for accidents that occur on the property.
Homeowner’s Association (HOA): An organization in a residential community that enforces rules and regulations for properties within its jurisdiction. It is responsible for maintaining common areas, managing community amenities, and ensuring residents adhere to community standards.
HOA Dues: HOA dues, or homeowner association fees, are regular payments made by residents to the HOA to fund the maintenance of common areas, community amenities, and other services the association provides. These dues can be paid monthly, quarterly, or annually.
Homeowner Orientation: A meeting or walkthrough arranged by the builder or developer for the new homeowner before they move in. During this orientation, the homeowner is introduced to the features and functions of their new home, and any questions or concerns can be addressed. It often includes a review of warranty information and maintenance tips.
Home Inspection: An examination of the condition of a property, typically conducted by a professional inspector, to identify any necessary repairs or maintenance before purchasing.
Incentives: Benefits or perks offered by builders to attract buyers, such as discounts, closing cost assistance, free upgrades, and extended warranties. They may also include lifestyle perks like memberships or furniture packages, enhancing the home’s appeal and value.
Inspections (City): City inspections refer to the evaluations conducted by municipal inspectors to ensure that buildings and structures comply with local building codes, zoning laws, and safety regulations. These inspections often occur during various stages of construction or renovation projects.
Interest Rate (Mortgage): The percentage charged by a lender on the loan amount, representing the cost of borrowing money, typically expressed as an annual percentage rate (APR).
Mortgage: A loan used to purchase real estate, where the property acts as collateral. The borrower repays the loan in regular installments, and failure to repay can lead to foreclosure.
Mortgage Insurance (PMI): Insurance that protects the lender if the borrower defaults on the loan. PMI is typically required if the down payment is less than 20% of the home’s value.
Permit: Official authorization from the local government allowing construction to proceed, ensuring that the plans and work complies with local building codes and regulations.
Pre-Approval for a Mortgage: A lender’s evaluation of a borrower’s financial status, which determines the maximum loan amount they qualify for. It involves submitting an application and documentation, resulting in a pre-approval letter.
Preferred Lender: A preferred lender is a mortgage lender that a home builder or real estate agent recommends to buyers, often because of a pre-existing relationship or because the lender offers favorable terms, streamlined processes, or special incentives to the builder’s or agent’s clients.
Property Taxes: Property taxes are annual taxes imposed by local governments on real estate based on the assessed value of the property. These taxes fund public services such as schools, roads, and emergency services.
Purchase Agreement (Contract): A legally binding document between a buyer and a seller detailing the terms and conditions of a real estate transaction, including the sale price, closing date, contingencies, and any other agreements made during the negotiation process.
Realtor: A licensed real estate professional who is a member of the National Association of Realtors (NAR) and adheres to its strict code of ethics. Realtors assist clients in buying, selling, and renting properties.
Rate Buy Down: A financing option in which the buyer or seller pays an upfront fee to the lender in exchange for a reduced interest rate on the mortgage, either temporarily (e.g., for the first few years) or permanently.
Selection Deposit: An upfront payment made by a homebuyer to a builder or developer to secure specific customization options or upgrades for a new home. This deposit ensures the buyer’s choices are reserved and is applied toward the total purchase price.
Variable-Rate Mortgage (ARM): A mortgage with an interest rate that can change periodically based on changes in a corresponding financial index.
Warranty: A guarantee the builder provides covering certain repairs or defects in the home’s construction for a specified period of time after purchase.
Now that you’re a homebuying vocabulary expert, you’re ready to pursue your dream of building or buying a new home! Contact us at 512-328-2122 and a member of our Ash Creek Homes team can help you find the perfect new construction home.
