Buying a Home? Know Your Vocabulary

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Once you’ve decided to take the plunge and buy a home your first step is to educate yourself. The more you know about the home buying process the less stressful it will be for you to buy your first home. There are several terms which you may have heard but not quite understood over the years related to home buying. Let’s take a look at some of the most important terms you will come across during your experience.

Appraisal

An appraisal is required by the lender when you apply for a mortgage for a specific property. This inspection is performed by a licensed appraiser who will estimate the value of the property and home. Many times the appraisal also includes fair market pricing which lists other properties in the same area and their selling price. You can consider this your guarantee that you are paying an appropriate price for the home.


Earnest Money

Once you have made an offer on a home it is expected that you will make an earnest money payment of 1 = 3% of the purchase price into an escrow account. The money that you have saved up as a down payment for your home is considered earnest money.

Closing Costs

No matter how prepared you are with your earnest money savings some of the fees involved in purchasing a home may take you by surprise. Closing costs are completely different from your earnest money payment and may be up to 5% of the purchase price of the home. Under the umbrella term “closing costs” you will find excise tax, title insurance, and title insurance. In order to prepare for these fees ask your lender for a “good faith estimate”.

Escrow

In the interest of fairness and transparency the exchange of money and documents involved in the sale of the home is handled by a neutral third party or attorney. This escrow agent works with the lender and realtor to ensure that all documents are in order, liens and titles are clear and that property taxes are up to date.


If you have never purchased a home before the process may seem confusing and overwhelming. Don’t be afraid to ask questions and do research about the process before you begin looking at homes or making offers. 

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