If you are buying a home on the Outer Banks and a first time buyer, there are key terms the real estate industry uses that you must understand to navigate the process. Fear not, here are 12 terms that will give you a head start on the process and guide you to home ownership.
- Pre-qualification-A buyer is pre-qualified by a lender once a lender has considered his/her financial assets and liabilities and determines an amount that could be lent for the mortgage. The lender may obtain the information verbally and does not do additional investigation through the credit agencies. Pre-qualification is the first step in the lending process and does not carry as much weight as a buyer who is pre-approved.
- Pre-approval –At pre-approval, the buyer has provided a loan application and financial documentation to the lender and a mortgage underwriter has approved the documentation using a maximum loan amount, and assumptions for the interest rate, taxes and insurance for the property. The borrower is then pre-approved subject to the lender approving the property, once it is selected. The lender may issue a conditional commitment for a maximum loan amount, so you can look for a home at or below that price level. This puts you at an advantage when dealing with a seller, especially where they may be many buyers, as the seller will know you’re closer to obtaining an actual mortgage.
- Loan Commitment – The lender issues a loan commitment once it has approved the buyer and the property. The commitment is issued after an appraisal of the property to make sure the appraisal is equal or higher than the sale price.
- Adjustable-rate mortgage (ARM)– The interest rate on the mortgage can fluctuate periodically according to a stated index.
- Fixed-rate mortgage– The interest rate on the mortgage remains fixed over the entire loan term.
- Amortization–Over the term of the loan, a portion of each payment is applied to interest and principal. In the early years of the loan, a higher amount of each payment goes toward interest and smaller portion to principal to pay down the loan. In the later years, the reverse is true; as the interest amount decreases as the loan balance decreases until the full amount of the loan is paid (amortized).
- Principal– The amount of each monthly payment that goes toward paying off the debt owed or the total amount of debt remaining unpaid.
- Escrow account– An escrow account is required by some lenders to pay taxes and insurance on the property. The borrower still makes one mortgage payment, but a portion of each payment goes toward, interest, principal, taxes and insurance. The lender then makes the payment on behalf of the borrower once the tax and insurance amounts are due.
- Closing costs–The fees and cost to process your mortgage loan and purchase. Typically, the total closing cost are 2% to 5% of the mortgage amount. There are “non-recurring” costs like appraisal, credit report, survey and title search. In addition, there are “pre paid” items for insurance and taxes that are paid in advance at closing.
- Appraised value – The value of the property as determined by an appraiser; based on their knowledge, experience and analysis of the property and recent sales of comparable homes.
- Assessed value – The value of the property as determined by the tax assessor for the purposed of determining the amount of taxes to be paid annually for the property.
- Fair market value – The highest price a willing buyer would pay and the lowest price a willing seller would accept.
Let the experts at Eillu guide you to finding the best property for you to make your Outer Banks home a dream come true!