From purchase to clearing title, real estate terms range from colorful to confusing. Sometimes, there is more than one term for the same thing, which further complicates matters. To the first-time homebuyer, it might all sound like a foreign language.
Some Terms Refer to Your Purchase
"Earnest money" lets the owner know you're sincere, or "earnest" about buying the home when you make an offer. Earnest money is a deposit, usually about two percent of the amount you are offering. If the seller accepts your offer, the money goes toward your down payment. If the owner rejects your offer, you get the money back. If you back out of the deal, you lose the money.
Contingencies and escape clauses can help you avoid losing your earnest money. With a contingency, both you and the seller agree that something, like a roof repair, must occur before your offer becomes a legally binding contract. An escape clause lets either the buyer or seller out of the contract if the other party doesn't meet the conditions of the contract.
Some Terms Refer to Mortgages
In a fixed-rate mortgage, your interest rate remains the same over the entire term of the mortgage. In an adjustable-rate mortgage, the interest on your loan may change occasionally, based on economic conditions. An assumable mortgage is one that allows you to take over, or assume, the loan from the previous homeowner.
In a balloon mortgage, you usually make a minimal down payment and your monthly payments include little or no interest. In exchange, you'll have to pay a large lump sum, called a balloon payment, at the end of the mortgage.
Some Terms Refer to Title
Having title to a home means you own it. Buying a house with clear title means there are no liens against it, other than the seller's mortgage. The seller will pay off the mortgage when the house is sold. If there are other liens, these "clouds" or "defects" prevent the title from being clear. Title insurance is a policy that protects you against unknown liens on your home that might surface and become your responsibility later. Title insurance that protects you is optional. Title insurance that protects your mortgage lender is usually mandatory.
A Real Estate Lawyer Can Help
The law and the language surrounding residential real estate is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a real estate lawyer.