Pre-Approval
Generally speaking, a pre-approval or pre-qualification should be your first step in looking for a home. A lot of us jump the gun and go straight to the search part, but we don’t know what we can actually afford. A pre-approval can tell you how much home you can afford, what you can borrow from a lender, and at what interest rate. A lender will use certain criteria like your credit, income, and debt to determine your eligibility.
Ratified Contract
A ratified contract is a contract that has been executed (agreed and signed) by all parties in a transaction. For example: if you (the buyer) made an offer on a home with a sales contract that you’ve signed, the offer won’t be ratified until the seller also signs and delivers back to you. Once both parties have signed and everyone has a copy, you now have a ratified contract and all parties are bound by the terms that were agreed to in that contract.
Earnest Money Deposit (EMD)
This deposit usually goes along with a sales contract, when making an offer, as a show of good faith from a home buyer. Typically, buyers submit an EMD of around 1% of the purchase price. For example, if the home you were buying was $500,000, your earnest money deposit could be $5,000. The deposit is held in an escrow account by a third party, usually the title company or real estate broker, and eventually gets applied to your down payment and closing costs at closing.
Escrow
Escrow is the use of a neutral third party, which holds funds (like the earnest money deposit) or documents before they are transferred from one party to another. The third-party holds the funds until both parties have fulfilled their contractual requirements.
HOA (Homeowners Association)
A homeowners association (HOA) is an organization in a subdivision, planned community or condominium that makes and enforces rules for the properties and their residents. Those who purchase property within an HOA's jurisdiction automatically become members and are required to pay dues, known as HOA fees.
Home Inspection
A home inspection is an examination of a property's safety and current condition, from its foundation to its roof and including its various systems (electrical, plumbing, and more).
A buyer arranges and pays for a home inspection and—depending on its findings—may choose to move on to closing, renegotiate the sale price, request repairs, or cancel the sales contract.
Appraisal
An appraisal determines the value of the home to ensure that the price reflects the home’s condition, age, location, and features such as the number of bathrooms. Also, appraisals help banks and lenders avoid loaning more money to the borrower than what the house is worth.
Title
Ownership of real estate or personal property. With real estate, title is evidenced by a deed (or other document) recorded in the county land records office.
Closing Costs
So here’s where things get a little interesting and surprising. A lot of people are saving for a down payment, but don’t realize that you also have to pay anywhere between 2% - 4% of the sales price of your home towards your closing costs. Here are some examples of costs to expect:
- Recurring: these are the fees that you will pay monthly after closing. Lenders will require that some of these fees be paid at least 6 months in advance at closing. They include: state taxes, property taxes, and homeowners insurance.
- Non-recurring: these are one-time fees that you will only pay at closing. They include: lender fees, appraisal fee, credit report fee, title charges, and recordation fees.
- Commission fees: although this line item is not on the buyer side, a seller will account for the commission fees (5-6%) in the sales price of the home. One can argue that the buyer always pays for the real estate commission indirectly.
A lot of people don’t know this, but real estate agent commissions are the single largest fee in a real estate transaction. We created the Homesavey Refund to ease the financial pressure of buying a home and reduce a buyers closing costs significantly.
Looking to buy a home? Learn how much you can save on your closing costs by requesting a call here: homesavey.com/contact
