Let’s be honest: there’s possibly nothing that simultaneously generates equal levels of excitement and anxiety quite like buying a new home (especially if you’re a first-time home buyer). But doing your due diligence and arming yourself with the knowledge and education of the home buying process can quell some of those nerves and help make certain you make the right moves along the way. Following are eleven terms central to the home buying process that are important for you to know and understand.
- Earnest money deposit: Formerly referred to as a “good faith deposit,” earnest money is generally a small amount of money given to the seller from the buyer at the time of contract submission to show their serious intent to purchase the property. Once submitted, these funds are typically held in an escrow account by the title company (or other third-party, such as an attorney) and applied toward the down payment on closing day.
- Contract ratification: This term refers to the point in the real estate transaction where the contract (and associated terms) have been agreed upon and accepted by both parties, but has not yet been signed or put into effect.
- Home appraisal: In order for a lender to approve a loan/mortgage request, a proper appraisal by an independent third party must be conducted. The appraised value of the home is generally the loan amount amount up to which a lender will offer funding.
- Home inspection: A home inspection is also performed by an independent third party contractor and is executed to identify any obvious or potential issues with the home that may impact its value. These concerns may be structural, such as pertaining to the roof, or aesthetic in nature.
- Closing: The signing of documents in the transfer of title on real estate from one party to another is known as “closing” on the loan and is also referred to as “settlement.” On average, the closing process (from contract ratification to close) is between 45 – 60 days.
- Closing Disclosure (CD) Form: This document includes details of the loan, the buyer’s financial responsibilities to the lender, and other information surrounding settlement on the property. The lender will send the CD Form to the buyer at least three business days prior to closing and should be reviewed by the buyer thoroughly upon receipt. Any inaccuracies or discrepancies regarding the information contained in this document must be addressed and resolved before closing on the loan.
- Closing costs: Expenses paid by the buyer and seller during the real estate settlement are known as closing costs.
- Title search: Title is the collection of rights surrounding a piece of real estate that establishes legal interests to such property. Before initiating the closing process, a title agent will conduct a title search to identify any circumstances that may interfere with the proper transfer of legal possession from one party to the next.
- Title defects: Any factors that prevent the marketability or transfer of title are referred to as title defects. Some of the most common title defects include fraud, liens, forgery, and recording errors.
- Title insurance: This is a type of indemnity insurance that protects the lender or owner against financial loss due to title defects discovered after the loan has closed. Lender’s and owner’s title insurance are different types of policies and carry independent costs. Lender’s policies are almost always required while owner’s polices (though not required) are highly recommended.
- Seller concessions: Contributions to closing costs made by the seller on behalf of the buyer are known as seller concessions. These contributions can help lower the overall out-of-pocket costs for the home buyer.
At Linear Title & Escrow, our experienced team is always ready to answer your questions and guide you through the closing process. To learn more, contact us today!