5 Mortgage Terms Every First-Time Home Buyer Should Know
The excitement of buying a home for the first time is different. You prepare your finances, explore property options in your desired locations, and begin the home buying process. All these feels bliss until you get on the field and start the process. Most home buyers find the process overwhelming because they are unaware of the terms used in the mortgage and real estate market.
A huge percentage of first-time homebuyers rely on their real estate agents to get information and documentation checks. Consulting your agent is always an option. However, you must understand the basics to get the process right. Drew Mortgage, mortgage lenders in Massachusetts understand the challenges first-time homebuyers may face in processing mortgages due to lack of awareness. Here’s a list of the top 5 mortgage terms that every first-time home buyer should know to have a hassle-free mortgage and home buying experience.
The first smart step towards buying a home begins with Pre Approval. When homebuyers want to get pre-approved or prequalified before starting the home search, they apply for mortgage pre-approval/prequalify. This process helps home buyers to understand how much a mortgage can be approved for their home buying process. Narrowing down the home options becomes easy when you already know the financial capabilities and limitations. Mortgage lenders in MA ask for documents such as proof of income, credit history, bank statements, employment history, key assets, and more. The mortgage consultants can give you an idea of the interest rates you might qualify for, the best loan options for you, and the approximate loan amount you can borrow. This solves most of the questions in the mind of a home buyer. The pre-approved loan may help you prove your financial means and interest in home buying to sellers.
Property on sale often has multiple interested buyers. Seller receives offers from several buyers, making different offers. Once the seller finds the best deal, they accept the offer and move forward with the home selling process. Once the buyer is final, the property is called pending, indicating the selling process has begun. If you like a home that’s pending, you could talk to your real estate agent and make a backup contract on the home. This way, you will be ready to buy it in case the current buyer falls through. Most first-time homebuyers remain unaware of this benefit and settle down for another property if the one they loved is pending. Don’t make this mistake; keep your contract ready if you are 100% willing to buy that property.
Escrow is home buying which starts when a seller accepts the buyer’s offer and initiates the purchase agreement. At the time of the agreement, the buyer makes an escrow deposit that compensates the seller if the purchase agreement falls through. After closing the home, this deposited money can be used to fund closing costs. To be on the safer side, this deposit is done in a third-party company account until closing. These funds can also help you pay insurance premiums, property taxes, and related homeownership costs.
As you take the first step towards the closing process, you need to order an appraisal. Your mortgage lender would typically order an appraisal to determine the true market value of your chosen property. The market value and sales value may differ. An appraiser visits the property and assesses the condition, location, amenities, acreage, and related factors. If the property’s value is lower than its contract price, the home buyer has all the right to negotiate with the seller or cancel the sale. It may cost you as the deal is already under control. However, appraisal being the main reason, you can also cancel it without any charge.
No matter where you buy your home, how big your home is, you will be required to make a certain percentage of home value upon closing. This amount is called the Down Payment. This percentage ensures that you own a certain percentage of your home upon payment. It also depends upon the type of mortgage you are eligible for. In most cases, around 20% of the total property price is required as a down payment. There are some mortgage loans such as FDHA, VA loans that give buyers an option of down payment as low as 3%. There are special first time home buyer programs MA to ease your down payment burden. It is better to check your mortgage eligibility in advance to save funds for a down payment.
Home buying is not easy, and unawareness of the mortgage terms makes it more challenging for first-time home buyers. At Drew Mortgage, our mortgage consultants can assist you with mortgage solutions from the day you think of buying a home. Get in touch with us today!