Mortgages

10 Things You Need to Know to Negotiate a Home Sale

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As the weather warms and the days get longer, home buying season gets underway. If you are considering purchasing a home, it’s important to do some research. The language of real estate can be confusing, especially to newbies. Here are some terms you will encounter that are helpful to know before you start negotiating on a deal.

1. Mortgage

This may seem obvious, but a mortgage is a loan that is secured by actual property. Buyers who can’t afford to purchase the home outright with cash can go to a financial institution (like a bank or credit union) to get financing.

2. Term

This is the number of years until a loan will be paid in full. It is often 15, 20 or 30 years.

3. Down Payment

This refers to the amount of money paid up front for the real estate transaction. Traditionally it has been recommended that buyers have 20% of the purchase price as a down payment but there are many options for buyers with less than that available.

4. Credit Score

A number that reflects someone’s credit history and the likelihood that he or she will repay money borrowed. It is used to determine the risk a potential borrower poses to the financial institution. It is one of the factors the financial institution uses to determine the interest rate of the mortgage. If you want to see where you stand, you can check two of your credit scores for free every month on Credit.com.

5. Adjustable Rate

An adjustable-rate mortgage (ARM) is a home loan where the interest rate fluctuates with the market. They often start out with a lower interest rate than our next term on the list and come with a cap on how high the rate may increase.

6. Fixed Rate

A fixed-rate mortgage has a consistent interest rate for the life of the loan.

7. Points

Mortgage points are an upfront charge that are basically prepaid interest. Paid to the lender at closing, each point is 1% of the loan amount and generally reduces the monthly payment of a mortgage.

8. Amortize

Paying off a debt (like a mortgage) gradually, with regular payments.

9. FHA Mortgage

A loan insured by the Federal Housing Administration (FHA). These loans require a down payment of just 3.5% of the amount borrowed but require an initial premium of 1.75%, which can be financed into the loan. There’s also an annual premium that varies by loan amount, loan-to-value ratio and term of the loan. The borrower must meet certain requirements to qualify for this type of mortgage.

10. Closing Costs

Closing costs are fees that are charged during the closing (the transfer of property title for money). Usually includes fees like loan origination, attorney and title insurance and equals about 2% to 5% of the loan amount.

More on Mortgages and Homebuying:

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