Have you ever heard someone say that they’re in escrow but didn’t know exactly what they were talking about? Real estate jargon is notorious for intimidating anyone who doesn’t work in real estate. So let’s get comfortable with some of the terms we see the most but don’t always bother to investigate. This will help you feel more at ease and excited to start your home buying or selling experience.
What does being in escrow mean?
Being in escrow means that you made a payment that is being held by an escrow company. They hold onto your payment while you and the seller are negotiating the sale of the home. Your payment will be secure and the escrow company will release it to your lender once your contract is settled. So if you’re in escrow, congratulations. You’re on your way to being a homeowner.
You’ll hear the word ‘escrow’ after the home buying process is over as well. Your mortgage lender will hold a certain amount of money from your home payment in escrow every month. They use this to cover home insurance and property taxes and then pay them for you.
Basically escrow means your money is being held in a neutral zone by a trustworthy person until a deal closes.
What is a home appraisal?
A home appraisal is when the bank assesses the condition of a home that’s for sale and its surrounding area. This information is used to figure out how much the home is worth and how much they are willing to lend for it.
If you are selling your home- you’ll want to get everything about your home in top shape to get the highest possible appraisal. The higher the appraisal, the higher the amount that mortgage lenders will be willing to lend for it. If you are buying a home- the appraisal officer is the one who’ll look over your dream home to determine how much is worth investing in it.
We have a whole breakdown of how the home appraisal process works and how you can prepare for it in this article.
What is due diligence?
Due diligence often refers to how much time and research are involved in a project, like a home appraisal, to get the most accurate results. If something is given due diligence, then it’s not rushed through, which could lead to inaccurate results and costly mistakes.
For example, what if an appraisal officer rushed through the appraisal of your next home and didn’t notice that the air conditioner didn’t work? That would’ve been the last homeowner’s responsibility to fix, but it was never accounted for. Now that cost will fall to you once you’ve moved into the home and discover the problem for yourself. A mistake like this can be avoided if the home appraisal is given due diligence. Your realtor can help make sure processes like this go as smoothly for you as possible.
What is a real estate contingency period?
A contingency period in real estate is the time from the start of negotiations of a contract to the finalizing of the contract. It acts as a neutral zone where you can still work out the details of your contract. A few common ones are home sale, appraisal, due diligence and loan contingency periods.
It’s less intimidating once you break down the phrases as we did above with appraisals and due diligence. Adding ‘contingency period’ onto the end of those terms just lets us know that they are the periods of time it takes to go through those processes.
So let’s look at the home sale contingency period. A home sale is contingent if the home seller has accepted an offer from a potential buyer. The offer is accepted but the seller is still in negotiations with the buyer. Once negotiations are settled, the contract is moved on to pending as the sale moves forward or is canceled. While in contingency, the house is still on the market, but the seller can’t accept any other offers.
What are the differences in loan types?
The main three real estate loans you’ll see a lot are FHA, VA and conventional. FHA loans and VA loans are guaranteed and insured by government agencies. Conventional loans are not backed by the government.
Conventional loans are good options for borrowers that have good credit scores and the ability to put down a larger deposit. If you decide to go with a conventional loan you may save money in the long run as you may be able to forgo paying private mortgage insurance that government-backed loans require. That depends on your initial deposit and what you and your lenders agree on.
The approval process is different for conventional loans than it is for government loans. When a loan is not backed by a government agency, it’s more of a risk to lenders since they could lose their money if the borrower defaults on their payments.
FHA loans are insured by the Federal Housing Authority. They’re popular because they require a smaller deposit than others. With these loans will you’ll also pay for private mortgage insurance. There is still a minimum credit score requirement but it is not as strict as conventional loans are.
VA loans are for military service members and their families. These loans are backed by the Department of Veterans Affairs. There are requirements to look into for these like credit score, income, and some qualification paperwork to submit. Once you’re approved you get the huge advantage of not having to make a down payment.
What is a Multiple Listing Service (or MLS)?
This is something we talk about a lot on the blog. A Multiple Listing Service is a database of real estate listings in regional areas where realtors and brokers can see each other’s listings. There are hundreds of these services in the United States and only licensed realtors have access.
As a home seller, having your realtor list your property on a MLS lets you reach far more prospective buyers. If you’re buying a home and your realtor is a part of a Multiple Listing Service, you’ll have a lot of options to see instantly. Make sure to look at the post on 16 Steps to Buying Your First Home to see what else to research when buying a home.
What is the difference between Pre-Qualification and being Pre-approved?
Pre-qualification and pre-approval are actually two steps of the same process. To be pre-qualified, your mortgage lender will look at an overview of your finances and then decide if you are eligible for a loan of a certain amount.
Like we’ve talked about in 6 Absolute Worst Mistakes When Buying Your First Home, it’s important that after you’re pre-qualified, you then get pre-approved before you start putting in offers on any homes. In the pre-approval process, you’ll go more in-depth by providing your W-2’s, debts, assets, etc. This part determines the loan amount you will get. Getting pre-approved also lets your lender know you’re serious in your pursuit of buying a new home.
What is the difference between a real estate agent and a realtor?
A real estate agent is a licensed professional who can help you buy or sell properties. A realtor is a real estate agent who is a part of the National Association of Realtors and must abide by their code of ethics. Realtors can list properties on Multiple Listing Services, but real estate agents who are not a part of the NAR cannot.
Either one would be equipped and committed to helping you achieve your selling or buying goals. The most important thing is having a good professional in your corner to help you out.
To look through the benefits of hiring a great realtor, see this article on 6 Worst Mistakes When Selling Your Home.
Don’t let real estate jargon delay you from taking action with your home buying or selling journey. If you’re looking to start your dream home process in Placer County, contact us at Quantum Real Estate. We would be happy to connect you with a top-selling agent who will walk you through your home buying process.