Commonly Used Terms in Real Estate
Soon to be Home Buyers and Sellers, listen up! This one’s for you!
Buying and selling a home is a BIG decision to make, that you most likely will only do 1-4 times in your life. That’s why I’m here to help!
If you’re ready to take the next big step in selling and/or buying a property, I couldn't be more excited for you! It’s my goal to help ease your nerves by elevating your knowledge around the process.
The first thing to do, is to help prep you on some terms you will most likely hear throughout the transaction process. Now, these do differ by state (and of course country). However, by understanding what each of these descriptions are being used for, it will help set you up for success in asking probing questions to your real estate agent, lender, and title company. Don’t worry though. If you do your homework and have a strong strategic partner by your side, they will make sure you’re taken care of and looked out for along the way.
Let’s get started
Here are six commonly used terms for Minnesota home buyer’s and seller’s
1
Pre-approval Letter
A loan officer will pre-approve you for a home loan based on your financials. This document is needed to submit any offer on a property. If you would like a lender recommendation I am happy to supply a few options of people I know and trust.
2
Earnest Money
This is a "good faith deposit" submitted to the seller, and is held in a trust fund account for the life of the transaction. Your earnest money is submitted within 48 hours after a signed offer is agreed upon. Typically it is 1-3% of the purchase price. This money is not an additional payment; it is applied to your down payment at the time of closing.
3
Inspection Contingency
You have the right to purchase a home contingent on inspection. Home inspections typically cost between $500-$1500. This range also includes additional inspection add-ons such as: sewer, chimney, and radon inspections. If you decide to bypass having an inspection, you are agreeing to purchase the home "as is".
4
Closing Costs
These are typically estimated at 3% of the sale price. Your loan officer will provide you with estimates upfront, and confirm final numbers 3 business days prior to close. This 3% is additional capital needed at the time of closing, on top of your down payment. We are able to negotiate that the seller contributes to all or a portion of your closing costs if needed. The pros and cons of this can be discussed in more detail when you are ready to make an offer.
5
Financing Contingency
This contingency helps protect your earnest money during the transaction in case an appraisal comes in low, and you and the seller are not able to come to new terms on the purchase price. It also helps protect you if any changes occur to your employment or finances during the transaction. You may remove the financing contingency to appeal to a seller if you feel confident with your financing and the expected appraised value.
6
Close Date
Think of your ideal close date, and your earliest + latest possible close dates. Typically closings take place 30-45 days after a signed purchase agreement is agreed to. Because mortgages are paid in arrears, you will have flexibility based on your personal deadlines. Example: If your lease is up at the end of June, your earliest close date would be May 1st, with your first mortgage payment due July 1st. Flexibility is key if the seller is trying to move quickly (relocation) or wants more time (find a new house).
As a reminder, it is not your job to remember all of these to a “T”. Your job is to ensure you find the right partners to help guide you through this milestone. Let the experts help you along your home journey. This is merely a snapshot to help you understand basic terms so you are set up for success with asking some more specific questions.
I’m always here to answer any questions, so reach out at any time!
Take care!
Jen
Real estate investor, landlord and DIYer, Realtor, Business consultant, Globe trotter & Converting vegan.
