Today is going to be a lesson on phrases for people who want to buy a home. Whether this is your first time buying or your third, you should know these terms. Let’s get right down to business.
Clients choose a buyer’s agent to help them with the buying process. The buyer’s agent’s job is to look out for their clients throughout the whole buying process. The buyer’s agent doesn’t care what house their client buys, but they should make sure their client is safe, gets the best deal possible, and gets the house they want if the market is competitive.
Listing agent’s job is to help clients sell their homes, protecting the seller and getting as much money as possible for the house. The big mistake here is that a buyer might get a better deal if they go straight to the listing agent. Often, experienced buyers do this, but what they don’t realize is that the listing agent’s job is to sell the house for as much money as possible.
Fixed Rate Mortgage
The mortgage rate is fixed through the duration of the term. The gold standard loan that everybody gets is a 30 year fixed rate mortgage – the term is 30 years and the rate is fixed throughout.
Adjustable Rate Mortgage
The term is usually still 30 years, but the rate can change over time. This is called “Arms.” It would look like a 7-1 if you wrote it down. That means that the rate won’t change for the first seven years. After that, the rate will change every year. If the interest rates are higher over the 30 years, your rate will go up and so will your payment. If interest rates go down, your rate will go down, and so will your payment.
Buyers should expect to pay between 2% to 5% of their total mortgage amount on these fees at closing.
- Appraisal fees: An appraisal is a neutral third parties opinion of the value of the home. About 90% of all the appraisals come in directly at the selling or contract price, and that isn’t by chance. The idea is the appraisal is to protect the lender from you paying on a property compared to it’s value.
- Mortgage fees: Mortgage fees is a broad term, but some mortgage fees include origination fees, credit report, and a few other things. The reality is all of these companies are businesses.
- Legal fees: This is often attorney fees for the banks and title.
- Escrow fees: Escrow is the account of the transaction. They handle the paperwork and money to make sure everything is done correctly. All of the money is added up at the end and dispersed after the property closes. Typically these fees are not fixed.
- Home Inspections: Inspections are mandatory. You don’t want to go in blind when you’re buying again a half a million to a million dollar or more asset. Inspections make sure you understand what you’re getting yourself into. We’ve done home inspections on houses that look pretty and you go in and you realize maybe there’s tens of thousands of dollars of work on things that you’re going to need to immediately due to the house. If you don’t do the home inspection, you may save $1000, but we would never recommend that.
- HOA fees: HOA’s are good and bad, but basically they take care of the community. All of the homes in the community are paying into the association and that takes care of the community itself. HOA is like insurance to keep your neighbor’s boat out of their yard. If you’ve ever driven through a neighborhood where there’s just like stuff in the front yards.
- Title Insurance: Title Insurance is extremely important and very rarely understood. A title insurance policy says that you are buying this home and you own it and there will be no issues with title at least for the first year. The reality is your lender is going to make sure that you have title insurance so that they don’t get screwed.
- Property tax: California has a base 1% property tax. If you’re buying a $500,000 house, you’re gonna have $5000 in property taxes from the state. There are additional bills – like mello roos – that are on your property tax bill but they’re not necessarily property tax. It’s basically a tax for owning dirt.
- Homeowner’s Insurance: Homeowner’s insurance is usually required by the lender as well too. If your house were to flood, you’re gonna have an insurance policy on your home that you pay every single year. The insurance policy might cover the complete cost of remodel.
Contingencies are buyer protections. There’s three major ones – inspection, appraisal, and mortgage.
Earnest Money Deposit
Earnest money, or good faith deposit, is a sum of money you put down to demonstrate your seriousness about buying a home.
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