You may come across the term “appraisal” during the home buying process. An appraisal is a professional evaluation of the value of a property conducted by a licensed appraiser. The purpose of an appraisal is to determine the fair market value of the property to ensure that it is worth the amount of money being loaned for the purchase. The appraiser will assess various factors, such as the property’s location, size, condition, and comparable home sales in the area, to determine the property’s value. Lenders require an appraisal before approving a mortgage to protect themselves from lending more money than the property is worth.

Closing, in real estate, refers to the final step in a home purchase transaction where the ownership of the property is transferred from the seller to the buyer. During the closing process, all necessary legal and financial paperwork is completed, and the buyer pays any remaining closing costs and fees. Once the transaction is complete, the buyer receives the keys to their new home.

Closing costs are fees associated with the purchase of a property that are paid at the closing or settlement of the real estate transaction. These costs typically include fees for services provided by lenders, attorneys, and other parties involved in the transaction. Examples of closing costs include title insurance, appraisal fees, loan origination fees, inspection fees, and recording fees. It is important for first-time buyers to understand the total amount of closing costs associated with their purchase, as these costs can significantly impact the final amount they need to pay at closing.

A contingency is a clause in a real estate contract that outlines specific conditions that must be met in order for the sale of a home to be completed. These conditions can include things like passing a home inspection, securing financing, and selling a current home. If a contingency is not met, either party can back out of the sale without penalty. Contingencies provide protections for both buyers and sellers in the home buying process.

DTI ratio is a financial term that refers to the percentage of a person’s monthly income that goes toward paying debts such as credit cards, car loans, and student loans. For a first-time home buyer, their DTI ratio is an important factor that lenders consider when deciding whether to approve their mortgage application. It is calculated by dividing the total monthly debt payments by gross monthly income. The resulting ratio is expressed as a percentage and is used to assess the borrower’s ability to repay the mortgage loan. Typically, lenders prefer a DTI ratio below 43%.

A down payment is a portion of the total price of a home that a buyer pays upfront as part of the purchase. It is typically a percentage of the home’s purchase price and is paid in cash at the time of closing. The down payment is not part of the loan amount and must be paid separately. Generally, the higher the down payment, the lower the monthly mortgage payment will be. The size of the down payment required varies depending on the type of loan and the lender, but first-time homebuyers may be able to qualify for programs that allow for lower down payments.

A mortgage is a loan that is taken out to purchase a property. It is typically repaid over a period of years, with interest added to the principal amount borrowed. The property being purchased is used as collateral for the loan. A mortgage payment typically includes both principal and interest, as well as additional costs such as property taxes and homeowner’s insurance.

“No money down” refers to a type of mortgage that allows the buyer to purchase a home without making a down payment. These types of loans are usually backed by the government and are available to eligible homebuyers who meet certain requirements, such as income limits and creditworthiness. The idea behind a no money down mortgage is to make homeownership more accessible to people who may not have enough money saved up for a traditional down payment. However, it’s important to note that these types of loans often come with higher interest rates and other fees to compensate for the lack of a down payment.

Pre-approval is a process where a lender evaluates a borrower’s creditworthiness, financial history, and employment information to determine the amount of mortgage they can qualify for. The lender will provide a written statement confirming the maximum amount of money they are willing to lend to the borrower. Pre-approval gives the borrower a better idea of how much house they can afford and strengthens their bargaining power during the home buying process. It is different from prequalification in that prequalification is only an estimate of how much a borrower might be able to borrow based on their self-reported financial information.

The principal is the amount of money borrowed to purchase a home, excluding interest and other fees. In other words, it’s the amount you owe on your mortgage. Your monthly mortgage payments will go towards paying down the principal amount, as well as interest and any other fees that may apply. Over time, as you make regular payments, the principal balance will decrease. Understanding the principal of your mortgage is crucial for creating a budget and planning for your financial future.