Remember your first time in science class? There were a lot of new terms to learn. This is how it feels when you hear first-time home buyer terms for the first time. .

Understanding even the most basic terms can not only help you navigate the buying process but ensure you make informed decisions. In this article, we cover the top 10 first-time home buyer terms you should know.

First-Time Home Buyer Terms You Should Know

Buying a property for the first time can be challenging and can come with a lot of confusion. Whether you want to buy a property or join the real estate business,  here are top 10 first-time home buyer terms you should know:

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• Pre-approval
• Homeowners Insurance
• Closing Costs
• Down payment
• Home Inspection
• Escrow
• Home Appraisal
• Title
• Homeowners Association (HOA)
• Mortgage

1. Pre-approval

Getting preapproved for a mortgage usually comes first. It involves giving core financial details to a mortgage lender. The lender will then tell you if you’ll be approved for a mortgage.

Though a pre-approval isn’t a guarantee that your loan application will be approved, it’s a good way to start.

This step helps first-time home buyers figure out their budget before they start searching for a house.

2. Earnest Money

When the  seller accepts your offer, you may be asked to pay an earnest money deposit. This typically ranges from 1% to 3% of the sale price. It is usually applied to the down payment at closing.

Earnest money deters buyers from making several offers on different homes. If the deal falls apart, you should be able to get a refund. This is if the deal is covered by a contingency in your contract.

For example, a home inspection contingency lets you walk away if an inspection reveals issues with the property.

3. Closing Costs

Closing costs are various fees and expenses that home buyers pay when finalizing their purchase. These fees  may include appraisal fees, legal fees, agency fees, title insurance, and more.

These closing costs add up to about 2% to 5% of the sale price.

4. Down Payment

This is one of the key first-time home buyer terms you should know. Down payment refers to the upfront payment you make when buying a home.

When you are financing your property buying with a mortgage, most lenders require you to put down a certain amount of cash upfront. This is usually 5% to 20% of the total price.

Your mortgage covers the rest of the payments remaining after the down payment.

5. Home Inspection

Home inspection is one of the things to know and consider as a first-time home buyer. A property or home inspection is a thorough check of a home’s condition by a professional.

It’s always wise to arrange a home inspection before finalizing the deal, especially when you are buying for the first time.

They help reveal any existing or potential issues. You can ask for repairs or to come down to a lower price. You can even decide on different homes to pursue, if the home and offer does not appeal to you.

6. Escrow

Escrow is a first-time home buyer term you should get used to hearing. It is an arrangement where a trusted third party holds funds and vital documents.

This is until the transaction is completed. It provides security for both the buyer and seller throughout the buying process.

For example, if you choose to make a deposit with an offer on a home, it would go into an escrow account first rather than directly to the seller.

Majority of mortgage lenders insist on buyers using an escrow account. This is set up and managed by the loan servicer.

When you make your monthly mortgage payment, you pay extra to cover property taxes and homeowners insurance.

This money sits in escrow until the due date comes around, at which point the loan servicer will pay them on your behalf.

7. Home Appraisal

A home appraisal is an expert assessment of a home’s value conducted by a licensed appraiser.

Lenders require appraisals to make sure homes are worth their purchase prices. Making your buyers aware of appraisal value helps them to dig deeper into the information they’re provided.

This helps them find out whether or not a property is worth the price. Appraisal is a first-time home buyer term you should be aware of. Knowing how it works helps you move through the eventual contract more confidently.

8. Title

A title is a legal document showing who owns a property. When you buy your home, the property’s legal ownership will transfer from the seller to you.

A title company will perform a title search, before the sale is finalized. This is to legally confirm the property’s ownership. In case of a dispute over the property, you will need to get title insurance.

The property’s title is recorded by your local government. Recording fees will be included among your closing costs. All the title documents will be sent to you once your title documents are finalized.

If you lose the original title deed, you can always visit the recorder’s office and request a duplicate copy. This copy will hold the same legal weight and validity as the original.

9. Homeowners Association (HOA)

HOAs are groups created by a real estate developer. This is to manage shared amenities in residential communities. Membership is usually automatic once you purchase a home, and there are fees involved.

HOA fees can include estate fees, landscaping, garbage pickup, security, maintenance, repairs, and community amenities. When buying a home that’s part of an HOA, be clear on their rules and fees. This is to make sure it agrees with your budget.

This group makes and enforces rules for everyone. They cover things like painting your home, fixing things up, renting it out, and even having pets.

Penalty or legal reminders might be issued if you disobey the HOA rules.

10. Mortgage

A mortgage is a loan provided by a financial institution that enables individuals to purchase a home. It is typically repaid over a given extended period of many years. The home serves as collateral.

If the borrower is unable to make loan payments (within an agreed upon timeline), the mortgage gives the lender the permission to the borrower’s property.

Concluding Thoughts on First-Time Home Buyer Terms

Understanding real estate terms can be overwhelming, especially for first-time property buyers.

It’s important to get  familiar with first-time home buyer terms. This keeps you informed throughout the whole home buying process.

Being informed with the right knowledge in real estate helps you make the right choices.

This can be when it comes to buying a new property, or even starting your real estate journey. This can also help you master high end real estate sales.