So, you’ve decided to buy a house. During the purchasing and closing process, you’ll hear a lot of terms that you may be unfamiliar with – here are five important ones to get you started:
You hear this word thrown around all the time – whether it’s a friend talking about having to make payments towards one, or a lender letting you know how high of a mortgage you can afford. A mortgage, simply put, is a loan using your home as collateral. Your mortgage typically includes the amount of money you have to borrow from the bank to purchase your house and the interest for that amount, minus the down payment.
- Earnest Money
When you are purchasing a house, you need to show the seller that you are serious. Typically, this comes in the form of a contract and earnest money. Earnest money is a deposit to show your commitment, and is usually only refunded if one of the contract contingencies is not fulfilled.
Escrow is “an item of value, money or documents deposited with a third party to be delivered upon the fulfillment of a condition.” A lot of people first learn this word after they close on a house and get their first mortgage statement in the mail. Sometimes your mortgage payment will include an escrow amount – an amount deposited with the lender to pay for taxes and/or insurance premiums when they become due.
- Home Inspection
Buying a house is a big commitment, so you want to be sure you know what you’re getting. A home inspection is where a professional evaluates the house from top to bottom – inspecting plumbing, heating and cooling systems, the roof, wiring, the foundation and pest infestations. You then get a summary of his/her findings, and you can negotiate with the seller from there as to the items that may need repair.
- Principal and Interest
Your mortgage is made up in part by principal and interest. Principal and interest go hand-in-hand, yet are two different things. Principal is the amount of money you borrow from a lender that has not yet been paid. Interest is the actual cost to borrow the money. When you first purchase a house and start paying a mortgage, most of the mortgage goes towards the interest on the loan; towards the end of the loan, your payments go towards the principal.
This legal update is published as a service to our clients and friends. It is intended to provide general information and does not constitute legal advice regarding any specific situation. Past success does not indicate likelihood of success in any future legal representation.