It always pays to gather information before making a decision. Buying a home or renting a commercial estate for your small business may just be the most complex transaction you will ever complete, so it is vital that you be aware of the process you are getting into without getting lost in the real estate jargons your agents might use.
Fortunately, we are here to help you. We chose ten of the most essential real estate terms buyers should know before going through the process of buying a new property.
1. Contingency
A contingency is an essential clause in the contract as it gives the purchaser the power to opt out of the transaction or delay it if certain conditions are not met or if the terms are deemed unsatisfactory. A common example of this is the inspection contingency, which makes the contract non-binding until a satisfactory home inspection report is obtained.
2. Fixed-rate mortgage
A fixed-rate mortgage literally means what the term implies: that the interest rate of your loan will remain the same until the contract matures or after an agreed-upon time frame. This type of mortgage gives the buyer the advantage of knowing exactly how much to shell out for their monthly payments.
3. Adjustable-rate mortgage
The opposite of a fixed-rate mortgage, an adjustable-rate mortgage has a variable interest rate, depending on the prevailing rates as set by the country’s monetary authority (in the case of the Philippines, the BangkoSentral ng Pilipinas). The interest rate in an adjustable-rate mortgage can either go low or high depending on the current economic climate.
4. Escrow
An escrow is a neutral third party in a mortgage that safeguards deposits or documents for the transaction. Usually, this term is brought up toward the end of the buying process. An escrow may also be the term used for the party responsible for safekeeping the insurance money or the taxes that accumulate until the loan is reimbursed. The escrow then pays “on behalf” of the payer.
5. Counter offer
A term that may also be taken literally, a counter offer is an offer presented when the original one ends up rejected; it supersedes the original offer after a negotiation between the two parties is reached. This may be loosely interpreted as some sort of haggle over the offer.
6. Closing costs
Closing costs are the costs incurred upon the transfer of ownership of the property from the sellers to the buyers, which are usually shared by both parties. Included in closing costs are the surveyor fees, attorney fees, taxes, escrow fees, and title insurance fees, to name a few.
7. Points
This term may mean a lot of things in different contexts, but in real estate, points can mean two things: the first one is the discount point by which both lenders and borrowers benefit from. These points are bought and used to decrease the mortgage interest rate. The second one is the origination point. Origination points, put simply, are the fees debtors pay to their lenders for their work in processing mortgage loans.
8. Appraisals
Appraisals are made by licensed real estate appraisers to know how much a property is worth. These are written analyses and also the process of valuation that take into account factors like the condition of the property, the value of similar properties, the property’s location, how well-maintained it is and if upgrades were done — among many other criteria that are usually designated by a regulatory board.
9. Title Insurance
The title insurance is a required document that ideally insures the protection of both the seller and the buyer in case there is an illegal defect in the property’s title. Although it is ideal if the title insurance covers both parties, the title insurance commonly insures either only the lender or the owner of the property. These are called an owner’s title insurance or the lender’s title insurance, respectively.
10. Earnest Money
Earnest money is given to the seller if the buyer wants to signify their intent and good faith in the transaction. Essentially, it tells your seller that you are a committed buyer. Earnest money is usually kept in the escrow account.
This article was originally posted on Lamudi Philippines.
Fortunately, we are here to help you. We chose ten of the most essential real estate terms buyers should know before going through the process of buying a new property.
1. Contingency
A contingency is an essential clause in the contract as it gives the purchaser the power to opt out of the transaction or delay it if certain conditions are not met or if the terms are deemed unsatisfactory. A common example of this is the inspection contingency, which makes the contract non-binding until a satisfactory home inspection report is obtained.
2. Fixed-rate mortgage
A fixed-rate mortgage literally means what the term implies: that the interest rate of your loan will remain the same until the contract matures or after an agreed-upon time frame. This type of mortgage gives the buyer the advantage of knowing exactly how much to shell out for their monthly payments.
3. Adjustable-rate mortgage
The opposite of a fixed-rate mortgage, an adjustable-rate mortgage has a variable interest rate, depending on the prevailing rates as set by the country’s monetary authority (in the case of the Philippines, the BangkoSentral ng Pilipinas). The interest rate in an adjustable-rate mortgage can either go low or high depending on the current economic climate.
4. Escrow
An escrow is a neutral third party in a mortgage that safeguards deposits or documents for the transaction. Usually, this term is brought up toward the end of the buying process. An escrow may also be the term used for the party responsible for safekeeping the insurance money or the taxes that accumulate until the loan is reimbursed. The escrow then pays “on behalf” of the payer.
5. Counter offer
A term that may also be taken literally, a counter offer is an offer presented when the original one ends up rejected; it supersedes the original offer after a negotiation between the two parties is reached. This may be loosely interpreted as some sort of haggle over the offer.
6. Closing costs
Closing costs are the costs incurred upon the transfer of ownership of the property from the sellers to the buyers, which are usually shared by both parties. Included in closing costs are the surveyor fees, attorney fees, taxes, escrow fees, and title insurance fees, to name a few.
7. Points
This term may mean a lot of things in different contexts, but in real estate, points can mean two things: the first one is the discount point by which both lenders and borrowers benefit from. These points are bought and used to decrease the mortgage interest rate. The second one is the origination point. Origination points, put simply, are the fees debtors pay to their lenders for their work in processing mortgage loans.
8. Appraisals
Appraisals are made by licensed real estate appraisers to know how much a property is worth. These are written analyses and also the process of valuation that take into account factors like the condition of the property, the value of similar properties, the property’s location, how well-maintained it is and if upgrades were done — among many other criteria that are usually designated by a regulatory board.
9. Title Insurance
The title insurance is a required document that ideally insures the protection of both the seller and the buyer in case there is an illegal defect in the property’s title. Although it is ideal if the title insurance covers both parties, the title insurance commonly insures either only the lender or the owner of the property. These are called an owner’s title insurance or the lender’s title insurance, respectively.
10. Earnest Money
Earnest money is given to the seller if the buyer wants to signify their intent and good faith in the transaction. Essentially, it tells your seller that you are a committed buyer. Earnest money is usually kept in the escrow account.
This article was originally posted on Lamudi Philippines.