Some Of These Real Estate Terms Are Not Like The Others!
The people involved in real estate transactions from agents to mortgage brokers to home inspectors get used to the same terms over and over again. So much so that we never give them a second thought. Most home buyers and sellers on the other hand are only involved in a real estate transaction once or twice in their lifetime. If there is a twenty year gap between them it’s unlikely you’ll remember any of what happened except the fun stuff like getting the keys. Knowing the correct terms if and when they apply to you is important, if you think you’re getting one thing and you’re actually getting something else that could be costly and stressful. Surrounding yourselves with professionals is the best way to avoid getting burned but a real estate transaction has lots of moving parts and a lot can happen between signing the contract and getting the keys. Here are some common terms used in real estate transactions everyday that sound similar but in fact have very different meanings.
Pre Qualified and Pre Approved
Getting a mortgage is how most homebuyers will pay for a home and there are two terms in that process that folks often mix up and they don’t mean the same thing. One is Pre-Qualified and the other is Pre-Approved. Pre-Qualified simply means that a mortgage broker or loan officer has taken a preliminary look at a person’s income, debt and assets and is able to determine how much of a mortgage they would be able afford. It clearly states that it is it not a guarantee that a loan will be issued and it does not include an examination of a homebuyer’s credit history. The next term is Pre-Approved which is a more in depth look at a buyer’s credit report, history and carries much more weight. A Pre-Approved homebuyer has started the loan process and is further along towards getting a mortgage. Each loan is different, so at this stage a buyer may have certain documents the loan officer has asked for, pay stubs, tax returns and the like.
Title Insurance and Property Insurance
Title Insurance is completely different to property insurance, it is a one time payment usually purchased by the closing attorney or escrow agent and is designed to protect the mortgage lender and the purchaser in the rare case that there is not a clear title to the property. The attorney will do a title search to determine if the seller is the actual seller and there are no liens on the property. If after closing a lien or claim to the property is found and verified the title insurance kicks in. Property or homeowners insurance is there to cover losses or damage to the property from fire or accidents. If you have a mortgage on the property you are required to have homeowners insurance. Most people opt to pay homeowners insurance in the event of a catastrophic loss which could force them from the home with no means to repair or replace the damage.
Home Inspection and Appraisal
These two often get mixed up and what each one does is sometimes not clear to buyers and sellers. They are very different and have different roles in the transaction, in fact if the buyers are paying cash an appraisal is not needed. A home inspection is also not needed but most home buyers choose to have one even with a new home. An appraisal is what the bank uses to determine what the home is worth. The bank wants to know that the money they are lending you to buy the house is a fair price for the home and not more than they would be able to recoup should the borrower go into default. The appraiser visits the property, measures to determine the square footage and the size of the rooms. Makes note of the general condition of the home and then finds the most recent sales of similar homes. They use the three most recent comps and make adjustments accordingly to confirm the market value of the home is the same as the sale price. If they find the home is overpriced and will not appraise for the sale price the seller and buyer must then decide what to do, but the bank will only loan what the home appraises for. A home inspector is not concerned with the sale price but rather with the condition of the home, the electrical, plumbing, HVAC and appliances are some of the items they will be checking. The agreed upon sale price is often the first hurdle in the negotiations after that comes the repair request after the home has been inspected. The home buyer hires the home inspector to perform tests and inspect the home to discover any defects or concerns before committing to buy the home. Nearly every home has some defect and some have so many the buyer may decide to pass on the home. A good home inspector will explain each of their findings and should reassure the buyer that if a minor defect is found to not be too worried about it. The sales price may be relevant in that the house may be such a good deal a few minor problems won’t hurt or it may be priced that high that it should be as close to problem free as possible, this is up to the buyer to decide. In a seller’s market it may be the case that the sellers will refuse to make any repairs knowing they have other buyers lined up that won’t care.
Survey and Plat Map
A Plat map is usually a certain phase of a subdivision or even the whole subdivision if it’s small enough. It shows the roads, lots, common areas. It may also show easements and future developments. A plat map gives an overall view of a street or subdivision and can be used to determine the density of houses, future expansions and natural features. It does not give a precise location of a home or the exact measurements of the lot lines. A survey on the other hand purchased by the buyer before closing is a much more precise indication of your property boundaries, the location of the home on the lot and any easements or infractions of the soon to be purchased property. It used to be required by certain loans but these days is often left to the decision of the buyer and is often overlooked as an unnecessary expense. That is until a problem shows up and the initial expense looks like a pretty good deal. For example, as hard as it is to believe homes sometimes get built on the wrong lot or too close to the lot lines or over the lot lines. A fence that looks like it should be on the property is actually on the neighbors or vice versa. Perhaps you are planning to build an addition or a separate garage or workshop and you find out there is an easement on the property requiring a setback this would have been discovered had a survey been done prior to closing.
Settlement Date And Move In Date
Now most of the time the settlement date or closing date is the same as when you move into your new house. However a couple of things have to happen before you get the keys and every once in awhile they don’t happen on the same date. Technically the house is not the buyers until the deed is recorded at the county courthouse or relevant municipality. Getting the loan funded and documents signed all has to happen first and then the attorney can record. This can now be done electronically in some places so the time difference is much shorter but it can mean walking out of the closing without the keys to your new house. Being aware of this rare occurrence ahead of time is very helpful with planning a move. I hope this explanation of common real estate terms that get mixed up was helpful, here some more related articles from real estate professionals and companies…
Real Estate Language Buyers Need To Know by Anita O’Grady Clark
What Is An Umbrella Policy On Your Home, Do You Need It? by Wendy Weir
Documents Needed For Mortgage Pre-Approval by Tony Mariotti