Throughout the home-buying process, you’ll navigate your way through lending options, home inspections, and escrow. While it can be tedious at times, you can streamline the process by understanding common terminology and best practices for buying a home.
Whether it’s your first home or your fourth, here are some things you should know when buying a new home:
Preapproval:
A document from a lender that indicates how much they would be willing to lend to a homebuyer.
Multiple factors, such as household income and credit score, help determine how much funding a lender will approve. While it’s not a guaranteed loan, obtaining a preapproval before you place an offer on a home shows that you’d likely be able to secure financing if your offer is accepted.
Fixed-rate mortgage:
A mortgage with an interest rate that does not change over the life of the loan.
One of the primary benefits of a fixed-rate mortgage is that the interest rate is locked in at the time the loan is made and remains constant throughout the life of the loan. Your monthly payment will be more predictable with a fixed interest rate, but keep in mind that your monthly payment may change based on insurance and property taxes if they are escrowed. A variety of terms are generally available to meet your needs.
Adjustable-rate Mortgage:
A mortgage with an interest rate that is based on an index plus a margin that can change over time.
The mortgage usually features a set rate and payment for a specific period of time. After that, the rate, and the monthly payment, can fluctuate based on changes in the underlying index — the WSJ Prime Rate is one of the most commonly used indexes. A potential benefit of an adjustable-rate mortgage is that the interest rate is generally lower than a traditional fixed-rate mortgage for the first portion of the loan term.
Home inspection:
An assessment of a property’s condition by a home inspector before a home’s sale
A home inspector can help determine the quality of a home’s foundation, roof, electrical, plumbing, and HVAC systems, as well as check for any damage caused by fire, flood, termites, or mold that could impact the home’s value. If an inspection reveals that repairs are needed, you may be able to negotiate the related cost into the asking price. Remember that a “clean” home inspection is not a warranty.
Home warranty:
A contract between a homeowner and a warranty company that provides discounted repair services — and sometimes replacements — for a home’s major appliances.
If a home has older appliances, you may be able to negotiate with the seller to include a one-year home warranty to cover repair expenses on items like a dishwasher, furnace, or water heater.
The closing process varies by state, but once everything has been approved, you and the seller will sign the final paperwork to complete the transfer. Once you’ve made your down payment and accounted for the closing costs, your mortgage company will receive the deed to the property. When the escrow process is complete, you’ll receive the keys to your new home.
