Buying a home can be exciting, but it can be pretty confusing, too! To help you feel more confident as you embark on the journey toward homeownership, we present in this post a few of the most common terms and acronyms that you’re likely to encounter during your home purchase.
While this list is hardly exhaustive, we think it offers you a great start toward getting comfortable with builder and real estate terminology, ensuring that you’re 100 percent clear on everything related to the momentous occasion of buying your first home.
Assessment: The value of a home, as determined by an assessor, who is professionally trained to consider all aspects of a home (location, construction, amenities, features) when determining a fair and accurate valuation. Home assessments are typically undertaken by banks to make sure a property is worth the money being lent to a buyer.
Closing Costs: A variety of one-time costs and pre-paid fees associated with the transfer of a home from seller to buyer. These include filing fees, insurance premiums, property taxes and mortgage fees. A number of mortgage programs can help pay a percentage or all of a buyer’s closing costs.
Deed restriction: A covenant of land usage prohibitions and terms attached to the deed for a property. These terms extend to the initial and all subsequent buyers of a home, and are usually in place to protect the sanctity and character of a neighborhood or community.
Downpayment: A cash payment made by a buyer towards the purchase of a home, usually expressed as a percentage of the total sales price of the home. Many people assume that they will require a 20 percent down payment to purchase a home, but programs exist that allow buyers to move into a new home for as little as 3.5 percent down. Some buyers even qualify for “no money down” programs which require absolutely no money out of pocket from the buyer.
Equity: The resale value of a home, minus any owed amount for which the home is collateral (generally a mortgage). Typically expressed as the dollar amount which a buyer would receive if they were to sell their home, as a percentage of the home’s total value. For example, if John Jones owns a home that is currently valued at $100,000, and he owes $80,000, then his equity stake in the home is $20,000 or 20%.
FHA: Federal Housing Administration. This federal agency insures mortgages made by private lenders, which translates into lower fees and costs for homebuyers, as well as lower or no down payments.
PMI: Primary Mortgage Insurance. This is a mandatory insurance, payable monthly, for all homeowners who have less than 20 percent equity in their home.
Spec home (also, “Move-in Ready Home” or “Inventory Home”): These homes have been completed by the builder without being specifically purchased by a buyer. While they are completed homes and generally not customizable, buyers have the benefit of being able to see the exact home they are purchasing, instead of a set of drawings and a model home.
USDA: United States Department of Agriculture. Through their Rural Development agency, the USDA provides a number of mortgage programs for homebuyers in rural districts. Many of these districts are within short distances of major metropolitan areas, and LGI Homes has many communities in which homebuyers can qualify for USDA help.