Terminology Every Homebuyer Should Know – Part 2

Equity

In real estate, equity represents the value of ownership in a property. It is the difference between the fair market value of the property and the amount of money you owe on the mortgage. For example, if you own a house with a market value of $500,000 and you owe $200,000 on the mortgage, your equity in the property is $300,000.


Option Period & Inspections

In real estate, the Option Period is a specified number of days set forth in a contract during which the buyer can terminate the contract for any reason. This period begins after the buyer and seller have signed the contract. During the Option Period, the buyer can terminate the contract without risking their earnest money, which is the “good faith deposit” paid by the buyer that is held in escrow and later applied to closing costs. This period provides security for the buyer and allows them to complete any desired home inspections. If these inspections result in potential home repairs, the option period also provides time for repair estimates to be obtained and any additional contract negotiations (due to needed repairs) to be finalized. The Option Period requires a non-refundable fee paid to the seller called the Option Fee. The Option Fee must be delivered no later than 11:59 p.m. on the third day after the effective date of the contract1. If the buyer chooses to terminate the contract during the option period, the seller has the right to keep the amount paid for the option period.


Mortgage

A mortgage is a type of loan used to purchase or maintain a home, plot of land, or other types of real estate. The borrower agrees to pay the lender over time, typically in a series of regular payments that are divided into principal and interest. The property then serves as collateral for the loan. Mortgages come in various types, such as fixed-rate, adjustable-rate, interest-only, and reverse mortgages.


Mortgage Rate

A mortgage rate is the percentage of interest that is charged on a home loan. It represents the cost of borrowing money and is a crucial factor in determining the overall cost of homeownership. Mortgage rates can either be fixed at a specific interest rate, or variable, fluctuating with a benchmark interest rate. The rate a homebuyer gets has a substantial impact on the amount of the monthly payment that person can afford.


Pre-Approval Letter

A Pre-Approval Letter is a document from a lender stating that the lender is tentatively willing to lend to you, up to a certain loan amount. This document is based on certain assumptions and it is not a guaranteed loan offer. The Pre-Approval Letter provides useful information about your likelihood of getting a loan. It lets the seller know that you are likely to be able to get financing. Sellers frequently require a prequalification or preapproval letter before accepting your offer on a house.


Thinking about buying or selling a home? Are you wondering if now is the right time for you? Contact me, because it’s more important than ever to have someone on your side that can help you navigate the changing marketplace. 📱🤙📧

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