Are you one of those people who feels embarrassed when you don’t know what a word means? In the world of real estate, you’re not alone. There are so many niche terms being thrown around that it can be hard to keep up, particularly if you’re a first-time buyer. A good real estate professional will help break things down for you, but in the meantime, here are some of the most common real estate terms every first-time buyer needs to know:
You’re likely to see this term paired with a number, such as “an amortization of 25 years.” It refers to the period required to pay off your mortgage, usually in monthly instalments.
Closing costs are costs required to complete the sale, separate from the purchase price. In Canada, these might include land transfer tax or loan processing tax. Closing costs usually make up 2 to 5 percent of your purchase price.
Comparative Market Analysis
Part of house hunting involves looking into similar properties in the same neighbourhood you want to make an offer in. Not only does this help you understand pricing trends, but it will also play a part in making an offer. This process is commonly called a comparative market analysis, or CMA
This refers to certain conditions that must be met before a home sale goes through. These can vary quite a bit, and may include contingencies that your loan is approved, or that the home passes a home inspection.
When a bank is deciding how much to lend you, they factor in your debt-to-income ratio, which is a measure of much you owe in debt compared to how much income you make. Naturally, the lower this ratio is, the more your bank is likely to lend you, so it’s a good idea to get it under control before you start house hunting.
Equity, in a home ownership sense, means how much of your home you have actually paid off. If you purchased your home for $500,000 and still owe $400,000 in mortgage payments, you have $100,000 in equity.
A key step in any real estate transaction, a home inspection is performed by a professional to determine the condition of a home’s major components, including the roof, building envelope, electrical and plumbing systems, and more.
A mortgage pre-approval is an official letter from your bank or lender, indicating that you qualify for a certain loan amount. This gives you an advantage when making an offer, while at the same time giving you a better idea of what you can afford.
This is the total amount of money you borrow to buy a home, usually from a bank or other lender. Your principal if usually paid back in monthly instalments along with interest.
A home warranty protects buyers from the financial costs of future fixes, like plumbing or electrical damages. In Canadian new-build homes, you are often under warranty for a few years after purchase.