When beginning a search on the internet for homes available in a Chicago neighborhood, you may notice some terms that you are not familiar with. There are some important real estate terms that are essential to understanding the home buying process. Before starting process, here is a list of the most common real estate terms to be familiar with prior to looking for your new home.
Having a basic understanding of these terms can help relieve some of the home buying stress.
Listing Agent vs. Buyer’s Agent: Most of the time when purchasing a home there will be two real estate agents involved in the process. The listing agent is the person who represents the home seller and has sited the home on the market. The Realtor© who represents the home buyer is the buyer’s agent. An important point to remember is the buyer’s real estate agent will get a commission from the seller, and out of the transaction, so the buyer does not need to directly pay their real estate agent.
Listings: When your real estate agent starts to show you homes for sale in the neighborhood you are looking to buy in, they will refer to the homes for sale as listings. What exactly is a listing? Listings are homes that are ‘listed’ on the multiple listing service as being offered for sale through the listing agent, for the seller. There are websites that show information about a home for sale such as; sq. foot of the home, number of bedrooms, bathrooms, flooring and price.
Pre-Approval Letter: Before you even start looking for a home in Chicago, it is a good idea to get a pre-approval letter for your bank. This letter is from a lender or mortgage company, and will give you an estimate of how much they will lend you for the house. By having this prior to looking, it will help you determine what you can afford along with reassuring the seller that you will be able to get the loan.
Offers and Contracts: Once you have found your dream home, you’ll make an offer to the seller with the help of your Realtor©. If you do not offer what the seller is asking, be prepared to negotiate. Typically, the first offer comes in lower than the asking price, and the buyer and seller will then go back and forth, through their agents, to determine a mutually acceptable price and terms or will determine that an agreement cannot be reached. It is very typical, when the initial offer comes in within 10% of asking price, for the buyer and seller to come to an agreement on price, even when other terms of the agreement are part of the negotiation discussions. On a side note, if you are looking to add a personal touch to your offer, include a cover letter explaining why you want to purchase their home.
Contingencies: Specifically, contingencies are certain conditions that must be met prior to the deal going through. Some contingencies that you can request are: financing contingency makes sure that you can get the loan; appraisal contingency is stating that when the home is appraised the value is close to your offer; and the inspection contingency which makes sure that nothing too crazy appears during the home inspection. These are only a few so remember to talk with your real estate agent about any other types of contingencies.
Appraisal: When the buyer completes their application for a mortgage, the lender will require an appraisal of the home. A licensed appraiser will estimate of the home’s value based on comparable homes that have sold in that neighborhood. This estimate will come after a thorough investigation of the property and the comparable properties (comps).
Inspection: Once you have made an offer on the home, you’ll need to schedule an inspection. This can cost anywhere between $500-$800. The inspector will go through the house and inspect every inch such as; electrical, foundation, attic, roof, heating, and all appliances. Be sure to ask your Realtor© for the name of a good inspector. If they find a problem that needs to be fixed or replaced, the buyer typically asks the homeowner to fix the problem(s), and there might be some additional negotiation around home inspection findings.
Adjustable Rate Mortgages vs. Fixed Rate: Conventional loans include a fixed rate and adjustable rate mortgages. Throughout the life of the loan, a fixed rate mortgage has a predetermined interest rate. Usually the most common life of a loan is 30 years long, and the interest rate is the same for all 30 years. Unlike the fixed loan, an adjustable mortgage rate might change, based on some economic indicator more frequently, such as 1, 5, 7 or 10 years.
Closing Costs: One thing that you should be prepared to pay when purchasing a home are closing costs. What are closing costs? They are defined as the fees paid at the closing of the real estate transaction. These fees can cost anywhere in the amount of 2-5% of the purchase of the home but doesn’t include the down payment. Some common fees are; title insurance, loan-processing costs and excise tax.
Title Insurance: Once all the negotiations are completed and the seller has accepted the offer, the attorneys need to obtain clear title and secure title insurance. This is an insurance policy for the buyer that no one else can make a claim against ownership to this property. . The majority of mortgage lenders require payment of the title insurance as part of the closing costs. The job of title insurers is to research public records to verify that the seller had rights to the title and there were no liens on the home
When purchasing a home, it is important to gather information regarding the different aspects of the purchase. What does that mean? That means to acquaint yourself with the different terms that real estate agents use so you can make a knowledgeable decision when it comes to purchasing your Chicago dream home.
For more information on Chicago real estate, visit www.ChicagoRealEstateForum.com.