Simple terms every home buyer should know

If you’re new to the home buying experience, some of the terms used can sound bit intimidating. Fear not! Here is a guide to the most common terms you should know as you start your home buying journey.

Earnest Money - This is a good faith deposit on your down payment, and the first dollars that you will spend on your new home. The Earnest Money deposit indicates the seriousness of your intent to purchase, and will eventually be applied to your down payment. While there are no hard and fast rules about the amount, most lenders recommend between 1% and 3%. For more details about Earnest Money deposits, click here.

Contingency Clause - A contingency clause describes the conditions that lets you back out of a home purchase agreement if necessary. For example, an appraisal contingency allows you to terminate the purchase if the home appraises below the purchase price (please note - other options are available as well). Think of a contingency clause as a an escape clause or a computer “undo” command. A list of common contingencies can be found here. 

Escrow - Perhaps the scariest word for a new home owner, Escrow is a neutral third party that holds the funds/assets for the duration of the home purchase period. For example, where is that Earnest Money mentioned above deposited? It goes Into an escrow account expressly created for your transaction. The term has multiple meanings as well. Once an escrow account is established, you can say that your home purchase status is “in escrow.” 

Counteroffer - Sadly, there is good chance your lowball offer will be rejected buy the seller. If that happens, the deal could be off. Sometimes, however, the seller will respond with a counteroffer, which is a price indication of how much the seller is willing to concede in order to sell the property. Sellers are not required to provide a counteroffer.

Ed Justen -DRE: 02221512  - Affiliated with  Keller Williams. All advice and information given on this blog is sourced from publicly available websites and common knowledge.  Got questions?  Click here to book 30-minute meeting with me.