What is earnest money? Earnest money is a deposit made by the buyer to a Seller that represents the buyer’s good faith intention to buy a home. When buying a house, the Buyer gives the earnest money to the Seller once the sales contract or purchase agreement is agreed upon and signed. The money will be held in an escrow account until closing. The earnest money will then be applied to the home sale at closing.
What is the difference between pre-qualified and pre-approved? Pre-qualified for a loan means that you are given an estimate of what you may be able to borrow based on limited financial information. The lender will review everything and let you know how much you can expect to borrow. It typically can be done over the phone or online and takes one to three days. Pre-approved means that the lender has agreed to work with you and you will be able to complete an official mortgage application. The lender will then be able to pre-approve you for a specific amount after reviewing your financial data more in depth. During this process, you will also be able to find out the interest rate you will be charged for your home loan. Being pre-approved for a loan before looking at homes typically makes the buying process go smoothly,
What are closing costs? Closing costs are fees associated with your home purchase that are paid when you close on your home. Typical closing costs for Buyers are loan application fees, appraisal fees, courier fees, and attorney fees. Sellers often have commission costs, real estate tax proration, a pest inspection fee, abstracting (in Iowa), etc. There are other types of fees as well that you may see as well. Buyers usually pay around two to five percent of the purchase price of the home in closing costs and Sellers usually pay closer to eight or nine percent.
What is an appraisal? An appraisal is an estimate of a home’s value. It is used to determine if the purchase price of your home is a fair market value given the home’s condition, location, and features. Appraisals are typically done for lenders because they want to know if the house is worth what the Buyer has agreed to pay for it (and to ensure their investment in agreeing to the loan is safe. The appraised value of your home is based off of recent sales of similar properties and current market trends. During the appraisal, a complete evaluation of the interior and exterior of the home will be done, while taking extra note on anything that may affect the home’s value.
What is a contingency? A contingency means that the offer on a home is dependent upon one or more conditions that must be completed before the Buyer purchases the home. Some examples of contingencies are obtaining financing, conducting a satisfactory home inspection, sale of Buyer’s current home, or appraisal contingencies. Contingencies help protect a Buyer acting in good faith if they are unable to complete the sale.