photography by PHUONG NGUYEN
Priya Malani is the co-founder of Stash Wealth, a modern financial firm for H.E.N.R.Y.s™ [High Earners, Not Rich Yet]. In 2009, she left her job on Wall Street to become a financial resource for our generation. For almost five years, Stash has been changing the way 20-somethings and 30-somethings think about their money—whether they’re saving for a vacation or thinking of buying an apartment.
If you’re part of the camp think the term “adulting” sounds borderline condescending, nothing feels more demeaning than trying to make a quintessential adult decision—like buying a home—and feeling inadequately prepared.
According to a recent study, millennials currently make up the largest home buying population, with 34 percent of homebuyers at or under the age of 36. This isn’t just some Instagram hashtag trend—millennials are a force in the real estate market, and at some point in the next few years, you may decide to become part of that statistic. And when you do, it’s important to be well-informed.
Buying a home is likely going to be one of the largest purchases you make. There will be a ton of terms thrown around. Some are very important; others only sound important. Either way, it can feel like a foreign language and one that you will have to master quickly in order avoid making any gross errors or costly mistakes. The more fluent you are, the better you can navigate this uncharted territory.
Think of this as your Duolingo in the language of buying a home.
Appraisal: Having the home you plan to buy appraised involves finding the value of the home by a qualified and unbiased individual or company. Appraisals provide protection for the lender, ensuring that they are not providing you with a loan for more money than the home is worth.
ARM: An “ARM” is an adjustable rate mortgage. This is a mortgage where the interest rate on the loan fluctuates, and therefore the total payment fluctuates as well. Sometime this rate change is pegged to something like a base rate that represents the economic conditions in the lending market. Other times the rate is up to the discretion of the lender.
So is an ARM good or bad? If you think ARMs are bad, it's probably because you've never heard the full story. Depending on how long you expect to stay in the home, an ARM might make sense and help you build equity faster. If you don't plan to live in the home past the term of the ARM, often you can secure a lower interest rate than a traditional 30-year fixed mortgage, thereby allowing you to put more toward the principal.
Closing: This is the date on which the property is formally transferred to the buyers—aka the day you can pop the bubbly.
Closing Costs: Closing costs are all the additional costs of buying a home (other than the actual price of the home). This includes the escrow fees, title search fees, and appraisal fees. It may also include loan origination fees, the fees associated with getting a loan. Closing costs are normally around 3 to 5 percent of the total purchase price.
Deed: A deed is a legal document that transfers the title or ownership of property between parties. You’ll get this after the closing.
Down Payment: A down payment is an amount of the purchase price that the buyer puts towards the home. The difference between the downpayment and the purchase price is what is borrowed via a mortgage The larger the down payment, the less your interest costs over the life of the loan.
Escrow: Escrow is a scary sounding word to explain a relatively straight forward concept. Escrow is an independent third party; neither buyer nor seller can act as escrow. It protects the buyer and the seller. For all intents and purposes, escrow is put in place so the seller can put the deed of the house somewhere, and the buyers can put the deposit or earnest money somewhere while the terms of the deal are being finalized. Once all the conditions of buying the home are met, the escrow agent makes the transfer of these valuable assets to the proper party.
Home inspection: This is pretty straight forward. It’s an inspection of a home’s structural integrity and issues with the home in physical terms. The buyer is responsible for hiring a home inspector.
Interest: Interest is the second part of the mortgage payment. The interest is payment for the right to borrow the money in the first place, a.k.a. the lender’s profit.
Mortgage: To buy a home many people will need to get a mortgage, which is a loan to buy a home.
Points: Sometimes known as discount points, these are a way to get a discounted interest rate by paying a certain amount of the interest in advance. Typically, one point is equal to 1 percent of the value of the loan (on a 250,000 loan, one point would cost $2,500). If you plan to stay in your home for a long period of time, buying points can reduce the total amount paid over the life of your loan.
Principal: A mortgage is comprised of two parts; one is the principal and the other is the interest. In every monthly mortgage payment the part of the payment to goes toward paying down the initial amount of borrowed money is the principal.
Title: A title to a house means that you own it, and the deed transfers this right from one person to another.
Looking for a term not listed here? Let us know in the comments, and we’ll happily add it to our glossary.