Jargon to Bargain When Purchasing a Home

Mortgage: The most frequent word you'll hear while trying to buy a home, this is your agreement to pay back your loan, using your new house as collateral. If you do not pay, your bank/financier can evict you, sell your home, and use the money to pay back the loan. This is a huge loss for the buyer, and generally risky for the bank as well, depending on your upkeep of the house. If your house is sold but does not cover the full loan amount, you may be required to pay the remaining balance, as well.

Assessed Value: This is the worth of the property, in dollar amount, determined for tax purposes. Many people will ask much higher than the assessed value, based on aesthetic enhancements. Do not feel pressured to actually meet this price, especially if you aren't as fond of the enhancements. Keep in mind features you might want changed or repaired, and consider offering to let the seller make these changes beforehand, or deduct an allowance for the changes. This is normally done for obvious defects, such as worn carpet, damaged walls or older pipes. This is not normally done for things like light fixtures, appliances or other more easily replaced enhancements.

Flipping: Purchasing a piece of property with the intent to sell for a profit. This is an incredibly popular venture! If you have any home renovation abilities, you can quickly turn a huge profit. Generally, a person who "flips" houses will buy a house in poor condition, repair major aspects, and sell it at a much higher price. This not only betters the home for the next owner, but also creates quite a profit for the "flipper". Investing in just one home can generate enough profit to fund future repairs on another, making it easier to buy multiple homes and continue this pattern. When flipping, the buyer would avoid things like discount points. You would not have the home long enough to benefit from the lower interest, and would save more paying higher interest for a much shorter amount of time.

Discount Points: These are most valuable if you intend on keeping your home for the life of the loan. Discount points are typically 1% of the total loan amount, and lower your interest rate by 1/8^th to ¼ of a percent. If you were to buy a $100,000 home, each point would be $1,000. Lenders like the upfront money-instead of waiting on the interest to build up-and buyers like the long-term benefits of lower monthly payments, with less paid to interest. An added bonus: discount points are tax-deductible during the year you pay them.

Origination Points: The ugly twins to discount points, origination points are charged to the buyer. They do not benefit the buyer in any way, but instead cover the costs of the bank associated with originating, processing and approving the loan. Origination points are determined the same way as discount points; 1% of the loan value. This isn't an entirely accurate account of the costs involved, as your credit does affect how much you are charged. Also, origination points are not tax deductible, but you can negotiate the points that have to be paid.

Closing Costs: Closing Costs cover a huge array of expenses outside of the actual property. This can be anything from attorney fees and title insurance, all the way down to stamps. A buyer can save a lot of money negotiating the closing costs in advance. Having the seller pay the closing costs, no matter how small you think they may be, frees up money to be used on other home-related things. Even if the seller will not pay 100% of the closing costs, you can still negotiate which fees will be paid by whom.

Always remember, you're dealing with professionals! They do this as a profession, are trained, and know every loophole available. If charges come up that are questionable, do not hesitate to get a second opinion. Use the internet, friends, family, and even competitors. Even if the charges are valid, there are often things a competitor can waive just to get your business. Happy Hunting!