Buying a home can feel overwhelming, especially for first-time buyers. Understanding the basic terms and concepts related to homeownership is essential for making informed decisions and ensuring a smooth transaction. Here are some of the most common homeowner terms you should know.

Escrow is a neutral third party that holds onto important documents and funds during the home buying process. Once all conditions of the sale have been met, the escrow company releases the funds and documents to the appropriate parties. Here in Colorado, a title company holds these funds.

Closing costs are the fees associated with buying a home, such as title fees, appraisal fees, and loan origination fees. These costs are typically paid at the closing of the sale and can add up to thousands of dollars. Your lender will go over these with you in detail prior to close, but they’re usually 2-3% of the mortgage amount.

Property tax is a tax paid to the local government on a yearly basis. The amount of the tax is based on the value of the property and is used to fund local services such as schools, roads, and public safety.

Homeowner's insurance is a type of insurance that protects a homeowner from financial loss in the event of a disaster or accident. This can include coverage for damage to the home or its contents, liability protection, and other types of coverage. You can often bundle homeowner’s insurance in with your other insurance costs, such as car insurance.

A mortgage is a loan used to purchase a home. The loan is secured by the home and the lender has the right to foreclose on the property if the borrower fails to make payments.

Principal refers to the original amount of the mortgage loan, not including interest. As the borrower makes payments, the principal decreases and the amount of equity in the home increases.

Interest is the fee charged by the lender for the use of the money borrowed. The interest rate on a mortgage can be fixed or adjustable and can greatly impact the overall cost of the loan.

Refinancing refers to the process of obtaining a new mortgage to replace an existing one. People often do this if rates drop. This can be done to take advantage of lower interest rates, change the terms of the loan, or to access the equity in the home. Your lender can help you refinance.

Understanding these basic homeowner terms will help you make informed decisions and navigate the home buying process with confidence. It's always a good idea to consult with a professional if you have any questions or concerns. Good thing you have us! Click here to reach out with any questions or to schedule a consultation. We also put together a free 7-step Buyer’s Guide — download it here.