If you're in the process of buying your first home, this is a monumental step in your life, and it deserves rightful recognition. However, as someone who is navigating the home-buying field for the first time, you're probably encountering a lot of unfamiliar language. As a result, you might be feeling confused or overwhelmed, unsure of how to make sense of it all. In this guide, we define four key terms you need to understand when buying your first property so you can accomplish this.
Homeowners' insurance is a type of property insurance that covers losses and damages sustained by a property due to unforeseen events. Homeowners' insurance policies protect you against an array of events, such as fires, extreme weather (e.g. flooding, tornadoes, hailstorms), vandalism, and theft. These policies often extend to liabilities, so if someone is accidentally injured on your property, their medical expenses, damages, and lost wages will be covered by your insurance plan. Home insurance is an absolute must when buying your first home, or any property you purchase thereafter.
A guarantor is someone who accepts the responsibility of repaying a debt owed under a loan lent to another person or business, in the event that person or company can't make their repayments.
In essence, a guarantor is a type of safety net for both the lender and the borrower. For the lender, a guarantor is an excellent source of security; they know that, even if the primary borrower falls through on payments, the guarantor is still on the hook for them. For the borrower, they know they have an extra source of support if their finances ever destabilize.
Guarantors are often required for first-time tenants or homebuyers, who don't have a proven track record of making repayments on time. To appoint someone as a guarantor as a tenant, you will typically need to fill out a lease guarantor form.
Typically used in real estate transactions, hard money loans represent a kind of loan that are secured by property (aka the property is collateral). Under this type of loan, lenders will provide funding to borrowers based on the value of their property, rather than requiring a strong credit score or proof of income. In most cases, hard money loans are extended by individuals and companies, not banks.
In the context of a mortgage, forbearance is a mutual agreement between a lender and a borrower to delay foreclosure. The term forbearance means "holding back" or "holding off".
Such an agreement is usually made to offer a little more time to a borrower who is struggling to make their mortgage payments. In most cases, mortgage payments are reduced or suspended entirely for a set period of time. To formalize this agreement, involved parties must draft up and sign a mortgage forbearance agreement, which outlines the details of the compromise.
It's time to make your first-time home buying process a little less stressful and a lot more seamless. By taking the time to learn these commonly used terms, you've taken an amazing first step at making that objective a reality.