Buying your first home can be a confusing process, and sometimes your second or third too. ALLIANCE has created a glossary of real estate terms to help you understand the “lingo” with definitions you can actually understand.
Adjustable-rate mortgage
There are two types of conventional loans, the fixed-rate and the adjustable-rate. In an adjustable-rate mortgage, the interest rate can change over the course of the loan at 5, 7, or 10 year intervals. If you plan on staying in your home for longer than a few years, this is a risky option because your loan will change with market conditions.
Amortization
This is the repayment schedule of a loan, including the principal and interest.
Appraisal
The estimated value of a property based on a qualified appraiser’s analysis. In order to get a loan, you first need to get the home appraised so the lender can be sure they are lending the correct amount of money.
Approved for short sale
The bank has determined that the homeowner qualifies for a short sale and gives approval on the request to sell the property at a reduced price.
Assessed value
The dollar amount assigned to a property to measure applicable taxes. A public tax assessor will make the determination.
Closing disclosure
A 5-page form sent to the buyer 3 days before closing that provides all of the final details about the mortgage. It includes the projected monthly payments, loan terms, how much you will pay in fees and other costs to get your mortgage.
Closing
When the sale is finalized. The buyers and sellers sign the final documents, and the buyer makes the down payment and pays closing costs.
Closing Costs
Buying a home comes with additional costs which typically make up about 2 to 5 percent of the purchase price, excluding the down payment. Examples of closing costs include loan processing fees, excise tax, and title insurance.
Comps
Comps is short for comparable sales. Comps give the real estate agent an idea of what to value your home based on the past 6-month history of home sales in the area.
Contingencies
The conditions that have to be met in order for the purchase of a home to be finalized. These conditions are written into a home purchase contract to protect the buyer if issues arise.
DTI (debt-to-income ratio)
The ratio that compares a buyer’s expenses to their income. This is calculated by dividing total recurring monthly debt by monthly gross income.
Down payment
A portion of the home price that a buyer must pay upfront. Typically, lenders want you to put 20% down because it lowers their lending risk.
Earnest money
A deposit made to a seller that represents the buyer’s intent to purchase.
Equity
Equity in homeownership refers to how much of your home you actually own. This means the more principal you’ve paid off, the more equity you have. It is equal to the difference between the fair market value of the home and the unpaid balance.
Escrow
An account set up by the lender that receives monthly payments from the buyer.
FHA loan (federal housing administration)
These loans are designed for low to moderate income borrowers. They typically require a lower minimum down payment and lower credit scores than most conventional loans.
Fixed-rate mortgage
Unlike the adjustable-rate mortgage, with a fixed-rate mortgage your interest rate stays the same throughout the life of the loan.
Foreclosure
A property that has been taken back by the bank because the owner has failed to make the mortgage payments.
HOA (homeowners association)
An association that makes and enforces rules for a housing development, condo, or townhome complex. There are usually fees associated with being a part of an HOA.
Home inspection
The purpose is to check the plumbing, foundation, appliances, and other features and make sure they are up to code. Not getting an inspection can be a costly mistake for the home buyer.
Homeowners insurance
A form of property insurance that covers losses and damages to the house and assets in the home.
Listing price
The price of the home, set by the seller.
In escrow
The period of time where a buyer has made an offer, and a seller has accepted. This is the time where homes are inspected and appraised to determine the conditions set are satisfied.
LTV (loan-to-value)
A ratio used to describe the overall size of your loan versus the value of the home you are buying. LTV will help you understand how much you will be able to borrow. You can figure out this value by dividing the loan size by the home’s value.
Mortgage broker
An individual or company that is responsible for taking care of all the parts of the deal between borrowers and lenders.
Multiple listing service
A database where real estate agents list properties for sale.
Offer
An offer is a formal request to buy a home.
Points
Prepaid interest on a loan, equal to one percent of the loan amount. The advantage to paying points up front is that you can secure a lower interest rate for the lifetime of the loan.
Principal
The amount borrowed to buy a home. The more you pay off, the more equity you own.
Pre-approval (loan)
A lender’s written guarantee to grant you a loan up to a certain amount. Being pre-approved can help you strengthen your position when negotiating with a seller.
Pre-qualification
An estimate of the amount a buyer may be able to borrow. This is the less official pre-approval.
PMI (private mortgage insurance)
An insurance premium that the buyer pays to the lender in order to protect the lender from default on a mortgage. Once the buyer has built up 20% equity in the home, these insurance payments typically end.
Refinancing
Refinancing is when you restructure your current home loan. You replace your old loan with an entirely new loan that has different payment structures and rates. Typically, people refinance because they are eligible to get a lower interest rate on their mortgage which will decrease their monthly payment and lower the overall debt owed.
Title
A legal document which defines what property you own and everything that affects the property including owners, mortgages, and any covenants.
Title insurance
Title insurance is often required as part of the closing costs. It covers research into public records to make sure the title is ready for sale.
Underwriting
This is the process lenders use to look at an applicant’s income, assets, and credit. They use this information to determine the risk involved with offering this applicant a loan. Underwriting typically happens after you have submitted your application.
If you are ready to put these terms to work, click HERE to reach out to one of our mortgage specialists today!
