Buying a home can be confusing and stressful.  I’ve put together some of the most common terms you may be hearing during this process.  Home buying, especially for first-time buyers, can be intimidating.  I am here to guide you each step of the way and to cut down on the anxiety.  

THE MAIN STEPS OF PURCHASING A HOME

  • PREAPPROVAL by a lending institution for a loan based upon your income, credit score, debts, and expenses.  In order to better your chances of an offer being accepted, it is VERY important to have this done as early as possible.
  • SEARCH for the perfect home. The more information you can provide (#bedrooms, #bathrooms, budget, etc), the easier the process
  • SUBMIT YOUR OFFER to the agent representing the sellers.  This process involves deciding on a price, date you would like to take possession, and other details about finalizing the purchase.  An offer may be accepted, declined, or countered by the sellers.
  • WAIT TO CLOSE on your home.  During this time, your mortgage is being finalized and the home is being researched by a title company to verify ownership, liens, property taxes, etc.
  • CLOSING on your home will involve a lot of document signing.  The “escrow officer” at the title company is there to complete the transaction.  You usually attend in person, the officer will go over each page of documents and answer any questions.  Their job is to make sure everything is filed so that you are now legally the owner.
  • RELAX and let the fun begin.  Take a deep breath and enjoy your new home.

GETTING READY TO SHOP FOR A HOME

Annual income—Money you receive over the course of a year, whether it’s from wages or salary, alimony or child support, rental payments, commissions, investments or other sources.

Conforming loan—A mortgage loan that meets guidelines established by Fannie Mae and Freddie Mac and falls below a loan amount specified by the Federal Housing Finance Agency. In 2021, that amount was $548,250 for a single-family home in most of the U.S.

Debt-to-income ratio (DTI)—One way to measure your ability to repay debt, DTI is the comparison of your monthly debt payments to your monthly income before taxes, expressed as a percentage. Many mortgage lenders prefer this figure, including a mortgage payment, to be no higher than 36 percent.

Down payment—The amount of cash you can put toward the purchase price of a home. Down payments often range from 3 to 20 percent of the home price.

Loan-to-value ratio (LTV)—The total amount of your mortgage compared to the home’s appraised value, expressed as a percentage. If your down payment is less than 20 percent of the purchase price, your LTV is above 80 percent, so you generally pay a higher interest rate on your mortgage and may need to pay private mortgage insurance (PMI).

Loan Estimate (LE)—A disclosure to help consumers understand the key loan terms and estimated costs of a mortgage. After a consumer submits six key elements—name, income, Social Security number, property address, estimated property value and desired loan amount—the lender is required to provide this form. All lenders are required to use the same standard Loan Estimate form to make it easier for consumers to compare and shop for a mortgage. Learn more about loan estimates from the Consumer Financial Protection Bureau.

Preapproval—A lender’s conditional agreement to lend you a specific amount of money, made after confirming your financial information such as income and assets. Conditions may include a home appraisal and no significant changes to your finances.

Prequalification—When a lender estimates in advance how much you can borrow to buy a home, based on financial and other information (such as employment history) that you provide. It is not a commitment to lend, and you will need to submit additional information for review and approval.

PMI—An acronym for private mortgage insurance, which protects the lender against losses if you cannot repay your loan. Your lender may require it if your down payment is less than 20 percent.

MAKING AN OFFER ON A HOME

Comps—Short for “comparables.” These are recently sold properties similar to the home you want, with approximately the same size, location, and amenities. They help an appraiser determine a property’s fair market value.

Contingencies—Conditions in a sales contract that must be satisfied before the home sale can occur. Some common contingencies: The appraised value must support the sales price, the house must pass inspection, and the borrower must be approved for a loan. Others might require a check for termites or the sale of the buyer’s current home.

Inspection—This one is the buyer’s responsibility. A visual and mechanical examination of a home to identify defects and assess the home’s condition.  The inspection cost is the responsibility of the buyer and due at the time of inspection.  Inspections are optional.

Title—the legal documentation that includes the specifics about the property you are purchasing and who owns it, often in the form of a deed. One of the steps in buying a home is to have a title search completed by a title office prior to closing.

Title office—Investigate the status of property titles during real estate transactions, ensuring that a property is free of any obstacles that could jeopardize a sale or interfere with a buyer’s rights to the property.

IF YOU ARE GETTING A MORTAGE

Appraisal—An informed estimate of a home’s value, generally done by an independent, professional licensed appraiser and typically required and ordered by the lender in conjunction with the mortgage application.

Closing costs—Also known as settlement costs, these are the costs incurred when getting a mortgage. They might include attorney fees, preparation and title search fees, discount points, appraisal fees, title insurance and credit report charges. They are typically 2 to 5 percent of your loan amount and are often paid at closing or just before.

Escrow—Funds deposited with a third party and held until a specific date is reached and/or a specific condition is met. For example, when you make an offer on a home, your earnest money deposit may be held in an escrow account until closing. Some lenders may require borrowers to establish an escrow account at closing comprised of future tax and insurance payments. The loan servicer then makes your property tax and insurance payments on your behalf.

Mortgage points (or discount points)—An amount paid to the lender, typically at closing, to lower (or buy down) the interest rate if the buyer chooses to do so. One discount point equals one percentage point of the loan amount. For example, 2 points on a $100,000 mortgage cost $2,000.

Origination fee—A fee from the lender that covers expenses of processing a mortgage loan. It is usually a percentage of the amount loaned—often 1 percent. It can be expressed in the form of points or a flat fee.

Title insurance—Insurance that protects against issues, such as a tax lien or other legal claim, that would affect ownership of the property.

Underwriting—The lender reviews submitted documents to verify the borrower’s finances and other factors related to the home, such as the title search and appraisal, then decides to approve or deny the loan.

CLOSING ON A HOME

ClosingThe last step of home buying, also called the settlement. You sign all the necessary documents to finalize the sale and take responsibility for the mortgage loan or present a bank check to the title office if paying cash.

Closing Disclosure (CD)—A document that provides key information about your loan, such as the interest rate, monthly payments and closing costs. The lender must give you this document at least three business days before you close on the loan, and the information should match the Loan Estimate you received when you applied. You can find out more about what’s on a closing disclosure from the Consumer Financial Protection Bureau.

Deed—A document that legally transfers ownership of real estate.

Originally posted 2021-02-20 00:29:40. Republished by Blog Post Promoter