This is an agreement to the terms of an offer on a home. If the seller decides to accept the offer, you are both considered under contract. If you try to back out after this point, you face consequences that can include losing any deposit or earnest money you might have fronted. Once both parties (Seller and Buyer) have signed the contract, it becomes “bilateral.”
This represents your interest rate each year. The APR on a mortgage must include any fees you pay upfront, including loan origination fees. Your average compound interest and fees over the term of the loan are expressed as a percentage that you can use to compare offers from different lenders.
An adjustable rate mortgage is one with an interest rate that changes as market conditions change. A new rate is often set at regular intervals, such as twice a year or once a year. If you choose an ARM, read the terms, since many of these mortgages put caps on the top interest rate. Also, some are for a limited time period only (5 years, 7 years) after which they “balloon” and the borrower must either pay off the full amount in cash or refinance it.
When you decide to buy a home, the lender wants to know what the home is worth. Lenders don’t want to provide a loan for an amount that exceeds the value of the home. An appraisal is a process that determines the value of your home, and it includes factors such as the condition of the property, location, upgrades to the home, and selling prices of similar homes in the neighborhood.
This is the formal and final transfer of a home’s ownership between parties. This is where you get, or turn over, the keys and deed.
6. Closing Costs
These are all the costs that you pay as part of the buying process, beyond the cost of the property. Sometimes, the seller pays a portion of the closing costs. Some of the expenses included in closing costs include appraisal fees, credit check fees, escrow fees, points, loan origination fees, and any other fees. All of your costs should be spelled out and itemized in the paperwork. In Florida it also includes “Doc stamps” which is the fee or tax charged by the court to record the deed, mortgage, and/or promissory note, commission fees (paid by the seller) and sometimes, but now always, brokerage fees for paperwork handling and storage (they must keep records for 7 years).
If certain terms aren’t met, a contingency item in the contract allows you to get out of completing the purchase. One of the most common contingencies — and one that you should make sure is included in your contract — is the ability to void the contract if the home you plan to buy doesn’t pass its home inspection.
8. Counter Offer
A way to void an original offer. This is often used by a seller when your offer is considered too low. You might offer $200,000, and the seller might come back with $225,000. You then need to decide whether or not you will accept the counter offer.
9. Credit Report
Your credit report is a history of all of your credit dealings. All of your loans will be included. Lenders look at your credit report for an idea of what you owe, and where your finances stand. You normally have to cover the fee the lender pays to pull your credit report. Realize, too, that the lender will get a report from each of the three major bureaus. Each agency offers a score based on the information in the report. Normally, the middle score carries the greatest weight with regard to decisions about your loan.
10. Earnest Money
A buyer pays this money as an indication that he or she is serious about the transaction. You pay this money as you enter into the agreement to buy. The remainder of the money owed for the house is paid at closing (usually with funds borrowed from a lender). If you fail to complete the purchase, the seller gets to keep the earnest money.
Basically, this is the amount of ownership you have in your home. It is found by subtracting what you owe on your mortgage from the market value of your home. If your home is worth $200,000 and you owe $175,000, you have $25,000 equity — or ownership — in your home. If you owe more than your home is worth, you are said to have negative equity.
During large purchases, a third party is often involved in order to manage the funds. Your money is held in escrow so that the seller can see that you have it — and that you are ready to pay. Then, once the paperwork is signed and you have the title/deed in your name, the funds are released. Using a trusted third party can smooth the process.
13. Fixed Rate Mortgage
With this type of mortgage, the interest rate remains the same throughout the term of the loan. No matter what happens with the markets, the interest rate remains the same.
14. Homeowners’ Association
Some neighborhoods have associations designed to encourage certain behaviors and cultivate a specific feeling. These are often associated with condo communities and gated communities, but many open subdivisions have them as well. You pay fees meant to help with certain upkeep, and you agree to abide by rules about home appearance and noise, and other items. Before buying a home, make sure you understand the rules associated with the local homeowners’ association (HOA). Make sure you get a copy of the HOA documents and make application for membership prior to closing.
This is the term that denotes how much equity you have in your home. Loan-to-Value looks at how much you owe as a percentage of the value of your home. If your home is worth $200,000, and you owe $150,000, your LTV is 75%.
Multiple Listing Service that allows real estate professionals to see all the details related to a house.
17. Mortgage Broker
A lending agent who has access to a number of different loan programs. A mortgage broker is paid a commission and can help you compare numerous mortgage options.
Jargon that is used to denote principal, interest, taxes, and insurance — the major costs associated with homeownership and included in many monthly home payments.
Private mortgage insurance is required if you don’t have a down payment of at least 20%. PMI is designed to protect the lender, and if you default, the lender is reimbursed by the insurance. Once your home reaches 80% LTV, you aren’t required to pay PMI premiums anymore.
20. Real Estate Agent
Indication of ownership of the home, usually recorded on a deed. A report, verifying that the title is “clean” and without liens against the property, or that there are no other claims on the property, is required before the purchase. Prior to closing the title agent will research the property, including having a survey done. The same agent will also issue title insurance to protect the buyer from any subsequent claims on the property as long as he/she owns it.