Whether you’re buying your first home or moving after a period in your house, you may not be familiar with the very specific and very important basic language of real estate transactions. Here is a brief glossary to help you get started and understand the intricacies of your home purchase.
When you are looking for a mortgage, you’ll have to be concerned with your debt-to-income ratio, PITI and PMI. In order to know what kind of borrower you will be, the lender is going to want to have proof of how much income you have and how much debt you owe. If you owe a lot of money and don’t make much, you might not be a good candidate for a large loan. PITI is the acronym for principle, interest, taxes and insurance. These are the four components that make up your mortgage each month, the amount of money you owe, the interest on that loan, the property taxes you have to pay (which are paid partially each month) and the insurance for your home, required by the lender. PMI is actually a different kind of insurance. If you are unable to put down an adequate amount, many lenders will require that you have insurance on the mortgage, adding costs each month.
There are two main types of mortgages, fixed rate and adjustable rate. Fixed is a mortgage loan where the rate will not change, no matter what happens to the economy. With a fixed mortgage, your mortgage payment will stay the same through the entire course of the loan, which is often attractive to people who want to know exactly what their financial commitments will be and how much they will have to pay. In contrast to a fixed mortgage, adjustable rate loans usually start out with a lower rate for a period of time, often three or five years, and then later adjust to the new rate at that time. That means the rate could go up or down, and these are seen as more of a risk for buyers, although they do provide a lower rate at the beginning.
When you are looking to buy or sell, you will have to have an appraisal, a professional’s estimate of the value of your home. These are usually performed by the lending agency to ensure that the property they are lending you money for is actually worth the money you are asking for. These depend on local market conditions, and appraisals can vary, depending on the assessor.
When you are looking for homes, your real estate agent will find you some comparables, commonly shortened to comps. These are homes in your market with roughly the same value. These are useful in deciding what the real value of a home is. By comparing it to others of a similar sale price, you can find the value of any home for sale.
At the end of the process, you’ll have to go to a closing, the official transfer of property. Usually, this involves a formal meeting between buyers, sellers and agents, but it might all happen through your escrow officer. Escrow is a system where funds are set aside into a third-party account until all of the paperwork is complete. Your bank will send money to the escrow account, and they will then transfer the money to the seller after all of the paperwork has been finalized, providing some measure of assurance for both parties.
These are just a few of the terms that you’ll need as you go through a home sale or purchase. The best thing you can do is to ask your real estate agent any time you have a question about the vocabulary and to keep track of the really important terms. It’s your money, and not knowing the lingo can lead you into some serious problems.
By Sam Erickson MultiAd.com
