Making Sense of Home Buying Lingo
Mar 24, 2021
Making Sense Of Home Buying Lingo
Every industry comes with its own jargon, and the world of real estate is no exception.
Purchasing a home comes with a whole set of stressors, so the last thing you want to worry about is what all of the vernacular means just when you're about to close on a home.
We've put together a handy guide to help you make sense of home buying lingo before you get started down the path of homeownership.
This happens when you create a contract when you and the seller reach an agreement on the terms of an offer. At this point, neither party can back out of the deal without consequence.
ADJUSTABLE RATE MORTGAGE (ARM)
This type of mortgage loan will have an interest rate and payments that fluctuate over time based on a specified index rate over the life of the loan. This type of loan generally has a low initial rate and then changes due to market indicators.
This is the schedule by which your loan is repaid. Amortization includes your interest payments as well as your principal payments.
An appraisal is an estimated determination of the value of a property conducted by a licensed or certified professional. The value is influenced by the value of nearby homes as well as a walkthrough conducted by the appraiser.
ASSUMABLE LOAN / ASSUMABLE MORTGAGE
This is a type of loan where the buyer of a home will take over - or assume - the responsibility of the unpaid portion of the seller's existing mortgage. This type of loan is rare.
BACK-END DEBT-TO-INCOME RATIO
This is a determination done by a lender that looks at a borrower's monthly debt payments compared to their income.
This type of mortgage starts out small without a need for immediate repayment - usually a period of 5, 7 or 10 years - which then requires a large payment at the end. At that point, a balloon mortgage requires payment in full or needs to be refinanced.
A buyer's market occurs when housing market conditions favor the buyer; when the number of homes available to purchase outnumber the buyers in the market. In this type of market, homes have been on the market for a long period of time and prices drop.
These are the additional fees that are required outside of a property's final sale price. Costs associated with closing can include insurance fees, attorney fees, credit report fees, the appraisal, and home inspections.
These are particular conditions or provisions written into a contract that must be met before the closing on a home may proceed. Contingencies may be required of the buyer or the seller.
This is a good faith security deposit that a buyer pays to demonstrate to the seller their intent to purchase a piece of real estate.
This is the total ownership that a homeowner has. It's calculated by subtracting the current mortgage value from the actual value of the property.
This is an account hosted by a third party. A buyer places part of their payment for the purchase of real estate in an escrow account and it's kept in the account until closing. After closing, a portion of each mortgage payment is kept in escrow to cover the cost of insurance and property taxes.
FIXED RATE MORTGAGE
This is the traditional type of home mortgage. It is an interest rate that never changes over the course of the mortgage's life. These loans are usually 15 to 30 years in length.
FRONT END DEBT-TO-INCOME RATIO
This ratio is used to measure your creditworthiness. It's calculated by dividing your monthly housing expenses by your monthly income.
FOR SALE BY OWNER (FSBO)
This means that a home is being sold directly by the owner without the help of a real estate agent. In these situations, buyers should ensure that the sale meets all local, state, and federal regulations.
HOMEOWNERS ASSOCIATION (HOA)
This is an organization within a suburb or neighborhood that manages common areas. The HOA staff are neighbors who live in the governed area. There are generally fees associated with an HOA and the organization often imposes rules and regulations about homes in the complex.
This is a hold that's been placed on a property for the security of debt or another obligation and is legally binding.
This number is based upon the highest potential price that a buyer would pay for a property as well as the lowest price a seller would be willing to accept for property. This value is used to calculate the asking price / listing price of a home.
This is a professional who acts as a third party to connect a buyer with potential lenders.
This is the first step that a buyer takes in the process of purchasing a home by presenting a bid to purchase to a seller.
This is a written agreement made by a lender that says that guarantees a loan amount to a buyer. Pre-approvals can strengthen a buyer's position with a seller.
This is a less formal agreement than a pre-approval that's made by a lender. Pre-qualification shows what loan programs that a buyer could potentially be approved for.
This is the opposite of a buyer's market; when conditions favor a seller and there are less homes available for purchase than there are buyers.
A title acts as written evidence of ownership. In real estate, this is usually in the form of a deed which shows the history of ownership and transfer of ownership.
These are costs a buyer must pay that are associated with the purchase of a home prior to closing on the home. These may be credit report fees, flood insurance fees, and other fees related to inspections of the home.
LET ORIZON HELP YOU ALONG THE WAY
Our expert team of real estate experts is here to help you make sense of the home buying process. We want you to feel comfortable and confident as you go through the entire process. Our talented realtors will explain everything to you every step of the way.
If you're considering purchasing a home in 2021, call us today at 260-248-8961 to connect with an Orizon Real Estate agent.