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Home buying and selling, mortgages and other real estate issues are tricky topics. It doesn’t help that most real estate and mortgage people seem to have a language of their own.
Here’s a list of some important terms you should learn if you’re planning any real estate transactions:
Amortization schedule – This chart shows how much of your monthly mortgage payment goes to principal and how much goes to interest over the life of a loan. A 15-year mortgage will amortize in a shorter time than a 30-year mortgage because more of the monthly payment goes toward principal each month. Find out other reasons to get a 15-year mortgage.
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Appraised value – This is an opinion of a property’s value provided by an appraiser who has been trained and has experience analyzing a property value. Read what Dave has to say about home values.
Clear title – A clear title on a property means there are no liens (outstanding debt) or legal questions about the ownership of a property. If you’re considering buying a home, a clear title is a must. Here are more tips for house hunting.
Closing costs – These fees are paid when ownership of a property passes from the buyer to the seller. These include “non-recurring” items such as agent commission, legal fees and recording fees, and “pre-paids” like property taxes and homeowner's insurance, which will continue over the life of the loan. The lender must provide a borrower an estimate of closing costs in a Good Faith Estimate.
Contingency – When a buyer makes an offer to buy a home, the contract will usually include contingencies, or conditions that the seller must meet before the contract becomes legally binding. A common contingency is that the home must pass a home inspection.
FHA mortgage – The majority of mortgages are FHA loans, which means they are insured by the Federal Housing Administration. FHA loans include Veteran’s Administration loans and Adjustable Rate Mortgages (ARMs). Find out which mortgage options to avoid.
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LTV – The loan-to-value (LTV) ratio is the percentage relationship between the amount of a loan and the value of the home. To determine LTV, divide the amount of the loan by the home’s value or purchase price.
Mortgage insurance – Also called Private Mortgage Insurance (PMI), this coverage is required on mortgages with LTV higher than 80%. Once the LTV falls below 80%, the homeowner can cancel mortgage insurance coverage.
PITI – This stands for principal, interest, taxes and insurance—the components of a monthly mortgage payment. It is important to determine how much taxes and insurance add to your monthly payment so you don’t buy a home you can’t afford.
Pre-approval – A buyer who has completed the mortgage application process and has been approved for a specific loan amount is pre-approved. This is different from a pre-qualified buyer—a buyer who has talked with a loan officer who has given his opinion on the buyer’s ability to qualify for a home loan. It’s best to be pre-approved for a mortgage before you start looking for homes. Find out what else you can do to simplify the home-buying process.
Another way to simplify home buying or selling is to work with a real estate professional. A real estate Endorsed Local Provider can help you sell your home or find your dream home. Get in touch with your ELP today!