Thursday, February 17, 2022 / by Margie Wright
If you have questions about anything, or if there's a term you've seen that's not on this list, reach out! It'd be my pleasure to explain and provide answers to all of your questions!
Approved for Short Sale: This term means that a homeowner's bank has approved a reduced listing price on the home, and the home is ready for resale.
Buyers Market: This term describes how the real estate market is doing. When a market is a buyers market, that means that there are more homes on the market than there are buyers looking to buy. Typically, this also means that homes are on the market for longer and prices drop.
Comparative Market Analysis (CMA): A CMA is a very in-depth analysis, put together by a real estate agent, that determines and tells the estimated value of a home based on recently sold homes of similar conditions, size, age, and features that are also in the same area.
Comps: Comps is the shortened version of "comparable sales." Comps are homes in a given area that have sold within the past six months that are used to help a real estate agent determine a home's value in a CMA.
Days On Market (DOM): This is the number of a days that a property listing is considered active.
Listing Price: The listing price is a is the price of a home as set and decided by the seller.
Multiple Listing Service (MLS): The MLA is a database where real estate agents list properties for sale.
Sellers Market: This term describes how the real estate market is doing. When a market is a sellers market, that means that there are more buyers than homes on the market. It's a very competitive market. Homes don't normally stay on the market for very long and prices raise quite a bit.
Short Sale: A short sale is the sale of a home by an owner that owes more on the home than the home is worth. The owner's bank must approve a lower listing price before the home can be sold.
Back-End Ratio: This is one of two debt-to-income ratios that a lender analyzes to determine a borrower's eligibility for a home loan. The back-end ratio compares the borrower's monthly debt payments to gross income.
Depository Institutions: Depository institutions are banks, savings and loans, and credit unions. These institutions underwrite, as well as set, home loan pricing in-house.
Debt-to-Income Ratio (DTI): This ratio compares a home buyer's expenses to gross income.
Housing Ratio: This is the other of the two debt-to-income ratios that a lender analyzes to determine a borrower's eligibility for a home loan. The housing ratio compares total housing cost (principal, homeowners insurance, taxes, and private mortgage insurance) to gross income.
Loan Estimate: This is a three-page document sent to an applicant three days after they apply for a home loan. The document includes loan terms, monthly payment, and closing costs.
Loan-to-Value Ratio (LTV): This is the amount of the loan divided by the price of the house. Lenders reward lower LTV ratios.
Origination Fee: This is a fee, charged by a broker or lender, to initiate and complete the home loan application process.
Pre-Approval: This is a thorough assessment of a borrower's income, assets, and other data to determine a loan amount they would qualify for. A real estate agent will request a pre-approval or pre-qualification letter before showing a buyer a home.
Pre-Qualification: This is a basic assessment of income, assets, and credit score to determine what, if any, loan programs a borrower might qualify for. A real estate agent will request a pre-approval or pre-qualification letter before showing a buyer a home.
Underwriting: This is a process a lender follows to assess a home loan applicant's income, assets and credit, and the risk involved in offering the applicant a mortgage.
Conventional Loan: This is a home loan that is not guaranteed by a government agency, such as the FHA or the VA.
Down Payment: This is a certain portion of the home's purchase price that a buyer must pay. A minimum requirement is often dictated by the loan type.
Fannie Mae: This is a government-sponsored enterprise, chartered in 1938, to help ensure a reliable and affordable supply of mortgage funds throughout the country.
Federal Housing Administration (FHA): The FHA is a government agent created by the National Housing Act of 1934 that insures loans made by private lenders.
FHA 203(k): This is a rehabilitation loan backed by the federal government that permits home buyers to finance money into a mortgage to repair, improve, or upgrade a home.
Foreclosure: A property repossessed by a bank when the owner fails to make mortgage payments.
Freddie Mac: A government agency chartered by Congress in 1970 to provide a constant source of mortgage funding for the nation's housing markets.
Mortgage Broker: This is a licensed professional who works on behalf of the buyer to secure financing through a bank or other lending institution. (A pretty important person!)
Mortgage Interest Rate: This is the price of borrowing money for your mortgage. The base rate is set by the Federal Reserve and then customized per borrower. It's based on credit score, down payment, property type, and points the buyer pays to lower the rate.
Piggyback Loan: A combination of loans bundled to avoid private mortgage insurance. One loan covers 80% of the home's value, another loan covers 10%-15% of the home's value, and the buyer contributes the remainder.
Principal, Interest, Property Taxes, and Homeowners Insurance (PITI): These are the components that make up a monthly mortgage payment.
Private Mortgage Insurance (PMI): A fee charged to borrowers who make a down payment that is less than 20% of the home's value. The fee - 0.3% to 1.5% of the yearly loan amount - can be cancelled in certain circumstances when the borrower reaches 20% equity.
Points: Prepaid interest owed at closing, with one point representing 1% of the loan. Paying points, which are tax deductible, will lower the monthly mortgage payment.
American Society of Home Inspectors (ASHI): A not-for-profit professional association that sets and promotes standards for property inspections. Look for this accreditation, or something similar, when shopping for a home inspector.
Cash-Value Policy: A homeowners insurance policy that pays the replacement cost of a home, minus depreciation, should damage occur to the home.
Closing Costs: Fees associated with the purchase of a home that are due at the end of the sales transaction. Fees may include the appraisal, the home inspection, a title search, a pest inspection, and more. Buyers should budget for an amount that is 1%-3% of the home's purchase price to pay for closing costs.
Contingencies: Conditions written into a home purchase contract that protect the buyer should issues arise with financing, the home inspection, etc.
Earnest Money: A security deposit made by the buyer to assure the seller of his/her intent to purchase. This helps protect the seller.
Escrow Account: An account required by a lender and funded by a buyer's mortgage payment to pay the buyer's homeowners insurance and property taxes.
Escrow State: A state in which an escrow agent is responsible for closing.
Home Inspection: A nondestructive visual look at the systems in a building. Inspection occurs when the home is under contract or in escrow. This is an important thing to have done to ensure there's not more damages than known about originally.
Homeowners Insurance: A policy that protects the structure of the home, its contents, injury to others, and living expenses should damage occur.
In Escrow: A period of time (30 days or longer) after a buyer has made an offer on a home and a seller has accepted the offer. During this time, the home is inspected and appraised, the title searched for liens, etc.
Title Insurance: Insurance that protects the buyer and lender should an individual or entity step forward with a claim that was attached to the property before the seller transferred legal ownership of the property or "title" to the buyer.
Transfer Taxes: Fees imposed by the state, county, or municipality on transfer of title.
Under Contract: A period of time (30 days or longer) after a buyer has made an offer on a home and a seller has accepted the offer. During this time, the home is inspected, appraised, the title is searched for liens, etc.
Walkthrough: A buyer's final inspection of a home before closing. This is important for making sure everything is ready to go, all issues have been addressed, etc.
Equity: A percentage of the home's value owned by the homeowner.
Homeowners Association (HOA): The governing body of a housing development, condo, or townhome complex that sets rules and regulations. They charge dues used to maintain common areas. The charge is normally a monthly fee.
Property Tax Exemption: A reduction in taxes based on specific criteria, such as installation of a renewable energy system or rehabilitation of a historic home.
Tax Lien: The government's legal claim against a property when the homeowner neglects or fails to pay a tax debt.