As-is
This term speaks for itself. If a property is marked as-is, this indicates to the buyer they will acquire the property in its current condition. In other words, sellers will not make any repairs and the buyers will assume all responsibility.
Adjustable Rate Mortgage (ARM)
An ARM is a type of mortgage loan that varies with its rates. 5/1 ARM or 7/1 ARM simply means for the first 5 or 7 years the buyers would have a fixed rate which means the rate will not change. But the rate will become variable. So basically, your monthly payment may increase or decrease if the index rates go up or down after the given time. Cost of Funds Index (COFI) or Constant Maturity Treasuries (CMT) determines the rates for ARM.
Appraisal
An appraisal is a process by a third party that's required to determine the accurate value of a property. It's important to have appraisals so buyers will not over pay for a home and homeowners are aware of the value of their property.
Amortization
An amortization is the process of spreading an intangible asset's cost over the life of a loan. For example, after 30 years (360 monthly payments) of mortgage payments you'll be finished paying off your mortgage.
Buyer's Agent
A buyer's agent is an agent who locates the buyer's next property and represents their best interest by negotiating on behalf of the buyer to obtain the best prices. BUYER's agents are for HOMEBUYERS and SELLER's agents are for SELLERS.
Bidding War
This happens when 2 or more potential buyers are making offers or bids to purchase a home.
Cashiers Check
Lenders prefer this type of payment because this type of check is drawn off the bank which is less likely to be returned or rejected. Buyers might be asked to bring a cashiers check or certified funds as a earnest deposit or during closing.
Cash Out Refinance
This is a way to refinance your mortgage into a new loan and receive cash from the difference (Home value - Mortgage Balance). For example, your home is valued at $300,000 and your mortgage balance is $200,000. Leaves you with $100,000 in equity. The homeowner can refinance the loan balance from $100,000 to $150,000 and keep the $50,000 in cash to live their lives.
Conventional Loan
This is a type of home loan that is not offered or secured by a government entity. Generally, this type of home loan is stricter than others and requires of a credit score 620 and above. Other lenders may vary with higher credit scores and down payment 3% or higher. In most cases, conventional loans typically ask between 3% to 20%.
Contingency
This refers to a condition of an Agreement of Sale that needs to occur for the transaction to proceed without interruption. In other words, the buyer and seller can place a contingency or a rule where if it's violated the buyer can back out of the deal anytime and receive their initial earnest deposit. Contingencies may include inspection, financing, appraisal, title, and home sale. An example of one could be, a potential buyer places an inspection contingency for the foundation of the home to be in good condition. If there's an issue the buyer will have the right to walk away and be issued any refund
Closing
This is the last step for buying, refinancing, and obtaining a HELOC. Closing simply means it's time to complete the process. Documents have been signed, sales are final, and buyers officially become homeowners.
Closing Costs
With every home purchase comes with closing costs or an additional fee which includes, discount points, appraisal fees, origination fees, title searches & insurance, taxes, credit report, and many more. It's generally between 1% to 5% of the home purchase price and The payment doesn't apply towards the home. For more information, click here.
Due Diligence
In terms of Real Estate, when you're interested in a property it's best to fully examine the property, do a full inspection, check title deeds, examine the neighborhood or area, and other agreements associated with the home.
Duplex
A duplex is a multi-family home with two units in one building. Think of two homes under one roof. See image below
Deed
A legal document that transfers the ownership of a property from a seller to a buyer.
Debt to Income (DTI)
A buyer's Debt to Income Ratio compares the amount of debt they have to their overall income. For example, Tommy makes $5,000 per month and his monthly debts which includes mortgage or rent, car payments, credit card bills, and student loans all equal $1,700. Tommy's DTI would be 34% ($1,700 divided by $5,000).
Earnest Money
This is a deposit a potential buyer pays to the seller which represents he or she is serious about buying the home. So basically, it's a deposit on a home which also gives the buyer time to get financing in order.
Escrow
Refers to a third party that receives large amounts of cash, taxes, and insurance funds until certain conditions are met during the homebuying process. An escrow company is also responsible for holding on to deeds and other documents related to the home.
Equity
This is the difference between a market value and the amount the homeowner owes on a mortgage. So let's say my home is worth $400,000 and I owe $150,000. My equity is $250,000. (Value-Mortgage Balance)
Federal Housing Administration (FHA)
FHA is a type of home loan that is insured and issued by the federal government. This is the most popular type of loan because of low credit and down payment requirements. Credit scores as low as 580 and down payment 3.5% is enough to obtain this loan to purchase a home. Very attractive for First Time Homebuyers.
Fixed Rate
Is an interest rate that doesn't change on installment loans.
Fixer Upper
A property that will require repairs before the homebuyer can sell for a profit or live in it.
Foreclosure
This is a legal process in which the lender attempts to recover the balance of a loan from a borrower who has stop making mortgage payments. After 6 months of no payments the home will go through the pre-foreclosure process.
Gross Income
Is the amount of income you earn before any deductions or taxes.
Home Equity Line of Credit (HELOC)
A HELOC is a type of loan that works like a credit card in which the lender gives homeowners access to and the collateral is the borrower's equity on the property. For example, your house is worth $200,000 and you owe $50,000 left on the mortgage. That gives you $150,000 in equity that you can use. But lenders will not give you 100% of the equity. You'll have access to 80%-85% of it to play with.
Homeowners Association (HOA)
HOA is a private organization within a community that enforces rules & regulations on properties and homeowners. There's a monthly fee or quarterly HOA fee that must be paid to avoid any liens on your property. The purpose of HOA is to "increase" home values by keeping the neighborhood above standards.
Lien
A lien is legal right or claim against a property by creditors that allow them to collect what they are owed. There's tax liens, general judgement liens, and mechanic liens. IRS, Waste Management or the garbage man, construction companies, and contractors can place liens on a property for not being compensated. ALWAYS CHECK if there is any LIENS on any property before you buy or else it will become your debt.
Loan Origination Fees
This type of fee is charged by the lender for processing a loan application and typically 0.5% to 1% of the loan amount. This fee is added in closing cost.
Loan to Value (LTV)
LTV is a number lenders use to determine how much of a risk the borrower can handle on a mortgage loan. Here's the formula LTV = (Amount owed on the loan ÷ Appraised value of asset) × 100. This percentage is also used for HELOC's.
Mortgage Broker
A mortgage broker is a real estate professional who acts as a middleman to connect potential homebuyers and other mortgage lenders to best fit their needs. If homebuyers want to find hidden loans that can benefit them whether its a lower monthly payment or lower interest rate then a mortgage broker can be effective.
Multi-family Properties
It's in the name, multiple families can live within a property. A multifamily home is a building that has separate units that one family can live. Duplex, triplex, Quadplex, small apartments, and townhomes are all considered multifamily. Also, a property with 4 units or less is considered multifamily.
Mortgage Insurance Premium (MIP)
This monthly fee protects FHA-backed lenders if the borrower defaults on their mortgage. It's only required if the down payment is less than 10% on a FHA loan and must be paid through the life of the loan. If the borrower puts more than 10%, then MIP is required for 11 years. To avoid just refinance into a new loan.
Mortgage Pre-Approval
This occurs when the potential borrower submits a mortgage application along with financial information to conform their creditworthiness to acquire a property. If the borrower is a approved, they'll receive a pre-approval letter that is valid for 90 days. You can also check multiple lenders during a 2 week period and it will count as one hard inquiry.
Mortgage Pre-Qualification
This is the very first step that requires basic information to determine an estimate of how much a buyer can borrow. This check will not impact your credit scores.
Private Mortgage Insurance
This monthly fee protects the lender if the borrower decides to stop paying their mortgage. It's only required if the down payment is less than 20% on a conventional loan. This fee will be eliminated once 20% of equity is reached.
Realtor
A REALTOR® is a licensed real estate professional who’s a member of the National Association of Realtors. As a realtor, they must follow standards of the association and it's code of ethics. So they're being held to a higher standard. Huge difference between a real estate agent and a Realtor.
Redlining
This practice has been active for decades and it's a way where real estate professionals suppress and refuse to lend money to minority populations and discriminate against color, race, sex, religion, and disability.
Short Sale
This occurs when a home is being sold for less than the mortgage balance.
Title Company
The title company verifies that the real estate documents that's given to the new homebuyer are legitimate. The title company is also responsible for organizing the closing and maintaining escrow accounts.
Triple Net Lease
A lease agreement where the tenant agrees to pay property taxes, property insurance, and maintenance.
Turnkey
This is a type of an investment where a property is fully renovated with no repairs to make. Turn the key and start living!
Underwater Mortgage
Also known as an upside-down mortgage, is when the mortgage balance is higher than the value of the home. This occurs when the property value declines which happened between 2007-2009 Recession.
VA Loan
A Veterans Affair loan is a type of mortgage loan that is available to veterans and service members and requires $0 money down, no PMI, and better interest rates. Closing cost is required but always negotiable.
Walkthrough
The very last step when buying a home. The buyer and real estate agent or realtor will walk through the property to make sure there's no new damage and inspects all parts of the home before completing the purchase.
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