Key Terms to Know when
Purchasing a Home
Broker -- They supervise the agents, and in many cases assist in arranging financing, title searches, details of the transaction, meetings between all parties concerned.
Agent -- A licensed salesperson working for a real estate broker. They are usually independent contractors who receive a portion of the commission from a broker.
This is a written opinion based on the knowledge of a licensed appraiser, as to the worth of a specific property. The appraiser takes into consideration many things. These include the condition of the house, the fair market value based on comparable sales in the area, etc. The lender usually requires an appraisal before approving a loan to ensure that the mortgage loan amount is not more than the value of the property. The higher the appraisal the more money the buyer can borrow. Example: if a buyer qualifies for an 80 percent loan and the appraisal is $100,000 then the buyer can borrow up to $80,000.
A measurement of a specific property compiled by a licensed land surveyor, which shows the location of the land with reference to known points, its dimensions, including, the location and size of any buildings.
When a property is refinanced or purchased, costs are incurred. These are known as closing costs. They are broken down into two categories, pre-paid costs, and non- recurring costs. All of these charges are usually presented to the buyer in a good faith estimate. A non- recurring charge is obviously paid only once, such as appraisal fee, origination fee, underwriting fee, title search, survey, deed recording fee etc. Charges that are pre-paid are recurring, an example of these would be property taxes and insurance. All of these items are paid by the borrower.
This is a mortgage where the interest rate changes periodically and is "adjusted". Such mortgages are based on an index like the prime rate. Most of these mortgages have an initial period during which the rate is fixed. The adjustment intervals are represented as a fraction, example: a 3/1 ARM mortgage is a 30 year mortgage where for the first 3 years the rate will be the same. After that it adjusts every year.
A loan of more than $417,000. These types of loans usually carry a slightly higher interest rates. Not every lender will fund these types of loans.
1 percent of the amount of the mortgage = one point. This usually refers to a fee charged by the lender so that the consumer can buy down the interest rate. What you are doing in effect is prepaying interest. The amount you buy down for each point usually varies between 0.25% and 0.5%. It is important to note that the average break even point for recouping your outlay for points is between 5 and 6 years.
In addition, points can also be charged by the lender. These are called origination points. They are used to cover many of the costs incurred during the processing of the loan. It is a charge that is added arbitrarily, so the cost may vary greatly from lender to lender. In most cases this fee can be negotiated if the seller balks at the cost.
If any of your loans are more than 80 percent of the value of the home then lenders will require that you pay and carry a form of insurance that is called private mortgage insurance.
People will sometimes get a second mortgage in order to avoid going over the 80% in any loan, but the second mortgage has a higher interest rate than the first. So when deciding it is important to compare the cost between the higher interest rate and the private mortgage insurance.
This is a type of loan where the borrower pays only the interest on a loan over a specific time. At the end of this term the remaining balance is either paid off, or converts to a conventional loan. Remember, the longer the interest only period the larger the payments will be once the interest only period has ended.
At best the APR (Annual Percentage Rate) is confusing. It is an attempt to create a means of comparison for the consumer. APR is a value based on a government formula to show the real cost of money borrowed. This rate is consistently higher than the interest on your loan. The reason for this is that it includes not only the interest but, points, processing fees, underwriting fees and a variety of other costs.
It is important to remember that the APR does not affect your monthly payments! Your monthly payments are a result of the interest rate and the length of the loan.
In a perfect world all you would have to do is compare APR's. Sorry to say this is not true. The best way to compare lenders is to find the one that has the lowest interest rate and the lowest fees. The amount of fees can be found in their Good Faith Estimate.
Before going to settlement the buyer usually does a walk through inspection of the property. This is to ensure that the property is still in the same condition and nothing has changed. It is a good idea to make the walk through a contingency in your contract, since most likely this will be your final inspection.
A legal claim against a property that must be paid off when the property is sold.
This is when the title records are checked to assure the buyer that the person selling the property is the legal owner of the property, and that it is free of liens or legal questions as to ownership of the property.
This is simply an insurance policy to protect the buyer against any loss that might arise disputing the ownership of the property. The policy insures the purchaser that the property is free from any and all encumbrances, liens, and defects.
A scheduled meeting where all the paperwork (documents) is signed and money is paid for the property. Ownership of the property is legally transferred from seller to buyer. At the end of the closing, the transaction is considered complete.