Homebuying Terms That You NEED To Know During The Buying Process
Navigating the housing market can be scary, especially if you’re a first-time buyer. Besides working with trusted professionals, it also helps to know the lingo. If you're looking at homes for sale in Long Beach, be prepared to hear these common phrases.
- Debt-to-income ratio (DTI)
The debt-to-income ratio (DTI) is the ratio, or percentage, of your monthly bills to your pretax income. It’s easier to get loan approval if your monthly payments, including your mortgage, add up to 35% or less of your monthly income.
- Fixed-Rate Mortgage
Your real estate broker will explain your mortgage options. A fixed-rate mortgage means your interest rate will stay the same for the life of the loan. The longer you take to pay it off, the lower your payments will be. On the other hand, the sooner you pay the loan off, the less you’ll pay in interest.
- Adjustable-Rate Mortgage
An adjustable-rate mortgage is a loan that has interest rates that change over the years. Carefully weigh the advantages and disadvantages of every loan before making a choice.
- Mortgage points
Buyers may be able to pay an additional sum at closing to get a lower interest rate. One mortgage, or discount, point is equal to 1% of the amount of the loan. On a $200,000 loan, for example, one point would be $2,000.
Comps analyze statistics from homes that are comparable to the one you’re buying. Brokers and appraisers use square feet, amenities, conditions, and location to determine fair market value.
An appraisal, usually done by an independent, licensed appraiser, is a professional estimate of what your home is worth. Lenders order an appraisal as part of the mortgage application, but you can also request and pay for your own before making an offer.
- Private Mortgage Insurance (PMI)
The rule of thumb for the down payment on a home is 20% of the sales price, but some loans require less. If you make a lower down payment, you may need to buy private mortgage insurance (PMI) to pay off the loan if you default.
The lender may require a neutral party to hold the earnest money, or escrow until you meet certain conditions in the contract. When you close, you may also need to set up an escrow account to be used for future insurance and tax payments.
The buyer or seller may place specific conditions, or contingencies, in the contract. These requirements must be met before the closing takes place. Examples include clauses that require the appraisal to meet the sales price or the basement to be free of radon.
- Closing Costs
At the closing, the homebuyer pays for legal transactions that took place between the buyer and seller. Closing costs usually run from 2 to 3% of the sales price and must be completed before transferring the property.
A deed is a legal document that transfers ownership of the property to the buyer. It shows you bought the house and who sold it to you.