Terms You’re Likely to Hear When Buying a House
Throughout the process of buying a home, you will hear many terms thrown around in nearly every conversation you have. Down payment and inspection may make sense, but other terms in the real estate world can be confusing. Between the mortgage, the buying process, and the closing, you can quickly become overwhelmed with the acronyms and terms that you aren’t familiar with.
DTI is your Debt-to-Income ratio. This is how the bank will measure your ability to repay your loan. The bank will compare your monthly debt payments-including your potential mortgage payment-to your monthly income. Mortgage lenders calculate this as a percentage and will look for a figure that is no higher than 36 percent.
Underwriting is the process where the lender reviews all the documents submitted to verify the finances and factors related to the home. During underwriting, the lender will decide whether or not to approve the loan.
PMI is private mortgage insurance. If you have a down payment of less than 20% of the purchase price, you will likely need to have this insurance to protect the lender against loss if you can’t make your payments.
Preapproval and Prequalification
Many home buyers confuse these two terms during the mortgage process. Prequalification is a basic estimate of how much you can borrow to buy a home. There is not much documentation required. A preapproval, however, is a lender’s conditional agreement to lend you a specific amount of money for a home.
Points are paid to the lender to “buy down” the interest rate. They are optional, and may or may not be in the buyer’s best interest. One point equals one percentage point of the loan amount, so one point for a $100,000 mortgage would mean $1,000 paid at closing.
Real Estate Terms
Contingencies are the conditions in a contract that must be satisfied before the sale is final. Usually, the contingencies are basic, such as the home must pass inspection, the home must be appraised to support the sale price, and the borrower must be approved for a loan.
The appraisal is an estimate of the home’s value, done by an independent, licensed appraiser. This is nearly always required by the lender and ensures that the home value aligns with the mortgage amount you are applying for.
Escrow is the funds deposited with a third party and held until a specific date. When you make an offer on a home and make a deposit, that deposit is held in “escrow” until the closing. Many buyers consider the time between the accepted offer and the closing the “escrow” period.
Closing is the last stage of home buying. Both the seller and the buyer will sign all the necessary documents to finalize the sale and the mortgage loan. The deed of the home will be transferred.
These are common terms that you may encounter in the process of buying a home. If you’ve never bought a house before, the process can be overwhelming and confusing. The best thing that first time home buyers can do is work with an experienced real estate agent who can help them navigate the process so they will understand everything they will need to know along the way. If you’re searching for your dream home, contact Amberwood Real Estate today.