Adjustable Rate Mortgage
There are two types of conventional loans: the fixed-rate and the adjustable rate mortgage (ARM). In an ARM, the interest rate can change over the course of the loan at five, seven, or ten year intervals. The rate is adjusted according to several government indexes. The bank takes the index and adds on their margin, or profit.
This is the process of combining both interest and principal in payments, rather than simply paying off interest at the start. This allows you to build more equity in the home early on.
In order to get a loan from a bank to buy a home, you first need to get the home appraised so the bank can be sure they are lending the correct amount of money. The appraiser will determine the value of the home based on an examination of the property itself, as well as the sale price of comparable homes in the area.
This is the agent who represents the buyer in the home-buying process. On the other side is the listing agent, who represents the seller.
Comparative Market Analysis
Comparative market analysis (CMA) is a report on comparable homes in the area that is used to derive an accurate value for the home in question.
Contingencies are conditions to be met in order for the purchase of a home to be finalized. There are typically several contingencies to be met in a sale: loan approval, physical inspections, and appraised value must be near the final sale price.
Escrow is an account that the lender sets up that receives monthly payments from the buyer. It is a mutually agreed upon period of time for the buyer and seller to perform all of the detail work in the sales contract. An escrow company, a neutral third party, prepares all paperwork, gets the loan documents signed, and receives and pays out money after all the terms of the sales contract have been fully satisfied. Usually, a buyer and seller split the escrow cost.
Equity refers to how much of your home you actually own—meaning how much of the principal you’ve paid off. Equity is the difference between the fair market value of the home and the unpaid balance of the mortgage.
There are two types of conventional loans: the fixed-rate and the adjustable-rate mortgage. In a fixed-rate mortgage, the interest rate stays the same throughout the life of the loan.
Home inspections, required once a potential buyer makes an offer, are designed to check that the house’s plumbing, foundation, appliances, and other features are up to code. Issues that may turn up during an inspection may factor into the negotiation on a final price. Typically, several hundred dollars, home inspections are paid by the buyer.
Home Warranty Plan
The warranty is a maintenance insurance plan for your home protecting against future problems that can go wrong, typically during the first year. Realtors must offer these plans to buyers by law.
The listing agent represents the seller in the home-buying process. On the other side is the buyer’s agent, who represents the buyer.
The broker is an individual or company that is responsible for taking care of all aspects of the deal between borrowers and lenders, whether that be originating the loan or placing it with a funding source such as a bank.
Private Mortgage Insurance
Private Mortgage Insurance (PMI) is what the buyer pays to the lender in order to protect the lender from default on a mortgage. If you get a loan from the bank greater than 80% of property value or put less than 20% down, you are required to get PMI. These insurance payments typically end once the buyer builds up 20% equity in a home.
Points & Loan Fees
One point means 1% of the loan amount.
In addition to points plus a few hundred dollars, lenders charge for a few other items. Appraisal, credit report, tax services are standard ones. Usually about 1% to 3% of the loan, fees are paid at closing in one lump sum.
The principal is the amount of money borrowed to purchase a home. Paying off the principal allows a buyer to build equity in a home. Principal is combined with interest to determine the monthly mortgage payment.
Refinancing is when you restructure your home loan, replacing your old loan with an entirely new loan that has different rates and payment structures. Refinancing a home loan is done to get a lower interest rate, and to lower not only the monthly payments but also the overall debt owed.
This is when the owner/seller owes more money on the property than it can be sold for. Many times the bank will allow a “short sale” for a lower amount than what is actually owed on the loan.
The home that you want to buy will likely be inspected by a licensed termite professional. The termite inspection will cover the sub area to the attic. The inspector will advise of any problems with termites, dry rot, or debris under the house, and outline recommended work and estimated costs.
Title insurance is required as part of the closing costs and covers research into public records to ensure that the title is free and clear, and ready for sale. The buyer’s title insurance is usually paid by the seller.