When I was 19 years old, I worked very hard (thank you, Red Lobster!) and bought my very first car. It was a four door, white Ford Tempo and I paid $3000 for it. What a fantastic day!
About a year later my car started to “act funny.” I had no idea what was wrong, but that night I had my uncle take a look. What was wrong? Well, it turns out you have to put OIL in your car in order to keep it running! Go ahead, laugh! It’s funny NOW. But at the time I was devastated. I didn’t have any money saved up for another car and I couldn’t understand why it happened. Believe it or not, I didn’t KNOW I had to change the oil in my car. Sounds silly, but if no one ever tells/teaches you, then how are you to know?
First time home buyers are in a similar situation except they are dealing with a much bigger investment than a beat up car. It is our duty, as Realtors, to educate them on what terms mean and how the process works. Below you will find a small sampling of important terms, taken from RealEstateabc.com, the first time home buyer (or even a repeat buyer who may have not had an attentive teacher in the past)should become acquainted with:
· Pre-Approval. A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender.
· Earnest Money Deposit. A deposit made by the potential home buyer to show that he or she is serious about buying the house.
· Adjustable Rate Mortgage. A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
· Escrow. An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
· Down payment. The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
· PITI. This stands for principal, interest, taxes and insurance. If you have an "impounded" loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.
· Contingency. A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
These are just a FEW of the terms used in the real estate world. I know, it can be a little overwhelming. But by selecting the right Realtor, one who is willing to teach and explain, you can be sure you will be graduating at the top of your class and not breaking down in the middle of the road during your real estate transaction! And remember, if you don’t understand something, ASK. There are no stupid questions in this class and education is a POWERFUL thing!
Ready to explore your Henrico County Real Estate or surrounding area Richmond Real Estate options? Then contact me, Shannon Milligan, at Home Sweet Henrico today! I am happy to light the way on your road to home ownership!
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