APPRAISAL:
An appraisal is a licensed appraiser’s opinion of a home’s market value based on comparable recent sales of homes in the neighborhood. Appraisals are usually ordered on behalf of a buyer’s lender to protect the interests of the lender. The lender’s underwriter will compare the appraisal price to the final purchase price of the home to ensure the buyer is not borrowing more than the house is worth. If the home appraises lower than the final sale price, the buyer may be able to renegotiate a lower price with the seller. If the seller won’t lower the price, the buyer’s lender may ask that the buyer put more money toward the down payment in order to make up the difference.
APPRAISER:
An appraiser is a licensed individual who conducts home appraisals. Appraisers primarily conduct appraisals on behalf of mortgage lenders in order to determine the value of a home.
CLOSING COSTS:
Closing costs are the expenses and fees associated with the purchase and sale of a home, such as taxes, title insurance, appraisal, lender fees, and other services carried out during closing. For buyers taking out a mortgage loan, closing costs are listed on the Closing Disclosure statement the buyer should receive from the lender at least three days before closing. Closing cost amounts vary depending on the buyer’s loan program, but they typically range from 2%–5% of the purchase price. The buyer’s down payment must also be paid at closing, but it is listed separately from the closing costs.
CLOSING DISCLOSURE:
A Closing Disclosure is a final statement of loan terms and closing costs that the lender must provide to the borrower at least three business days before closing in most transactions that involve a loan. The statement lists the loan terms, projected monthly payments, cash necessary to close the sale, and a detailed accounting of the closing costs. The three-day review period allows the borrower time to review the Closing Disclosure and compare it with the loan estimate, which the borrower should have received when he or she applied for the loan.
DEBT TO INCOME RATIO (DTI):
Your debt-to-income ratio (DTI) is the percentage of your gross monthly income (what you earn before taxes) that goes towards paying off debts. Debts can include car payments, credit card bills, child support payments, and student loans. When figuring out how much money you can afford to borrow, your lender will factor in the total percentage of your income that you pay toward debt every month. This number is your DTI, and it affects your credit rating.
DEED:
A deed is a legal document filed with the county that documents the transfer of home ownership. The seller signs a deed in favor of the buyer when the deal closes. After recording, the original deed is provided to the buyer and the seller receives a copy.
DOWN PAYMENT:
A down payment is the amount of money a buyer pays at closing to fund a home purchase, usually expressed as a percentage of the total home price. The required down payment amount varies depending on the type of loan, ranging from as little as 3.5% for an FHA loan to more than 20% for some conventional loans. Mortgage Insurance is required for borrowers with a down payment of less than 20%. Down payments are usually paid via cashier’s check or wire transfer and must be paid at closing.
EARNEST MONEY:
Earnest money is the money you pay soon after a home seller has accepted your offer on a home.
Your earnest money will be deposited into an escrow account. Once the sale of the home has been completed, the earnest money you paid will be applied toward your closing costs.
EASEMENT:
An easement is a limited right to use another person’s land for a specific purpose. For example, an easement may be granted by a homeowner to a neighbor to cross the homeowner’s land for access to a road. The easement allows the neighbor to use the land for that specific purpose, and the neighbor has no right of possession or the authority to build or plant on the land without the homeowner’s permission. Other common examples are easements granted for the placement of utility poles, water lines, and sewer lines. Easements are documented in a title report and may affect what a buyer can build or plant on a property.
ESCROW:
Escrow is a neutral third party or attorney that handles the exchange of money and documents in compliance with the Purchase and Sale Agreement and any escrow instructions. Escrow handles the transfer of the buyer’s loan documents and property taxes and works with a buyer’s lender and real estate agent to make sure the title of the home is clear of liens before the transfer of ownership.
HOMEOWNERS INSURANCE:
Homeowners insurance is a combination of property insurance, which protects homeowners from future damages to a home, and liability insurance, which protects homeowners from claims by third parties for accidents that happen in the home. The form of the policy will vary depending on the type of property being insured (e.g. condominium, mobile home, single-family residence, etc.) and the amount of coverage the owner desires. Lenders require that buyers obtain homeowners insurance so insurance premiums will automatically be included in monthly mortgage payments and the transaction closing costs.
MORTGAGE INSURANCE:
Mortgage insurance protects the mortgage lender against loss if a borrower defaults on a loan. Private mortgage insurance is required for borrowers of conventional loans with a down payment of less than 20%. FHA loans and VA loans are essentially public mortgage insurance, as borrowers pay higher insurance premiums in exchange for a low down payment. These funds allow the FHA to insure lenders against losses if borrowers default on FHA-approved loans.
Mortgage insurance costs are included as part of the monthly loan payment. FHA-insured loans have two mortgage insurance components: an upfront premium and a monthly payment. The upfront premium is paid at closing, whereas the monthly payment is paid until the borrowers reach a certain loan-to-value ratio on their mortgage loan, based on the final sale price of the home.
PITI:
Principal, Interest, Taxes, and Insurance (PITI) make up a total monthly mortgage payment. Principal is the amount borrowed from a lender, not including interest or additional fees. Depending upon the lender’s requirements, property taxes, homeowners insurance, HOA dues, and mortgage insurance may also be calculated into the monthly mortgage payments.
SURVEY:
A survey refers to the process of locating and measuring a property’s boundary lines to determine the exact amount of land that a homeowner owns. A survey will also locate and measure any easement or encroachment on a property, which will be noted on a home’s chain of title. Buyers have a property surveyed after making an offer to make sure any issues with easements or encroachments are documented and resolved before closing.
TITLE:
Title is the right to, or ownership of, a specific real estate property. Buyers get a preliminary title report from an escrow agent or attorney within a week after they reach mutual acceptance on an offer. The report identifies all parties with a legal claim to the property, what items need to be cleared from title before the new buyer can take possession, and if there are any recorded easements or encroachments on the property. Once the transaction closes, the buyers will receive a final title policy recording their names as the new legal owners, along with the amount of title insurance. This information is part of a county’s public records.
TITLE POLICY:
Title insurance compensates the insured buyer or lender if title defects, liens, or competing claims of ownership on a property arise after closing. If you have title insurance and you lose your home due to a title dispute, an owner’s policy could compensate you for that loss and help cover legal fees related to the dispute.
