FAQs - Frequently Asked Questions
Besides making my monthly mortgage payment, how can I build equity into my house?
When making your monthly mortgage payment, try to send a little bit more.
This will go directly to the principal of the loan rather than the interest.
Even an extra $50.00 per month can quickly build your equity, as well as knock years off of your loan.
How big is an acre?
An acre is an area of land equal to 43,560 square feet. For visuality purposes, an acre is most often compared to
the size of a football field - not counting the two end zones, which are each 30 feet in length. Now try to envision
one square mile, which is equal to 640 acres!
How can I figure out my debt-to-income ratio?
To figure out where you stand on the debt-to-income ratio, you must first understand the meaning of the figure.
Most lenders use the ratio 28/36.
The first number, which is also referred to as the front-end ratio, is the percentage of your gross monthly income
that you could comfortably afford to spend on your housing payments or mortgage. This figure includes the money you
spend on property taxes and insurance as well as the loan payment itself.
The second number, which can also be referred to as the back-end ratio, is the percentage of your gross monthly income
that should be spent on all long-term monthly debts combined.
Use the following guidelines to find out where you stand:
- First, figure out your gross monthly income (your income before taxes). To do this, take your gross yearly income and divide it
by 12.
- Multiply this figure by 28 percent (.28). The amount you come up with is TYPICALLY the amount you could comfortably afford to
spend on your housing payments per month.
- Now, take your gross monthly income (your gross yearly income divided by 12) and multiply it by 36 percent (.36).
The figure shown should be the TOTAL amount of money you spend on ALL LONG-TERM DEBTS COMBINED. To get a more accurate mortgage
estimate, tally up your monthly bills - which include car payments, credit cards, child support, alimony, etc. - and subtract
this amount from the figure you just came up with. However much money is left over is the amount you should truly be
spending on your housing payments per month.
How much money can I borrow to buy a home?
To begin, you'll need to figure out what your gross income is (before taxes) monthly and yearly. To get a quick ballpark figure,
take the yearly income of yourself - and your co-purchaser if applicable - and multiply by 2 to 2 1/2. Most people will fall
into this category. There are other things to consider, however. If you have a large down payment combined with little to no
bills, the lender may believe that you could afford a more expensive home than the ballpark figure allows.
I looked at a property yesterday with a REALTOR® who seems to be clueless. I am really interested in purchasing the
property, though. Can I switch agents and still make the purchase?
If you truly want to purchase that property, the only ethical thing to do is to purchase it through that REALTOR®.
Otherwise, you could set up potential conflicts between your previous agent and whatever new agent you may choose.
If I want to buy a house and I know the property and the seller already have an agent, can I act as my own
agent and negotiate a lower fee?
You probably don't have the correct knowledge to represent yourself. The seller pays the real estate commission, not the buyer,
and real estate commissions are already set in the listing contract. It doesn't cost you anything to have your own agent represent
you because the seller is already paying for it.
Is depreciation common?
Generally, real property never depreciates in value, or more so, it is not very common for property to depreciate.
This is why it's a great investment. Carefully consider location and community when choosing a home, it could make a
big difference.
What are basis points?
Basis points relates to changes in the interest rate for your home.
What are closing costs?
Closing costs are expenses incurred by buyers and sellers in transferring ownership of a property.
What are comparables or comps?
Recently sold properties that are similar in size, location, and amenities to the home for sale. These properties help an appraiser determine the fair market value of a property.
What are discount points?
Discount points are a type of point paid by the borrower to reduce the interest rate.
What are paid advertorials?
Paid advertorials are articles written by public relations professionals that have just one goal in mind - to get you to buy a home. I'm sure you've seen them all over Newspaper Ads, Billboards and Internet Ads. They usually start off with phrases like "Imagine yourself living in splendor...." or "Enjoy the luxory of Californian-Style living at an affordable price....." These advertisements are not necessarily bad, but can be very misleading.
What are prepayment penalties?
A penalty fee charged for paying off a mortgage early, thus allowing banks to still make money off of the loan in the event that you inherit a small fortune. Most loans these days do not have prepayment penalties - and if they do, they are only applicable for the first few years of the loan.
What does a back-end ratio mean?
A borrower�s other debts, such as auto loans and credit cards, figured into the debt-to-income ratio.
What does an appraisal mean?
An appraisal is an estimate of the value of a certain property by a qualified, independent individual.
What does FSBO mean?
FSBO means for sale by owner.
What does preapproved mean?
When you are preapproved, you have a definite commitment from a lender
What does the Real Estate Settlement Procedures Act (RESPA) require?
The Real Estate Settlement Procedure Act requires the lender to disclose certain information about a loan, including the estimated closing costs and APR.
What happens when a property starts to depreciate?
When a property depreciates it declines in the value of the property due to poor location, dilapidation, or other factors.
What happens when you prequalify?
When you are prequalified, the lender gives you an estimate but does not formally commit to giving you a loan.
What is a basic policy?
A basic policy is a homeowners insurance policy that covers certain perils.
What is a broker?
An agent who is authorized to open and run his/her own agency. All real estate offices have one principal broker.
What is a Buildable acre?
A Buildable acre consists of 43,560 square feet of residentially designated buildable land, after excluding present and future rights-of-way, restricted hazard areas, public open spaces and restricted resource protection areas set by the local city, county, or state government.
What is a buydown?
A type of financing in which a developer or seller arranges for the buyer to get a loan at a rate below the current market rate. The developer or seller pays interest costs in order to lower the interest rate but usually raises the price of the house to recoup this loss.
What is a buyers agent?
On most transactions, there is usually a listing agent and a selling agent. The selling agent is sometimes referred to as the buyer's agent, because he works on the buyer's behalf and it easier than explaining each time that the "selling agent" is not the listing agent and is actually the buyer's agent.
What is a buyer�s agent?
An agent hired by buyers to help them find and negotiate the purchase of a home. This agent works for the best interests of the buyers, not the sellers.
What is a cap?
A limit on an adjustable-rate mortgage.
What is a closing?
The process of finalizing all the dealing associated with the sale and purchase of a home. (Also known as a settlement)
What is a commitment letter?
A commitment letter is a formal offer of a loan by a lender. The letter states the terms under which the lender has agreed to the loan.
What is a contingency?
A contingency is a provision included in a sales contract stating that certain events must occur or certain conditions must be met before the contract is valid.
What is a counteroffer?
A counteroffer is an offer made by one party that makes changes to the original or latest offer of the other party.
What is a credit report?
A credit report is a report of all your debt information compiled by an independent agency. The credit report shows all outstanding debt as well as a record of payment on outstanding debts.
What is a debt-to-income ratio?
A debt-to-income ratio is the percentage of a person�s monthly earnings used to pay off all debt obligations.
What is a deed?
A deed is a legal document that conveys the title to a property.
What is a default?
A default is when a person fails to make payments on a loan.
What is a down payment?
A down payment is the money you pay up front for the purchase of a home.
What is a foreclosure?
A foreclosure is the legal process by which a mortgage property is seized due to default and then sold.
What is a front-end ratio?
A front-end ratio is a ratio of the borrower�s monthly housing expenses-including principal, interest, property taxes, and insurance (OITI)-compared to the borrower�s gross, pretax monthly income.
What is a gated community?
A gated community is a community of homes where you must pass through a security gate in order to enter the community.
What is a gift letter?
A gift letter is when an individual gives you money for a down payment as a gift, that person must write you a gift letter so that it can be included in your loan documentation.
What is a Good Faith Estimate?
A Good Faith Estimate is when a lender must give a prospective homebuyer a written estimate of closing costs within three days of submitting a mortgage loan application.
What is a home warranty?
A home warranty is a guarantee for certain features of a new home-for instance, the materials and workmanship, the main components of the house, and so on.
What is a housing ratio?
A housing ratio is the percentage of your housing payment (principal, interest, taxes, and insurance) to your monthly gross income. Lenders use this ratio to qualify you for a loan.
What is a lien?
A lien is a claim against a property.
What is a lifetime rate cap?
A lifetime rate cap is an adjustable-rate mortgage (ARM), this cap limits the amount the interest rate can increase or decrease over the life of a loan.
What is a loan origination fee?
A loan origination fee is a fee charged by the lender-usually 1 percent of the loan amount.
What is a loan-to-value (LTD) ratio?
A loan-to-value ratio is used by lenders to state how much you have financed. If you put down 20 percent on a purchase, you finance 80 percent and have an 80 percent LTV.
What is a lock in?
A lock in guarantees a certain interest rate for a certain period of time.
What is a maintenance fee?
A maintenance fee is a charge by condominium associations, co-ops, or other homeowners associations for the upkeep of the property.
What is a Multiple Listing Service (MLS)?
A multiple listing service is a computerized listing of the homes for sale in an area listed with a realtor. Agents are granted access to the MLS and can use it to find a house in a particular price range or area.
What is a negative amortization?
A negative amortization is a type of loan situation that occurs when the monthly payments do not cover the principal or interest. Instead of declining, the balance of the loan actually increases.
What is a point?
A point is equal to 1 percent of a loan amount. Lenders charge points in exchange for lowering the interest rate.
What is a principal?
Principal is the amount of money borrowed and still owed on a loan not including the interest.
What is a proprietary lease?
A proprietary lease is lease used for co-ops that give the shareowners the right to live in a particular unit.
What is a proration?
A proration is the division of certain fees. If the sellers have paid the taxes six months in advance, for example, they may want a portion of that payment back for the months you are living in the house.
What is a qualifying ratio?
A qualifying ratio is the percentages a lender compares to see whether you qualify for a loan.
What is a quit claim deed?
A quit claim deed is a formal document that denies a claim to a certain property. Often used to clear problems with a title or as part of a divorce settlement.
What is a rate lock?
A rate lock is a commitment issued by a lender to a homebuyer or to the mortgage broker guaranteeing a specific interest rate for a specified amount of time.
What is a sales contract?
A sales contract is the contract you draw up when you want to make an offer on a home.
What is a seller disclosure?
A seller disclosure is a form required by most states; the seller uses this form to disclose any known defects of the home.
What is a seller takeback?
A seller takeback is a type of financing in which the seller arranges for the financing on a property.
What is a spec house?
The textbook definition of a spec house is "one built on a speculative basis, without an order on the books". Commonly, a buyer will be unsatisfied with this type of house because it was not built or customized to their tastes.
What is a subdivision?
A subdivision is a piece of land divided into several plots in which homes are built.
What is a survey?
A survey is an examination of a property's boundaries to determine the quantity of land, location of improvements, and other information. Usually the surveyor includes a map or drawing of the legal boundaries of the property.
What is a term?
A term is the length of a loan.
What is a title search?
A title search is the process of reviewing court records and other records to ensure that there are no liens or claims against the property you are buying.
What is a title?
A title is the right of property ownership.
What is a treasury index?
A treasury index is an index used to determine interest-rate changes for certain adjustable-rate mortgages (ARMs). This index is based on the results of auctions the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
What is a VA loan?
A VA loan is a type of loan available to veterans and guaranteed by the Department of Veterans' Affairs.
What is accession?
The right of a property owner to have and enjoy all of the advantages of property ownership including air right, mineral rights, riparian rights, and rights to alluvion, as well as manmade improvements. However, a possessor of the property, other than the property owner, is entitled to the increase in property value created by improvements made to the property when the value of the skill, labor, and improvements exceeds the value of the property.
What is an agent?
A person authorized to work on another�s behalf-for instance, a person authorized to sell or buy a house on your behalf.
What is an amortization?
The process of paying off a loan balance. As you make payments, a certain amount is applied to the principal and a certain amount to the interest.
What is an appraised value?
An opinion of a property�s fair market value, based on an appraiser�s inspection and analysis of the property.
What is an appreciation?
Changes in the market conditions, or improvements to the property that increase the value of the property.
What is an APR and what does it include?
An APR stands for an ANNUAL PERCENTAGE RATE. This rate includes the costs of any points paid, mortgage insurance, and other costs.
What is an assessed value?
The public tax assessor value of a property as determined for the purpose of taxation.
What is an easement?
An easement is the right given by the landowner to use the property.
What is an escrow officer?
An escrow officer - also known as a loan officer - is the person that walks you through the closing process. They are usually employed by the title company that you are working with. They are a neutral third-party, responsible for overseeing the escrow process. They typically perform the title searches, prepare final paperwork, witness the document signings as well as ensure that the transaction is executed properly and legally.
What is an index?
An index is an economic indicator used to set the rate for adjustable-rate mortgages.
What is an inspection?
An inspection is a close and thorough examination of a house and property. A licensed individual usually does the inspection.
What is an interest rate?
An interest rate is the percentage the lender charges you for borrowing money.
What is an investment property?
An investment property is a property you purchase with the intension of using it as a rental income or for investment purposes rather than to live in.
What is an origination fee?
An origination fee is a fee paid to a lender for processing a loan application.
What is an overall debt ratio?
An overall debt ratio is the percentage of your overall debt (housing payments plus any other long-term debt) to your monthly gross income. Lenders use this ratio-sometimes called the back-end ratio-to see whether you qualify for a loan. Common overall debt ratios are 33 or 36 percent.
What is commission?
The fee an agent earns for the sale of a home-usually a percentage of the selling price.
What is comprehensive homeowners insurance?
Comprehensive is the most expensive type of homeowners insurance; it covers the most potential damages such as fire damage, water damage not caused by flooding (which would fall under your Flood Insurance policy), your personal possessions, personal liability, theft and vandalism. It is usually required that you carry at least a basic hazard insurance policy.
When concerning homeowners insurance, it's important to shop around as soon as possible to avoid being caught in a jam in the event that your insurance company refuses to insure your home.
You have two options concerning comprehensive homeowners insurance: Guaranteed Replacement Cost Coverage & Straight Replacement Cost Coverage. Guaranteed Replacement is not available everywhere, but is recommended if you can afford it as it pays to rebuild your home even if the amount to rebuild exceeds your policy limit. Straight Replacement is a cheaper choice, but it is limited. It will pay to rebuild your house in the event that it is destroyed, however it will only cover costs up to the policy amount - so if you choose this option, make sure to buy enough coverage to rebuild.
What is cooperative?
Cooperative is a form of home ownership in which you own shares in a corporation. In return for the purchase of shares, you are allowed to live in a unit in the co-op building.
What is depreciation?
Depreciation is a decline in the value of property due to general wear and tear, or is also known as an annual allowance that helps you recover on your taxes the cost of the property. Property depreciation occurs most commonly with rental or investment property, which allows for certain tax breaks.
What is earnest money?
Earnest money is a deposit you make when you make an offer on a house.
What is equity?
Equity is the financial interest or cash value of your home, minus the current loan balance(s). If selling the home, this would also be minus any costs incurred in selling the home.
If you're buying a home and don't have very much money for the down payment, you may want to find out if the seller would be interested in "sweat equity". This would allow you to perform the labor on any needed repairs and maintenence to the home, (such as outside repairs, painting or electrical work) in exchange for credit towards closing costs.
What is escrow?
Escrow is a trust account created by a neutral third party to hold money for the seller or buyer. When you put down a deposit on a house, for example, you should put that money into an escrow account. When the sale is complete, the money can be released from this account to the seller. You should also set up an escrow account for your taxes and insurance. Your monthly mortgage payment includes payment for 1/12 of your taxes and insurance. This money is kept in an escrow account. When the bill comes due, your mortgage company uses the escrow money to pay it.
What is flood insurance?
Flood insurance is insurance that compensates for the physical property damage resulting from rising water.
What is hazard insurance?
Hazard insurance is insurance coverage that compensates for physical damage to a property from natural disasters such as fire or other hazards.
What is homeowners association (HOA)?
Homeowners association is a nonprofit association that manages the common areas of a condominium or "planned unit development" (PUD). Unit owners pay a fee to the association in order to maintain areas such as a pool or playground that are owned jointly.
What is homeowners insurance?
Homeowners insurance is an insurance policy that combines personal liability insurance and hazard insurance coverage for a residence and its contents.
What is joint tenancy?
A joint tenancy is an equal, undivided ownership in a property by two or more individuals.
What is PITI and what does it stand for?
PITI is the total monthly payment you make on a house-Principal, Interest, Taxes, and Insurance.
What is principal?
Principal is the amount of money borrowed and still owed on a loan not including the interest.
What is the difference between a real estate broker and a real estate agent?
The terminology used to identify real estate professionals differs a little from state to state. Brokers are usually required to have more education and experience than real estate agents. The person you normally deal with is a real estate agent. The salesperson is licensed by the state, but must work for a broker. All listings are placed in the broker's name, not the real estate agents.
What is the difference between being prequalified and preapproved for a loan?
The difference between being prequalified and preapproved is simple:
If you're prequalified it means that you POTENTIALLY could get a loan for the amount stated to you, assuming that all of the information given was accurate and true.
If you're preapproved, it means that you have undergone the extensive financial background check - which includes looking at your credit history, previous tax returns and verifying your employment - and the lender is willing to give you a loan. You're APPROVED! So, they give you a letter that states such and it is valid for a approximately 60 days thereafter.
Notwithstanding the above, you will have an accurate figure which shows the maximum amount that you are approved for. Most sellers prefer buyers that have been preapproved because they know that there will not be any problems with the purchase of their home.
What is title insurance?
Title insurance is insurance that protects the lender and buyer against any losses incurred from disputes over the title of a property.
What is underwriting?
Underwriting is the process of evaluating a loan to determine whether the loan is a good risk.
What is zoning?
Zoning is the laws that establish how a property can be used and what codes must be followed when erecting new buildings.
What type of a home is a condominium?
A condominium is a form of homeownership in which the owner owns the airspace within the walls but doesn�t own the actual walls, ceilings, or floors of the home.
Who is a subagent?
A subagent is an agent who works with you to purchase a house but is paid by the seller.
Why do people refinance?
People finance to obtain a new loan in order to pay off the existing mortgage or to gain access to the existing equity in the home.
Why should I use a real estate agent?
A real estate agent is more than just a "sales person." They act on your behalf as your agent, providing you with advice and guidance and doing a job - helping you buy or sell a home. Due to the fast changing market, the data on available listings is not 100% accurate. There are times when you need the most current information about what has sold or is for sale, and the only way to get that is with an agent.
There are two types of agents, "Buyer's Agents" and "Seller's Agents". It used to be common for all parties involved to work for the seller, hence the term "Seller's Agent". Nowadays, you will most often find a different type of agent, the "Buyer's Agent". If you are in the market to buy, it would be advisable to use a Buyer's Agent. They can make recommendations on what terms and prices to offer as well as negotiating a deal with your best interest in mind. If you happen to be working with a Seller's Agent, never disclose to them the top dollar you are willing to pay for any property. Keep it narrowed down only to things that you would tell the seller directly.
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