Thereâ€™s a lot to know when youâ€™re buying real estate. This high-ticket purchase could be the largest investment you ever make. You canâ€™t afford to let things get lost in translation, especially the language of the deal.
However, some real estate agents speak in industry lingo that brings back your worst high school foreign language class memories. Itâ€™s not their fault. Those confusing terms became permanently etched in their brains when studying for their real estate licensing exams.
While you might empathize, you can't be bamboozled or intimidated by jargon,Â because these terms can affect your financing. This plain-English guide is a strong start.Click to see today's rates (Apr 30th, 2017)
No, itâ€™s not a trick question, and we donâ€™t think youâ€™re dumb. But this definition isnâ€™t as simple as many people think,Â especially first timers. Itâ€™s not just the house weâ€™re talking about here.
Also called â€śreal property,â€ť real estate is the land and all the things permanently attached to it, like houses, garages, outbuildings like play houses, fences and trees. You might hear those things called â€śappurtenances.â€ť
Everything else is what real estate agents would call â€śchattels.â€ť Thatâ€™s personal property thatâ€™s removable.
Carpet that's nailed to the floor is an appurtenance; a rug you can roll up and take with you is a chattel.
Now you know whatâ€™s included in real estate, but there are many more terms to understand. Below are the ones youâ€™re most likely to hear tossed around on real estate shows. Watch those enough, and you think you know what they mean.
But, in the heat of these complex transactions, be sure you truly understand them. There are definitions within definitions to know.
Understanding real estate language can help you keep up with the process. These are in the order they typically happen in the home buying experience.
Many buyers donâ€™t understand the difference,Â but it's major.
Pre-qualification is the preliminary step in getting a mortgage. Itâ€™s only a â€śmaybeâ€ť that you can get a home loan based on unverified information provided by you.
Lenders give you an idea of how much you might borrow without your completing the formal application process. But they have not seen your credit report, and they have only your word about your earnings and assets.
We're not calling you a liar, but mortgage underwriters often calculate income differently than consumers do.
You can do this â€śno guaranteesâ€ť process in a few minutes by phone.
Youâ€™re only pre-approved after you go through the full mortgage application process, have yourÂ mortgage credit checked,Â and submit all the required paperwork.
When itâ€™s done, you get a conditional commitment from a lender for a mortgage for a maximum amount. It includes a Loan EstimateÂ of what your home loan will cost.
Itâ€™s best to have your financing pre-approved before you start looking. Real estate agents and sellers take you much more seriously when you can prove a lender will fund your mortgage.
Typically called â€ścomps,â€ť these are a comparison of similar size homes in the same neighborhood with similar features to home you want. This comparison also considers past or current home sales in that area or a similar one nearby.
Comparable sales are one tool for determining home values, so getting these from your real estate agent is important. They can tell you if the seller's asking price is fair, too much, or a screaming deal.
Remember, even in a sellerâ€™s market, the sellerâ€™s asking price might be unrealistic. Comps confirm that.
When you bid on a property you want, you complete a signed â€śoffer to purchase.â€ť An offer contains the price youâ€™re willing to pay, the propertyâ€™s legal description and other sale terms and conditions.
The seller can reject your offer, or submit a counteroffer. CounteringÂ means they're rejecting your offer, but are willing to negotiateÂ a different selling price or other terms. You, in turn, can reject or counter that offer.
Eventually, youâ€™ll either walk away or you'll get an acceptedÂ offer. Â The offer becomes a purchase agreement once both you and the seller agree in writing on its terms.
Do your homework on offers and be ready before you make your first offer. Then, do whatâ€™s possible to make yours stand apart and get accepted.
Some offers include contingencies -- eventsÂ that must occur to complete the transaction. Inspections, financing, and appraisal are all contingencies.
You can make an offer subject to selling your current home, or to your obtaining a certain kind of financing like a USDA home loan. There are others, and they are negotiable.
Contingencies allow you to back out of the contract if theyÂ donâ€™t happen. When there are pending offers on a house, and the deal doesn't close, contingencies areÂ often the reason.
Some sellers donâ€™t accept offers with contingencies, especially related to your securing financing or selling your home. Your real estate agent usually knows when thatâ€™s the case.
In multiple bid scenarios, sellers see offers without financing contingencies as stronger. If possible, youâ€™ll want to avoidÂ offers with contingencies in a bidding war.Click to see today's rates (Apr 30th, 2017)
Youâ€™ll put down earnest money to show the seller youâ€™re serious. Usually about one-to-three percent of the asking price, it binds the contract once the seller accepts it and buys time to get financing in place.
Earnest money may be refundable if you can't complete the purchase, or it can be non-refundable. If you have a non-refundable deposit, and you can't get your financing approved, you could loseÂ your money.
You should your deposit back if the sellerÂ rejects your offer or backs out after accepting. Make sure the offer spells all this out.
If the deal gets done, your earnest money goes toward your down payment.
This comes after a purchase agreement is in place. It determines the value of the house based on a licesensed appraiserâ€™s educated and objective assessment.
Appraisers prepare a written appraisal report justifying their opinion ofÂ the homeâ€™s value. They can value the property three different ways -- by calculating the cost of replacing it, by comparing it to sales of similar properties nearby, or by the rental income it could generate. The sales comparison approach is by far the most common.
Keep in mind appraisers donâ€™t inspect for defects like home inspectors do.
Youâ€™ll need this professional assessment to get your mortgage funded. LendersÂ base their loan amounts on theÂ lesserÂ of the sales price or the appraised value.
An appraisal contingency protects you by letting you out of the deal if the appraised value is less than the sales price. You can renegotiate or rescind an offerÂ in that case. You can appeal an appraisal if you feel it's too low.
Anything that affects or limits the clear transfer of title to real property to a new owner is an encumbrance. That includes mortgages, easements (gives access rights to the property by someone other than the owner), tax liens or court judgments.
Thatâ€™s why itâ€™s important to get a title search before closing to find out what might be attached to that property before you buy. Mortgage lenders order title searches because they want to make sure they can sell it and recover their money if you default on the loan.
Encumbrances arenâ€™t always deal breakers, but in some cases, it takes court action to remove them. In others, they're a negotiation tool for a better deal.
This research determines whoâ€™s held title on a piece of real estate since the first title was issued, and who still does. This process determines whether any of those encumbranceÂ described above exist.
Youâ€™ve heard the nightmare stories of about long-lost relatives who turn up withÂ ownership interest in a house, foreclosures that shouldn't have happened, or some other â€ścloudâ€ť or defect on the title.
That can include the property deed being incorrect and the seller not owning all the real estate theyâ€™ve put up for sale. That means a property isnâ€™t clear for sale and you could lose what you paid for.
Even when the research seems to clear the title, you might want to get title insurance.
There are two kinds pf title insurance -- a lender's policy, which you'll have to purchase if you have a mortgage, and an optional owner's policy.
The lenderâ€™s title insurance doesnâ€™t protect you against a title claim that can cost you the house. So, you should get your own Â title insurance, which protects your equity in the house.
You wonâ€™t regret having it if some long-lost relative makes a claim on your abode, or thatÂ the seller didn't have the right to sell it to you in the first place.
The act of "conveying" something means moving it or transferring it. And that's what a conveyance is -- a legal document transferring property from a former owner to a new owner.
Transfers of property are public record, and the conveyance is normally filed with the county government when you close on a property purchase.
Joint tenancy is one way for two or more people to own property together. This is common with spouses or domestic partners. The other widely-used type of shared ownership is tenancy in common.
Each joint tenant holds an equal share in the property to the others. All owners are on the deed, are responsible for the mortgage and usually must agree to refinance or sell the property.
With tenants in common, the shares can be unequal in size, and each owner can sell or transfer his or her interest any time.
Joint tenancy comes with "right of survivorship." That means if one owner dies, his or her interest reverts to the surviving joint tenants, not the heirs of the deceased joint tenant.
Tenants in common can leave their interest in the property to anyone they wish.
You already know what this is. Thatâ€™s the day when a home officially becomes yours. You sign a stack of paperwork, part with your down payment, pay all those closing costs, hand over the mortgage check to the seller. In exchange, you get the keys to your new kingdom.
Put in work between choosing your real estate agent and lender and your closing date. That includes know these and multiple other definitions.
Today's mortgage rates depend on the type of home your purchase and how you plan to use it. For example, single family homes cost less to finance than condos, manufactured homes or ranches. And primary residences come with lower mortgage rates than vacation homes or rental.
Whatever sort of property you buy, however, you can get a better rate by shopping and comparing offers from competing lenders.Click to see today's rates (Apr 30th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)