Post details: The 10 Most Common Real Estate Terms


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The 10 Most Common Real Estate Terms

Lew Sichelman
Translating ARMs, PITI, LTV ratios and more.

Learn what these 10 key terms mean before you buy that dream house, and you may be able to save a lot on interest costs, fees, and other charges, or get much more home for your money.

rate mortgage Adjustable-rate mortgage (ARM)
Also known as settlement, act of sale, or closing escrow. This type of loan's rate changes anywhere from once in six months to once in five years to reflect interest rate changes. To sell an ARM, a lender will offer a lower initial rate than on a fixed loan.

Also known as settlement, act of sale, or closing escrow. This is when buyers sit down, maybe with a lawyer, and sign a bewildering mound of papers. At the end, the deal is done, and the home is yours. Some states require both buyers and sellers to attend closings.

The document that lays out terms of the deal: price, mortgage amount, when the deal closes, what stays or goes (such as that freezer in the garage), even the agent's commission.

Conventional mortgage
The most common home loan, this type of mortgage is not insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs.

Fixed-rate mortgage
In this type of mortgage, payments stay the same during the term of the loan. Fixed-rate loans are often made for 15 years or 30 years. You can cut the interest rate by taking a shorter-term loan, but the monthly payment will be higher.

Every homebuyer should demand this independent, third-party examination of the property prior to the sale. If the inspector finds a problem, such as a bad furnace or roof, the buyer can demand repairs, or a lower price, as a condition of the sale. Cost to buyer: $200 to $350 for most homes. Buyers should attend inspections.

Loan-to-value ratio (LTV)
What you're borrowing compared to the price. The smaller your down payment is, the higher the ratio and the riskier the mortgage. When you apply for a loan, a lender will study the ratio closely.

The owner's typical monthly payment, which includes principal, interest, (property) taxes and (mortgage) insurance. Most lenders collect a portion of annual tax and insurance bills each month, then pay them when they're due.

A point is 1 percent of the loan amount. For example, two points on a $100,000 loan would be $2,000. You can pay points to get your lender to give you a lower interest rate. Or, you can refuse to pay points and keep the interest rate offered. Often the increase in payment is quite small, so weigh the pluses and minuses carefully before you decide. Points are also called loan discount fees.

Private mortgage insurance (PMI)
If your down payment is less than 20 percent of the property's cost, most lenders will require you to obtain private mortgage insurance, which protects your lender if you default on the loan. Cost: $45 to $75 a month. Be sure you can cancel the private mortgage insurance policy when you've paid your loan to less than 80 percent of your home's value.

Better Homes and Gardens



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