If you are looking to buy a home, nobody would blame you for feeling slightly overwhelmed. On top of physically packing your belongings, ensuring you have your finances in check and more, you’re faced with legal real estate jargon that may as well be in another language. You are not alone in feeling this way. Here are some of the most common real estate terms explained:
Back-end ratio: Lenders use this ratio to determine a borrower’s eligibility for a home loan. The ratio compares the borrower’s monthly debt payments to gross income.
Housing ratio: The second of two debt-to-income ratios that a lender will analyze to determine a borrower’s eligibility for a home loan. The ratio compares total housing costs to gross income.
Cash-value policy: An insurance policy that pays the replacement cost of a home, minus depreciation, should the house get damaged.
Closing: This is where the buyer, seller, and real estate agents meet and transfer ownership of the home from seller to buyer.
Down payment: Generally, the loan you choose will dictate a minimum payment requirement, which is a portion of the home’s purchase price.
Fannie Mae: A government-sponsored enterprise that helps ensure a reliable supply of mortgage funds across the country.
Freddie Mac: A government agency that provides a continuous source of mortgage funding for the country’s housing markets.
Jumbo loan: A loan exceeding the Fannie Mae/Freddie Mac limit ($425,100, in most cases).
Guaranteed replacement coverage: Homeowners insurance that covers the cost of replacing damaged property based on current prices, not the original purchase price.
Loan estimate: This is a document sent to an applicant three days after applying for a home loan. The document includes closing costs, loan terms, and your monthly payment cost.
Pre-approval: Generally, a real estate agent will request a pre-approval before showing a buyer a home. Essentially, it is an assessment of a borrower’s assets to determine a loan amount they would qualify for.
Under contract: This is the period of time after a seller has accepted the buyer’s offer on a home. In this period, the buyer will generally order a home inspection and appraisal.
Walkthrough: This is the buyer’s final inspection of a home before buying, to ensure nothing has changed since the house was last inspected.
VA loan: A VA guaranteed loan is a loan made by private lenders, such as banks or mortgage companies to eligible veterans for the purchase of a new home.
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