If you’re in the middle of a home purchase, you’ve probably heard some terms that sound unfamiliar. After all, if you’re a first-time homebuyer, or even if it’s been a while since your last home purchase, it might feel like you’re being introduced to a whole new world!
To help make the home buying process easier, we put together some of the terms most unfamiliar to our clients. Understanding these terms will set you up for success throughout your real estate transaction and beyond.
Appraisal: If you are getting a loan to purchase your home, you will need an appraisal. This is an important event since your lender will not approve a loan for more than the appraised value. The appraisal determines the home’s value. Your appraiser will look at the property to see how it measures up to recently sold homes similar in size and amenities. If the home does not appraise for the price you and the seller agreed on, you’ll have to either renegotiate the price or come up with the difference in cash.
Earnest Money: Once you get under contract on a home, you will be required to give an earnest money deposit to the title company. The amount of your earnest money varies, but it will be outlined when you make your offer. Before you roll your eyes at another fee, know that earnest money will go toward your down payment or closing costs at the close of escrow.
PMI: PMI is an acronym for Private Mortgage Insurance. This insurance policy protects the lender in case you were to default on the loan. You can expect to pay between 0.25% and 2% per year in PMI. Not every first-time home buyer will have to pay PMI, you’ll only be responsible for paying this additional fee if you do not have at least a 20% down payment.
It’s important to note that depending on the type of loan you get, you may be able to have this additional fee removed once you have 20% equity in your home.
DTI: DTI stands for Debt-to-Income. This ratio is important because it is part of a lender’s decision-making process to approve your loan. They’ll look at how much you owe on credit card debt, car loans, student loans, and any other type of loan. If you already have too much debt, they will worry that you won’t be able to make your mortgage payments.
Inspection Period: The inspection period is usually the first 10 days that the home is under contract. During this time the buyer (that’s you) can hire a home inspector to make sure everything inside the home is in working order. It would help if you also looked through the CC&Rs during this time to make sure you’ll be able to follow their rules. If you find something that you cannot live with, this is the time to cancel the contract. Doing so outside of the inspection will mean you have to forfeit your earnest money or open yourself up to legal consequences.
What else would you like to know about the home buying process? We are here to help! Please send us a message or give us a call to get started.