Paula Henry

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Simple Real Estate Definitions : Home Inspection

September 9th, 2008 categories: Indy Home Buyers, Indy Home Sellers, Real Estate Terms

A home inspection is a complete review of the systems and structure of a houseA home inspection is a complete, top-to-bottom, visual check-up of the structure and systems of a house. 

It is meant to be an objective determination of a home’s condition.

A home inspection usually takes 3-6 hours to complete, depending on the size of the home. 

During the inspection process, the inspector will examine all of the following components of a home:

  • Home exterior including doors, decks, and vegetation
  • Heating and cooling systems for leaks and efficiency
  • Electrical systems for safety and soundness of design
  • Plumbing systems for venting, distribution, and drainage

In addition, the inspector will review the roofing system, the home’s interior, and several other parts of the property.

A home inspection may be ordered by a home owner or by a home buyer.

For a home owner, an inspection can detail a home’s shortcomings and provide a roadmap for repairs.  This can help a person prepare his home for sale because “major issues” can be addressed in advance of listing.

For a home buyer, a home inspection physically reviews a home under contract, identifying structural flaws that may impact the home’s desirability.  This is essential for the negotiation process because no home is “perfect” – even new ones!  

A home inspection highlights potential long-term trouble spots and the likelihood for expensive home repairs.  This is why real estate professionals often recommend inspecting a home immediately after signing a purchase contract.

To find a qualified home inspector in your area, ask your real estate agent for a referral, visit the American Society of Home Inspectors Web site or the National Association of Certified Home Inspectors.

Source
American Society of Home Inspectors
Frequently Asked Questions on Home Inspections
https://www.homeinspector.org

(Image courtesy: Anderson Home Inspections)

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Real Estate Terms - BPO

August 20th, 2008 categories: Real Estate Terms

BPO is short for Broker Price Opinion. A BPO is most commonly used by banks and investors when determining the property value of a home which is in the pre-foreclosure process.

In place of a full appraisal, the bank or investor will hire a broker or agent to evaluate the property and provide a written opinion of value. We use our market knowledge and listing data to assist the bank in determining fair market value based on variables within the area of the subject property.

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Simple Real Estate Definitions : PITI

June 11th, 2008 categories: Indy Home Buyers, Real Estate Financing, Real Estate Terms

PITI stands for Principal, Interest, Taxes, and InsuranceMost homeowners make four housing-related payments each month:

  1. Principal on a mortgage
  2. Interest on a mortgage
  3. Taxes on the real estate owned
  4. Insurance for the real estate owned

Collectively, these payments are known by the acronym PITI but don’t let it fool you — a homeowner’s monthly expenses are still called PITI even if one or more of the elements doesn’t apply.

For example, a homeowner with an interest only mortgage does not pay principal each month. 

Additionally, condo owners typically don’t pay homeowners insurance — they pay a monthly assessment and/or maintenance fees to an association instead.

But regardless for what it stands, determining a comfortable PITI should be every homeowner’s starting point when looking for a new home.  PITI is the monthly housing cost, after all, and by knowing what fits in your budget, it’s a lot easier to compare homes and their related expenses.

Although you won’t hear it in PITI, the cost of Home Owner Association (HOA) fees will also be applied to your monthly housing cost by your lender. It should also be a consideration when budgeting your monthly expenses.

It’s certainly better than asking the bank “how much home can I afford” — all that’s going to tell you is the P and the I.  As a homeowner, you need to know all four.

PITI is most commonly pronounced pee-eye-tee-eye.

(Image courtesy: Contractor-Books.com)

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Simple Real Estate Definitions: Discount Points

April 4th, 2008 categories: Indy Home Buyers, Indy Home Sellers, Real Estate Financing, Real Estate Terms

discount points are up-front fees charged by mortgage lenders in exchange for lower mortgage rates

More commonly called “points”, discount points are up-front fees charged by mortgage lenders in exchange for lower mortgage rates. 

The cost of one point is one percent on the loan size and discount points appear on Line 802 of the HUD-1 Settlement Statement.

As a general guideline, each point paid lowers a mortgage lender’s offered interest rate by 0.250%. 

For example, a $200,000 home loan offered at 6.000% can be had for 5.750% if the borrower agrees to make an up-front payment of one point ($2,000).

Discount points can be an effective sales strategy for home sellers. In some areas of Indianapolis, where there is a lot of competition in the resale real estate market, sellers offering to pay discount points can help the buyer get a lower loan cost. It is generally less than price reductions, saving both the seller and the buyer money.

In addition to lowering your interest rate, discount points (as well as other closing costs) may be tax-deductible, too.  Therefore, be sure to provide any settlement statements from the previous calendar year to your accountant during Tax Season.

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Simple Real Estate Definitions : Loan-to-Value

March 7th, 2008 categories: Real Estate Financing, Real Estate Terms

Loan-to-value is often abbreviated as 'LTV' and is one of the many factors that lenders consider when underwriting a mortgage application.Loan-to-value is a math formula that represents the relationship between how much a home is “worth” and how much money is borrowed against it.

Loan-to-value is often abbreviated as “LTV” and is one of the many factors that lenders consider when underwriting a mortgage application. 

The math formula is straightforward:

Loan-to-value calculation

In the LTV equation, Loan Size is the amount of money borrowed from the bank and Home Value is the lower of the home’s purchase price or appraised value.

Home loans with low loan-to-value ratios are usually less risky for banks.  This is one reason why mortgage rates tend to be more favorable for home buyers and homeowners when their respective LTVs are low.

Typically, a “low” LTV loan is one in which the loan-to-value is 80 percent or less.  In some instances, however, 70 percent is considered “low”.  The cut-off point depends on the mortgage lender and the mortgage product.

On a home purchase, the one way to lower LTV is to make a larger downpayment, thereby reducing the LTV equation’s numerator.  Buying a home for below-market value would not reduce LTV, for example, because the purchase price would be used as the equation’s denominator.

On a home loan refinance, the denominator is always the home’s appraised value.

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