Real Estate Terms
A few days ago, a first time home buyer asked me, “How many insurance policies do we have”? It really is a bit confusing when you start looking at the additional monthly costs of obtaining a loan. There are actually two insurance policies you need when financing a home. The first is your standard homeowners policy, which covers the structure and personal property against loss. The second is a Mortgage Insurance Premium (MIP) for a FHA loan or Private Mortgage Insurance (PMI) on conventional mortgage, where the borrower has less than 20% down payment. Both are a lender fee for...
APR is an acronym for Annual Percentage Rate. It’s a government-mandated calculation meant to simplify the comparison of mortgage options. A loan’s APR can always be found in the top-left corner of the Federal Truth-In-Lending Disclosure. Because APR is expressed as a percentage, many people confuse it for the loan’s interest rate. It’s not. APR represents the total cost of borrowing over the life of a loan. “Interest rate” is the basis for monthly mortgage repayments. The main advantage of APR is that it allows an “apples-to-apples” comparison between loan products. As an example, a 5.000 percent mortgage with origination points and fees will...
An escrow account is a designated savings account into which funds get deposited for a specific purpose. With respect to real estate and home loans, escrow accounts are used to pay real estate tax bills and homeowners insurance payments. Escrow accounts are managed and disbursed by lenders. When a homeowner “escrows” his mortgage, along with his scheduled monthly mortgage payment, he must also send an additional payment to the lender equal to 1/12 of the home’s annual real estate tax bill plus 1/12 of the annual homeowners insurance bill. By sending a pro rata portion of the tax and insurance...
The basis of most mortgage lending is credit scoring. In general, the higher a person’s credit score, the lower his offered mortgage interest rate. Despite the many credit scoring models in use today, however, just 3 are relevant to American homeowners: The Equifax BEACON® score The Experian Fair Isaac Risk Model The TransUnion EMPIRICA® Generically, these scoring models generate what are commonly known as “FICO” scores. FICO scores are measurements of probability. The higher a person’s credit score, by definition, the less likely a person is to default on his home loan. This is one reason why credit scoring has added importance...
One of the terms which is least understood and most overused in real estate is “average”. It gets used a lot in news media coverage of the real estate industry; I guess, simply because there is not a more definitive way to describe price or days on market. Let’s take a look at how average and median numbers are used in determining value. I’ll use the following graph to look at the numbers. This graph is the statistics for an Indianapolis suburb for the month of November, 2008. Averages Averages are determined by grouping together properties in a specific area, adding together all...
A mortgage is a contract between a lender and borrower, defining the terms by which a home loan must be repaid. The paperwork, signed by both parties, includes provisions for things like: The interest rate The length of the loan The amount of money to be borrowed But, like all loans, a mortgage loan can be paid off at any time. So, when market interest rates fall, homeowners will often exercise their right to an “early payoff” by securing a new loan that pays off the old one. This process is most commonly known as a refinance. A refinance is the...
For the purpose of my real estate market reports, I tend to lump distressed properties together. So, what am I talking about when I say distressed properties. These are the terms used by our local Board of Realtor listing service. Bank Owned – This is a home which has been foreclosed on and is now owned by the bank. This is also often referred to as REO or Real Estate Owned, which simply means it is real estate owned by the bank. HUD Owned – Also a foreclosed home which is now owned by Housing and Urban Development. VA Owned...
