By John McCarthy
Being a REALTOR® I sometimes forget that my buyers or sellers are not familiar with all the real estate lingo. Therefore, when I say things like EMD or HOA and you look at me like I have two heads I remind myself when you are not actually in the industry.
Here are some definitions of common real estate terms that could help you feel more comfortable when purchasing a house. With an understanding these terms, you may feel confident when negotiating when buying or selling a home or not look at your REALTOR® sideways.
EMD: Earnest Money Deposit. Similar to Good Faith Deposit. When you make an offer to purchase a home you put money behind that offer as an act of good faith. This money is typically put into an escrow account at the seller’s real estate office. If for some reason you default on your contingencies the seller would keep these deposits.
HOA: Home Owners Association. Found in condo complexes, it is a charge that is assessed on a monthly basis to each homeowner for upkeep. Typically includes homeowner’s insurance, landscaping, snow removal and trash pickup.
Contingencies: These are conditions written into a contract that must be met to sell. Typical contingencies are the home inspection and the buyer’s financing.
Due Diligence: Actions that a buyer or buyer’s agent will perform prior to sale. A buyer may want to investigate whether or not there are any plans to develop the land around the one they are purchasing.
Debt to Income Ratio: A percentage of all your monthly debt divided by your gross monthly income. This number is one way a bank or Mortgage Company measures your ability to repay the money you have borrowed.
Closing Costs: Fees and charges associated with the closing of your loan. Paid at the closing table they can include but aren’t limited to escrows of insurance, taxes and mortgage payments required by your lender.
FICO Score: A numerical value calculated by three credit companies to give you your credit score. Typically banks or mortgage companies need a score over 650 to give you the best rates.
Points: Buyers have the option of “buying” points to reduce their mortgage interest rate. Each point is equal to 1% of the value of the loan. As an example, if you pay one “point” or $3,000 on a $300,000 loan you could reduce your interest rate from 3.25% to 3%.
PMI: Private Mortgage Insurance. PMI is an insurance premium paid by the buyer to the lender to protect the lender if you are unable to pay your mortgage. Banks or mortgage companies can require this if your down payment is less than 20% of the purchase price. This charge can vary but whatever amount it is it does not reduce the principal amount on your loan. Once you have 20% equity in the home (this is determined by a bank approved appraiser), this insurance is discontinued.
Title Search: A historical review of all recorded legal documents pertaining to the ownership of property to determine if there have been any errors in prior transfers of ownership. A title search is done prior to closing and even after the paperwork has been done at the closing an examiner will check to see if any subsequent liens have been placed on the property.
Title Insurance: An insurance policy that protects the owner and/or lender against potential errors in the chain of title or unexpected claims of ownership. Most lenders require the buyer to purchase a title insurance policy on the amount they are lending. The owner’s policy that protects the buyer from title defects requires an additional charge.
These are only a few of the most common terms thrown around in the real estate world every day. Having an understating of what they mean can help you smoothly navigate through what can at times seem like learning a foreign language.
If you have any questions about this article, real estate in general or are looking to buy or sell a home please contact me, John McCarthy at Rowley Realty, 165 Main St., Rowley, MA 01969, Phone: 978 948-2758, Cell 978 835-2573 or via email at email@example.com