10 Terms Every Home Buyer Should Know – Part 3

The biggest obstacle when it comes to buying a new house isn’t securing a big enough line of credit to accommodate the loan and it isn’t saving money for the down payment. The biggest obstacle when it comes to buying a home is a lack of understanding what your real estate broker is saying to you. Having an understanding of real estate jargon will not only make the process of buying a home easier, it will allow you to make better decisions. Here are 10 more terms to help you through the maze that is the buying of a home:

  1. Absorption Rate – The rate at which available homes are sold in a specific real estate market during a given period of time. This is calculated by dividing the number of homes available by the average number of sales per month (important to know if you are selling your home).
  2. Bidding War – A situation where two or more buyers are interested in a property that they make increasingly higher offers to win the property. Bidding wars are great for sellers.
  3. Capped Rate – An interest rate that is allowed to fluctuate but can’t go over a predetermined interest cap. For instance, you may get a 30-year loan with a 6% interest rate and a capped rate of 9%. The interest may fluctuate but it may never go over 9%.
  4. Cash Equity – This refers to the amount of money an owner has invested in the property. Your down payment would be your cash equity upon purchase.
  5. Piggyback Mortgage – A type of mortgage where a second mortgage is taken out by a borrower at the same time the first mortgage is started or refinanced. This is commonly used to lower the loan-to-value ratio.
  6. Qualified Mortgage – A mortgage in which the lender has analyzed the borrower’s ability to repay based on income, assets, and debts. New laws enforce borrowers to meet the requirement of monthly debt payments being less than 43% of pre-tax income before getting a loan.
  7. Free and Clear – Slang term for outright ownership of a property. For instance, when you finished paying off your loan your home is now “free and clear.”
  8. Growing-Equity Mortgage – A fixed rate mortgage on which the monthly payments increase over time according to a set schedule. The interest rate never changes, however, monthly payments increase steadily with the excess payment going toward the remaining balance of the loan, shortening the life of the mortgage.
  9. Negative Equity – When the value of a property falls below the outstanding balance on the loan used to buy the property. Negative equity occurs when a house is purchased and the economy starts to slow with home prices dropping.
  10. Open House – A scheduled time in which a house is designated to be open for viewing by potential buyers.

That is all for today’s lesson in real estate terminology. Tune in next time to find out the answers to all of your burning real estate terminology questions.

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