Terms home sellers and buyers need to know
The US housing market went from scorching to cooling in a matter of months, with momentum slowly shifting from a seller’s market to a more buyer’s market.
But some might not be familiar with the most commonly used terms in the industry.
“The more you know before you jump into buying or selling a home, the easier it will be,” said Kristina O’Donnell, a longtime real estate agent in the Philadelphia area.
Here’s what you need to know:
What is a real estate bubble?
A housing bubble is a market condition in which prices rise beyond what most believe to be reasonable or sustainable, according to Bankrate.com. A housing bubble, or “housing bubble” occurs when housing prices increase rapidly, usually due to increased demand, limited supply and some emotional buying, Bankrate said.
“While two months ago rates above 7% might have seemed unthinkable, at the current pace we can expect rates to rise above this level over the next three months,” George Ratiu wrote recently. head of economic research for Realtor.com.
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What does contingency mean?
A contingency is a clause in a purchase contract that a specific action or requirement must be fulfilled for the contract to become legally binding, according to Bankrate.com.
Both buyer and seller must agree to the terms of each contingency and sign the contract before it becomes binding, the site said.
In other words, an offer has been made and accepted on a home, but before the sale is completed, certain conditions or contingencies must still be met, O’Donnell said.
“It gives the parties an opt-out or a way to opt out of the agreement,” O’Donnell said.
Some common contingencies include mortgage contingency, appraisal contingency, and inspection contingency.
A mortgage contingency gives the buyer a specific period of time to obtain financing. If the buyer does not obtain a loan before the deadline, the buyer can return, sometimes without losing the deposit, and the seller can put the property back on the market.
An appraisal contingency can protect a buyer by stipulating that the property must appraise at least the suggested sale price or the contract may be void. This contingency may also allow the seller to choose to reduce the price to appraised value or less, O’Donnell said.
An inspection contingency allows buyers to have the property professionally inspected and request certain repairs or a lower sale price.
These hotfixes can block, terminate, or terminate a sale.
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What are closing costs?
Closing costs are the fees homebuyers pay for things including an appraisal, title, and other fees charged by lenders to originate the loan, called the home’s “origin” fees. Sellers also pay closing costs, although usually a lower amount.
The specific closing costs a buyer will have to pay will depend on the type of loan they have and also where they live, O’Donnell said.
Closing costs can be anywhere from 3 to 6 percent of the loan amount, Rocket Mortgage said.
A buyer, however, can negotiate with a seller to help cover or pay the full closing costs. It’s called seller concessions, O’Donnell said.
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What is a foreclosure?
A seizure is the recovery of property by the lender when a homeowner cannot make the required mortgage payments.
The lender can sell the home to another buyer, experts say.
“You want to avoid foreclosure, period,” O’Donnell said. “If a homeowner, for whatever reason, has problems paying their mortgage, they should contact their lender immediately to try to find a solution.”
Do you know your FICO score?
A FICO score is a three-digit number that indicates creditworthiness based on information contained in a person’s credit reports.
The higher the score, the better, said Anthony Graziano, CEO of Florida-based Integra Realty Resources. “Having a good FICO score can help you get the best rates and terms,” Graziano said.
A good FICO score ranges from 670 and above, according to the online site myFICO.com
The score helps lenders determine a person’s likelihood to repay a loan, myFico.com said. The score also determines how much a person can borrow, how many months they have to repay the loan, and how much their interest rate is.
What is a Fixed Rate Mortgage?
A fixed rate mortgage is a home loan option with a specific interest rate for the entire term of the loan, according to Rocket Mortgage.
This means that the interest rate on the mortgage will not change for the term of the loan. In addition, the borrower’s interest and principal payments remain the same each month.
A 30-year fixed-rate mortgage is the most popular mortgage option in the United States, Rocket Mortgage said.
What is an adjustable rate mortgage?
An adjustable rate mortgage is a home loan with an interest rate that adjusts according to the market, according to Rocket Mortgage.
Variable rate mortgages generally offer a lower introductory interest rate than fixed rate mortgages, but after the initial term your monthly payment may change.
“If interest rates go down, (variable rate mortgages) can become cheaper,” Rocket Mortgage said. “However, (variable rate mortgages) can also become more expensive if rates rise.”