No one needs to tell you that the rules to buying a home have changed. In fact, it’s safe to say the housing industry has started a new chapter in how it goes about its business.
Lenders are creating and adapting to new rules and terminology. Real-estate agents are using terms such as short sale, foreclosure and REO as everyday parts of their marketing and language to consumers. What are these new terms, and what do they mean to you as a potential homebuyer? Here are a few you should know:
Closing costs. These are separated into what are called “nonrecurring closing costs” and “prepaid items.” Nonrecurring closing costs are any items paid just once as a result of buying the property or obtaining a loan. Pre-paids are items that recur over time, such as property taxes and homeowner’s insurance.
Comparable sales. Recent sales of similar properties in nearby areas are used to help determine the market value of a property. Also referred to as “comps.”
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HVCC. The Home Valuation Code of Conduct is a four-page document that outlines appraisal-related practices to which lenders must adhere with respect to “conventional” or “conforming” loans that they want to sell to Fannie Mae or Freddie Mac.
MIP. Mortgage insurance premium is the amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration or to a private mortgage-insurance company.
REO. Properties that are now “real estate owned” by the bank, which has become the seller.
LTV. The loan-to-value ratio, or the relationship between the amount of the loan and the appraised value or sales price (whichever is lower).
PITI. Principal, interest, taxes and insurance. If you have an “impounded” loan, your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.
RESPA. The Real Estate Settlement Procedures Act is a consumer-protection law that requires lenders to give borrowers advance notice of closing costs.
These are a sample of important real-estate terms you need to know and understand before buying a home. Always ask your lender or real-estate agent to explain any term you do not understand.
Louis Howard is managing partner and CEO of Howard Global Partners in Bellevue and past president of the New Home Council. Market Matters is the council’s weekly column offering insight into the housing market. For more information on homebuying, visit thenewhomecouncil.com.