15 Real Estate Terms To Master Before Buying Your First Home, According to Financial YouTuber Tae Kim
When buying your first home, you may hear a lot of unfamiliar terms. In fact, it may seem like your realtor is speaking a different language. Tae Kim of Financial Tortoise recently explained some of these terms via YouTube.
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Here are 15 real estate terms you need to know.
Real Estate Agent
Professional who represents the seller (listing agent) or buyer (buyer’s agent) in a real estate transaction. Agents are fiduciaries, which means they are legally obligated to act in their clients’ best interests.
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Dual Agency
Agent represents both buyer and seller. This is not allowed in some states, because there can be a conflict of interest.
Credit Score
This isn’t a real estate specific term, but you should know it if you’re beginning your real estate ownership journey. It’s a measure that lenders use to determine whether or not you a likely to pay back your mortgage, and therefore, whether lending to you is a good idea. Your past payment history and the amount of available credit you have factor into your credit score.
Principal, Interest, Taxes and Insurance
Abbreviated PITI, these are the costs that make up your total mortgage payment. The principal is the amount you borrowed, while interest is the amount you pay for the use of that money. Property taxes and homeowners insurance are typically included in your mortgage payment as well. The lender pays these costs on your behalf, out of the money you send them each month, because these payments protect the lender’s interest in the property. Most lenders want PITI to be 28% or less of your gross monthly income.
Debt-to-Income
The debt-to-income ratio, or DTI, tells a lender how much you owe in comparison to how much you make. Lenders want to see a debt-to-income ratio below 36%, meaning that you will spend 36% of your gross monthly income on your debt, which includes your mortgage, as well as a car payment, student load debt, and any other debt.
Pre-Approval
A preliminary assessment by a lender that indicates how much of a mortgage you can afford. If you have a pre-approval letter from a lender, it can be an advantage if there are multiple offers for the same property.
Multiple Listing Service
Multiple Listing Service, or MLS, is a database of properties available for sale. Prospective homebuyers and realtors can check MLS listings to see available homes and their asking prices.
Pocket Listing
A pocket listing is an available property that is not in the MLS database. It may be marketed privately to select buyers.
Short Sale
When a property owner is facing foreclosure because they are unable to pay their mortgage, they may receive approval from their lender to sell their home in a short sale. This means that the selling price of the home is less than the balance due on the mortgage. When the some sells, the proceeds go to the lender, and the remaining balance owed on the mortgage is written off.
Probate Sale
If a homeowner dies without a will, their home will need to go through the probate court to determine who the heirs are. A probate sale is authorized by the probate court. This type of sale can be longer and more complicated than a traditional sale since the probate court is involved.
For Sale By Owner
For Sale By Owner, or FSBO, describes a sale directly by the homeowner, without using a real estate agent. This type of sale can save the homeowner money on the real estate commission, but can be risky if the homeowner is unfamiliar with real estate law.
Comps
Comps, which is short for comparable properties, describes properties which are similar to the property in question and have recently sold in the same area. They are used to determine the right asking price for a home that is going on the market.
Days on Market
This is the number of days the average home is on the market before it is sold. A low number of days on market indicates a seller’s market, as homes are selling quickly.
Offer
This is a proposal a buyer makes, indicating the price they are willing to pay for a property. It may also include certain terms, such as when they want to take possession of the property or certain fixtures they want to be included in the sale. Whether the offer can be verbal or must be written, and the amount of detail that needs to be included can depend on the state.
Deed
The deed is a legal document that is filed with your municipality or county — a document that indicates the property address, lot size, and other details, along with the owners’ name. When you buy a new property, you should receive the deed after it is registered with the appropriate agency.
There are other real estate terms that will be helpful to know, so if you hear something that’s not familiar, ask your realtor or conduct your own research in the interests of doing due diligence.
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