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An initial deposit (usually 1% to 3% of the sales price) to show a buyer’s intent to buy a home. If the purchase moves forward successfully, the earnest money is typically applied toward the buyer’s closing costs or down payment.
A clause in a purchase contract that allows the buyer to back out of the agreement if a certain condition isn’t met. Common Contract Contingencies kick in when the buyer can’t get a loan (financing contingency), repairs can’t be negotiated (home inspection contingency), the home’s value is below the asking price (appraisal contingency) or the buyer is unable to sell their current home (home sale contingency).
A response to a previous offer. If a buyer’s offer price is lower than what you’re willing to accept as a seller, you might make a counteroffer. Likewise, a buyer can counter a seller’s counteroffer with additional terms.
A written report providing an inspector’s professional opinion of a home’s condition, including its utility systems and structural elements. A home inspection isn’t “pass or fail” — it simply provides information to the buyer.
An assessment of what a mortgage company might lend you based on a preliminary review of your credit, debt, income and assets available for a down payment. Sellers typically won’t accept an offer without a preapproval letter included.
Also called a purchase or sales contract, this is a legal document detailing the price and conditions for the home you’ve agreed to buy. The typical contract includes information about the property, down payment, earnest money, closing date and contingencies.
An analysis by a professional appraiser comparing other sales of nearby homes to estimate a home’s value. Most purchase contracts include an appraisal contingency, which allows a buyer to back out if the appraisal returns a market value that doesn’t at least match the sales price.
A measure of closing costs including points, origination fees and other credit charges included in mortgage financing and expressed as a percentage. Because it includes more costs, the APR on a given loan is usually higher than the interest rate.
Upfront fees charged to originate a mortgage, typically about 2% to 6% of the loan amount. The closing costs are detailed on the initial loan estimate provided to borrowers within three business days after applying for a mortgage and again on a closing disclosure form provided three business days before closing on the home purchase.
A measure of the relationship of your monthly debt (including your new mortgage payment) to your monthly earnings before taxes. The Consumer Financial Protection Bureau (CFPB) recommends a DTI of 43% or less.
A ratio of the amount borrowed compared to a home’s value. Lenders set LTV limits on some loans. For example, conventional loans usually have a 97% LTV maximum, meaning you have to make a 3% down payment, at minimum, to be approved for the loan.
Insurance paid for by a borrower to cover the lender’s financial risk. If the borrower defaults on the loan, the insurance pays the lender. PMI is typically required on a conventional loan where the buyer has put down less than 20%, but it can be cancelled once 20% equity is reached.
H eartFelt Realty HomeTeam
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