Adjustable Rate Mortgage (ARM)
Adjustable-rate mortgage loans (ARMs) have an interest rate that will change or “adjust” from time to time. Typically, the rate on an ARM will change every year after an initial period of remaining fixed. It is therefore referred to as a “hybrid” product. A hybrid ARM loan is one that starts off with a fixed or unchanging interest rate, before switching over to an adjustable rate. For instance, the 5/1 ARM loan carries a fixed rate of interest for the first five years, after which it begins to adjust every one year, or annually. That’s what the 5 and the 1 signify in the name.
The process of reducing the principal debt through a schedule of fixed payments at regular intervals of time, with an interest rate specified in a loan document.
An appraisal is a licensed appraiser’s opinion of a home’s market value based on comparable recent sales of homes in the neighborhood or area. Appraisals are required by the lender as part of the loan process and are ordered on behalf of a buyer’s lender to protect the interests of the lender. The lender’s underwriter will compare the appraisal price to the final purchase price of the home to ensure the buyer is not borrowing more than the property is worth.
In the event the home appraises lower than the agreed sales price, the buyer may be able to renegotiate a lower price with the seller. If the seller is unwilling to lower the price, the buyer’s lender may ask that the buyer put more money toward the down payment in order to make up the difference. If neither of those options work, and there is an appraisal contingency written into the contract, the buyer may choose to cancel the purchase.
This is important to know as a seller, given that it grants you the right to say that you will not have to make any repairs or correct any problems with your property upon sale.
The value placed on a home by municipal assessors for the purposes of determining property taxes.
When a home has a status of “Backup Offer,” it means the seller has accepted an offer from a buyer but is still accepting offers from other buyers. Sellers accept backup offers if they think the current offer may fail.
A buyer’s agent is a licensed real estate agent who represents the buyer in a transaction. The buyer’s agent has authority to act on behalf of the buyer in negotiating a Purchase and Sale Agreement with the seller’s agent.
Sometimes buyer’s agents are referred to as selling agents. Do not confuse selling agent with seller’s agent. In the real estate community, the buyer’s agent is referred to as the “selling agent” and the seller’s agent is referred to as the “listing agent.”
A Buyer Broker Agreement is an agreement signed by a prospective buyer authorizing a licensed brokerage firm, and more specifically, Realtor® from that brokerage, to represent the buyer when buying a home. The Buyer Broker Agreement is a commitment between the Realtor® and the buyer to work together and to assure the Realtor® will be compensated if a sale occurs. The terms of the agreement is negotiable.
Before signing a Buyer Broker Agreement, the buyer should be sure they want to work with the Realtor®. Some Buyer Broker Agreements require the buyer to pay compensation to the buyer’s agent even if that agent does not find the home purchased.
This type of market favors the buyer, often with a high supply of homes and lower prices.
Certificate of Occupancy (COO)
A Certificate of Occupancy is a document issued by a local government that certifies a home is ready to be occupied and complies with local building codes. The certificate is issued following an inspection by a licensed inspector on behalf of the local government. Certificates of Occupancy are required for any newly constructed building or conversion from a commercial to a residential building. Check your local building code to find out what’s required to receive a certificate of occupancy.
When the loan funds are delivered to the Escrow Company.
Expenses over and above the price of the property in a real estate transaction. Costs may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges.
A Closing Disclosure is a final statement of loan terms and closing costs that the lender must provide to the borrower no less than three business days before closing. The statement lists the loan terms, projected monthly payments, cash necessary to close the sale, and a detailed accounting of the closing costs. The three-day review period allows the borrower time to review the Closing Disclosure and compare it with the loan estimate, which the borrower should have received when he or she applied for the loan.
If you find out that you have a cloud on your title, it means there may be another claim to ownership under the history of the deed that pertains to your home or property. This often happens when someone who bought the property in the past failed to record the deed properly. Title insurance is designed to ensure that the latest buyer doesn’t suffer a financial loss if there is a clouded title that prevents them from being recorded as the true owner.
Comparables are homes of similar size, condition, age, and style that recently sold in a certain neighborhood or area. Evaluating comparable homes and their prices can help determine a fair market value for a home.
Comparables are examined by buyers, sellers, and real estate agents in a comparative market analysis (CMA) to establish a price range for a home based on current market activity. Comparables are also used by appraisers to determine the fair market value of a home during an appraisal.
A quality comparable is most similar to the home in question in terms of:
- Homes sold within 1 mile of the subject property
- Square Footage (within 20% above and below the subject property)
- Style of Home (rambler/2-story/condo)
- Homes sold within the last 180 days
- Number of bedrooms and baths
- Age of home
- Condition of home
- Lot size
Comparative Market Analysis (CMA)
A comparative market analysis (CMA) is an evaluation of a home’s value based on similar, recently sold homes in the same neighborhood. A comparative market analysis is not the same as an appraisal, which is performed by a licensed appraiser. A CMA is prepared by a real estate agent.
A clause in the purchase contract that describes certain conditions that must be met and agreed upon by both buyer and seller before the contract is binding.
A conventional home loan is one that is not insured or guaranteed by the federal government in any way. This distinguishes it from the three government-backed mortgage types explained below (FHA, VA and USDA).
An offer, made in response to a previous offer, that rejects all or part of it while enabling negotiations to continue towards a mutually-acceptable sales contract.
One that is not insured or guaranteed by the federal government.
Essentially, how your home looks from the outside — everything from your front door to your front lawn — would be considered your “curb appeal.”
If your home has been on the market for 30 days, typically the listing would say “30 days on market.” Sometimes, it’s referred to as “DOM” on a listing.
Your debt-to-income ratio (DTI) is the percentage of your gross monthly income (what you earn before taxes) that goes towards paying off debts. Debts can include car payments, credit card bills, child support payments, and student loans. When figuring out how much money you can afford to borrow, your lender will factor in the total percentage of your income that you pay toward debt every month. This number is your DTI, and it affects your credit rating.
A deposit given by the buyer to bind a purchase offer and which is held in escrow. If the property sale is closed, the deposit is applied to the purchase price. If the buyer does not fulfill all contract obligations, the deposit may be forfeited. When working with the Tilo Team, Earnest Money will be deposited and held with a third party title company until closing.
Legal right of access to use of a property by individuals or groups for specific purposes. Easements may affect property values and are sometimes part of the deed.
Equity is the amount of a property’s value, calculated by subtracting the amount the seller owes on the property’s mortgage loan from the final sale’s price of the property. In other words, equity is the amount of money a seller would make after paying off the bank.
If you purchase a $750,000 home for $600,000 and get a mortgage for that amount, you will have $150,000 equity when you move into the home. Assuming the market maintains steady upward growth, you will continue to gain equity. Let’s assume you live in the home 5 years and the market continues to grow and your home is now worth $1.1 million. You now have equity of $500,000. On the contrary, if the market goes south, your equity will decrease. In other words, if the market tanks, your home could be worth $500,000 and now you have negative equity of $100,000.
Funds held by a neutral third party (the escrow agent) until certain conditions of a contract are met and the funds can be paid out. Escrow accounts are also used by loan servicers to pay property taxes and homeowner’s insurance.
This is an estimate of how much a specific home will sell for in today’s market, taking into account what similar properties in the area have sold for recently.
This is an estimate of how much a specific home will sell for in today’s market, taking into account what similar properties in the area have sold for recently.
When a real estate or broker is acting in an agency capacity for a buyer or seller client in a transaction, they are required to be loyal, trustworthy and have certain legally mandated duties that are called fiduciary duties. The position of the agent or broker is a fiduciary capacity, acting in the best interest of the client.
For Sale By Owner or (FSBO) is a home sold by a home owner without the services of a Realtor®. When selling the FSBO route, sellers avoid paying the listing agent commission, and may refuse to pay buyers agents as well. While sellers may save a commission, they may have difficulty getting their home in front of buyers as there is no incentive for buyer’s agents to show the property. In addition, FSBO’s don’t have access to the MLS, brokerage websites and other sites fed by the MLS and as a result will miss out on thousands of buyers and Realtors® who would see it otherwise.
When the loan funds are transferred to the Seller.
An inspection is a thorough investigation of a home by a licensed inspector. While appraisals are mandatory, the home inspection is not. And, although inspections are highly recommended, the decision whether or not to have one done is completely that of the buyer.
Ask any Realtor® she’ll tell you a thorough inspection is necessary to discover any material defects or necessary repairs before buying the home. The inspector may also recommend an additional inspection of the sewage system, pool, water well, radon, meth testing, lead based paint or other part of the house by a specialist.
It is the buyer’s responsibility to ask questions during the walk-through with the inspector, read the inspection report thoroughly, paying close attention to the results, and discuss any issues they have with the inspector and their Realtor® so as to make necessary repair’s request, negotiate the sales price or back out of the sale before their deadline.
Typical Home Inspections Cover:
- Foundation (walls, doors, windows, ceilings, floors)
- HVAC, Water heater
- Appliances (refrigerator, dishwasher, disposal, etc.)
- Garage Doors
An HOA Fees is a monthly or annual fee paid by owners of certain types of residential properties in order to assist with maintaining and improving properties in the association. HOA fees are almost always levied on condominiums and town homes, but they may also apply in some neighborhoods of single-family homes.
For condominium owners, HOA fees typically cover the costs of maintaining the building’s common areas, such as lobbies, patios, landscaping, swimming pools and elevators. The association may also levy special assessments from time to time if its reserve funds are not sufficient to cover a major repair, such as a new elevator or new roof. HOA fees can also apply to single family houses in certain neighborhoods, particularly if there are common amenities such as tennis courts, a community pool or clubhouse or neighborhood parks to maintain. Some HOA fees may cover other items like insurance, maintenance, internet, water, trash, etc. Check the CC&Rs for an exact list of coverage.
Homeowners insurance is a combination of property insurance, which protects homeowners from future damages to a home, and liability insurance, which protects homeowners from claims by third parties for accidents that happen in the home. The form of the policy will vary depending on the type of property being insured (i.e. condominium, mobile home, single-family residence, etc.) and the amount of coverage the owner desires. Lenders require that buyers obtain homeowners insurance so insurance premiums will automatically be included in monthly mortgage payments and the transaction closing costs.
A home warranty is an annual service contract that covers the repair or replacement of important appliances and systems components that break down over time.
These are usually items used to “sweeten” the deal. Common inclusions are refrigerators and sheds.
The time after a home buyer and seller agree on a contract is usually called the Inspection Period. It’s during this time where a buyer will usually bring in a home inspector and/or other contractors to evaluate the home’s condition.
The interest rate is the amount charged by a lender in exchange for loaning money to a buyer. It is expressed as a yearly percentage of the total loan amount and is paid as part of the monthly mortgage loan payments. Interest rates change daily, but once a borrower locks a rate for a fixed-rate mortgage, she will make payments based on this rate for the entire life of the loan.
A lien is a legal claim against the property of another, usually to secure an unpaid debt. Liens commonly arise when a homeowner pledges his or her home as collateral to borrow money. Utility companies, contractors, local governments, and other creditors can also sometimes file a lien to collect unpaid amounts. Buyers should review title reports closely with this in mind. If the report contains any liens, the buyer should consult their Escrow Officer or title company to investigate. All liens should be cleared before the buyer can legally own the home.
The date you officially list your property on the market.
The price you list your property for sale.
Also called Dual Agency, occurs when the same real estate agent represents both the seller and buyer. In most cases, it’s not a good idea for one agent to represent both parties in a real estate transaction. The listing agent’s job is to sell a home at the highest possible price, while the buyer’s agent aims to negotiate the lowest price for the buyer. In this case, the Realtor and her client’s interests aren’t aligned.
Limited Agency can make some clients feel uncomfortable and should be educated prior to entering a limited agency relationship.
The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value. The “assessed” value, which is a determination by the local authority, and the “appraised” value, which is a determination based on comparables in the market, are different from the market value, as this value applies to what the property would actually cost under “normal market conditions.” Some may consider it the ‘fair value’.
Purchased by the buyer to protect the mortgage lender in the event of default (typically for loans with less than 20% down). PMI is required for borrowers of conventional loans with a down payment of less than 20%. FHA loans and VA loans are essentially public mortgage insurance, as borrowers pay higher insurance premiums in exchange for a lower down payment. These funds allow the FHA to insure lenders against losses if borrowers default on FHA-approved loans. Available through a government agency like the Federal Housing Administration (FHA) or through private mortgage insurers (PMI).
Mortgage insurance costs are included as part of the monthly loan payment. FHA-insured loans have two mortgage insurance components: an upfront premium and a monthly payment. The upfront premium is paid at closing, whereas the monthly payment is paid until the borrowers reach a certain loan-to-value ratio on their mortgage loan, based on the final sale price of the home.
Multiple Listing Service (MLS)
The Multiple Listing Service, or MLS, is a local service that compiles available real estate for sale submitted by it’s Realtor® members, along with detailed information that brokers and agents can access online. Each MLS has it’s own rules and systems for providing listing information. The Wasatch Front Regional MLS is affiliated with the National Association of Realtors® (NAR).
National Association of Realtors®
The National Association of Realtors® (NAR) is an organization made up of more than one million Realtors®, brokers, appraisers, and other real estate professionals who are involved in the residential and commercial real estate industries. A real estate agent can only be called a Realtor® if he or she belongs to the National Association of Realtors®.
A detailed written document with a proposal to purchase a property that may be amended several times in the process of negotiations. When signed by all parties named on the document, the purchase offer becomes a legally binding contract. This is called the Real Estate Purchase Contract (REPC), also sometimes called the Sales Contract.
The date, as specified by the sales agreement, that the buyer can move into the property. Generally, it occurs within a couple days of the Closing Date.
A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.
A letter from a mortgage lender indicating that a buyer qualifies for a mortgage of a specific amount. It also shows a home seller that you’re a serious buyer.
This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.
The amount of money borrowed from a lender to buy a home, or the amount of the loan that has not yet been repaid. Does not include the interest paid to borrow.
A detailed, written document which makes an offer to purchase a property, and which may be amended several times in the process of negotiations. When signed by all parties involved in the sale, the purchase offer becomes a legally-binding sales agreement.
A Realtor® is a real estate agent who is a member of the National Association of Realtor®. Realtors® must uphold the organization’s professional standard of ethics and conduct themselves in a manner in line with the organization’s standards.
When ownership has been transferred out of the Seller’s name and into the Buyer’s and is recorded with the county. This is when the keys can be given to the new owner.
This term gives a buyer the first chance to purchase a property if any other offer is made. It’s not common in residential sales. Right of First Refusal may not be a good option for home sellers since it could prevent them from accepting a great offer with a short expiration period.
This is the Realtor who is representing the buyer of the property you want to sell.
A seller’s market happens when there are more buyers than homes for sale, resulting in multiple-offer situations and higher home prices. In contrast, a buyer’s market happens when the supply of homes significantly exceeds demand, resulting in a reduction of home prices, making them more attractive to buyers.
Seller’s Property Condition Disclosure (SPCD)
The Seller Property Condition Disclosure is a document completed by the seller of a home, listing any known issues with the property and any remodel projects completed during the time they owned the home. The seller is required to provide the SPCD within the Seller Property Condition Disclosure Deadline specified in the Real Estate Purchase Contract. It is the buyer’s responsibility to review the information and address any issues within the Due Diligence Deadline. While the information provided in this document is helpful, it is by no means a substitution for a home inspection by a licensed inspector.
In most cases, a Realtor® can ask to see the SPCD on a home prior to making an offer. However, when buying bank-owned homes buyers won’t receive these documents since the bank isn’t required to provide details about the condition of the home. Every transaction is different, and the Real Estate Purchase Contract dictates the specifics.
Examples of Seller Disclosure issues include:
- Structural, settling, electrical, or plumbing issues
- Lead paint, radon, asbestos, or toxic mold
- Pests or wood-destroying insects
- Flood or wildfire danger
- Toxins in the local soil or water
- Water rights (in dry or desert climates)
A meeting where all documents are signed by all parties. Utah allows Buyers and Sellers to use their own title companies, so in most cases, the Buyer’s and Seller’s will sign individually at their respective title offices.
If you’re the sole owner of the property, you have what’s called “severalty.”
This applies to repainting your home in neutral colors, placing your furniture and accessories in appealing ways to feature the home without clutter, allowing prospective buyers to see the features that matter the most.
You could ask for the county to do this, as it typically involves measurement of lot lines, dimensions and positioning, just to determine how much property you actually have, even outside the actual structure. Encroachments and easements are also determined, such as pathways and additions outside the lot lines.
Title is the right to, or ownership of, a specific property. A Title or Deed is sometimes used as proof of ownership of land. Clear title refers to a title that has no legal defects.
Buyers get a Preliminary Title Report (PR) from their Escrow Officer within a few days of an accepted offer. The PR identifies all parties with a legal claim to the property, what items need to be cleared from title before the new buyer can take possession, and if there are any recorded easements or encroachments on the property. Once the transaction closes, the buyers will receive a final title policy recording their names as the new legal owners, along with the amount of title insurance and will be made part the county’s public records.
Title Insurance guarantees the accuracy of the title search and protects both the lender and buyer against title defects, liens, competing claims of ownership and other legal problems with the title should they arise after closing.
Federal law that requires disclosure of a truth-in-lending statement for consumer loans. The statement includes a summary of the total cost of credit.
A historical review of public records and all legal documents relating to ownership of a property by a title company to determine the history of ownership and identify any issues with prior transfers of ownership, claims or encumbrances on the title to the property, and identify any liens, encroachments, easements, restrictions, or other factors that might affect the title. This step must be completed before a buyer can purchase title insurance.
A home is Under Contract when the seller’s have accepted an offer from a buyer, but the sale has not yet been completed. Typically it takes 30 – 45 days from the date the offer is acceptance until the sales contract closes and the sale is complete. Once the sale closes, the status will be changed from Under Contract to Sold.
The VA Funding Fee is a one-time fee paid directly to the Department of Veterans Affairs. Use this calculator to determine your total VA Funding Fee.
A walkthrough is the final inspection of a home by the buyer prior to closing. It’s the buyer’s final opportunity to walk through the home to ensure any repairs agreed to in the contract have been fulfilled. The walkthrough can happen anywhere from a few days to a few hours before closing. If the buyer finds something wrong or unfinished, he should have his Realtor® address the issue and have it completed prior to closing on the home.