Buying a home can be a challenging prospect, particularly for people looking to get into the market for the first time. There is a lot to be aware of throughout the process, so we have put together a convenient list of the top real estate terms that you need to know when buying a home.
Comparative market analysis (CMA) – An in-depth analysis which is provided by a real estate agent that determines the estimated value of a home based on homes that have been sold recently that are a similar size, condition, age or have similar features and are located in the same area.
Buyers/balanced/sellers market – A buyers market occurs when the number of homes for sale outnumber buyers. A seller’s market occurs when conditions favour sellers, and there are less homes available than there are people looking to buy a home. A balanced market sits between those and is an optimal time to buy and/or sell.
Read: Entering a Balanced Market Spells Relief for Many Buyers: CREA
Housing ratio – This is one of two debt-to-income ratios that a lender analyzes to determine a borrower’s eligibility for a home loan. This ratio compares the total housing cost (principal, homeowners insurance, taxes and private mortgage insurance) to your gross income.
Debt-to-income ratio (DTI) – A ratio that compares a home buyer’s expenses to their gross income.
Adjustable-rate mortgage (ARM) – An ARM has an introductory interest rate that lasts a set period of time and adjusts every six months thereafter for the remainder of the loan term. Once the time period has ended, your interest rate will change, as will your monthly payment.
Fixed-rate mortgage – A mortgage with principal and interest payments that remain the same throughout the duration of the loan, because the interest rate does not change.
Private mortgage insurance (PMI) – This is a fee charged to borrowers who make a down payment that is less than 20% of the home’s value. Typically 0.3% to 1.5% of the yearly loan amount., this fee can be canceled in certain circumstances when the borrower reaches 20% equity.
Pre-qualification – This is a basic assessment of your income, assets and credit score which determines what loan programs you might qualify for, if any. An agent may request this or a pre-approval letter before showing a potential buyer a home.
Pre-approval – This is a thorough assessment of a borrower’s income, assets and other data to help determine a loan amount they would be able to qualify for. An agent may request one of these or a pre-qualification letter before showing a buyer a home.
Read: Reality Check: Interest Rates are Rising, Securing a Mortgage Now is Best for Buyers
Approved for short sale – This indicates that a homeowner’s bank has received an offer from a buyer and has determined the reduced listing price on a home meets their short sale criteria, based on the seller’s circumstances and how much is owed.
Origination fee – This is a fee charged by either a broker or lender to underwrite and process a home loan application. This is not a single fee, but a set of lender-specific fees that are part of your costs when closing a mortgage loan.
Amortisation – This is the process of paying off a loan through a series of periodic payments to a lender. This includes two items – interest and principal, which is the amount of money you borrowed.
Closing costs – Costs outside a property’s sale price that need to be paid to cover the cost of the transaction. This could include discount points, insurance fees or survey fees, among others. These can vary from location to location but must be described to you when you submit your mortgage loan application.
Debt-to-income ratio (DTI) – A ratio that compares a home buyer’s expenses to their gross income.
Contingencies – These are conditions that are written into a home purchase contract that protect the buyer, should issues arise with financing, the home inspection, etc.
Equity – The percentage of a home’s value owned by the homeowner.
If you’re considering buying a home in the coming months, contact us to talk to an agent and receive a free consultation.
