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Key Words to know when you’re getting ready to buy

As you start to build your action plan there are several key words that you should also start to familiarize yourself with and they are as follows:
  • Pre-approval .vs. Pre-qualification (“Pre-qual”):  Although the two may seem identical they are in fact very different.  Here’s why:
    • Pre-qual: is not necessarily accurate or holds as much “weight” as a pre-approval.  The information you provided to your lender has not been properly verified so if you failed to account for your true income, assets, or credit it could throw your entire approval amount off.
    • Pre-approval: is when you have submitted copies of all the requested financial documents to your loan officer and not only have they reviewed your income, and assets but your credit and debt as well.  Thus providing a more solid assurance that you qualify for the property you are trying to purchase.
      • Income-to-Debt ratio:
        • The front-end ratio, also called the housing ratio, shows what percentage of your income would go toward your housing expenses, including your monthly mortgage payment, real estate taxes, homeowner’s insurance and association dues.
        • The back-end ratio shows what portion of your income is needed to cover all of your monthly debt obligations. This includes credit card bills, car loans, child support, student loans and any other debt that shows on your credit report that requires monthly payments, plus your mortgage payments and other housing expenses.
  • Comparables (“Comps”):  Compiled data of recently sold listings, typically within a 1-2 mile radius, that are similar in size, layout, condition, and amenities to the subject property.
  • Contingencies:  Additional term that we are requesting seller to agree to, for example:
    • Mortgage & finance
    • Inspection
    • Vacant
  • Property inspection .vs. Appraisal:
    • Inspection: hiring a professional and licensed inspector to investigate the condition of your property.  This report may or may not be used as a bargaining chip but will surely provide clearer insight and understanding if the property you are purchasing is in great, good, fair or poor condition or if it is in need of full renovation and repairs.
    • Appraisal: once the executed contract has been received by your lender they will submit the request for an appraiser to visit the property.  Your appraiser will evaluate the premises you are interested in buying and price it according to the recent comparables (“comps”) of similar sold listings in the area.
  • Commitment letter:  a lender’s promise to provide a borrower with a loan at an agreed upon interest rate.