LOOKING TO BUY A HOME IN ALAMOGORDO OR OTERO COUNTY?

UNDERSTANDING THE LINGO WILL GIVE YOU THE CONFIDENCE YOU NEED TO CLOSE ON YOUR HOME PURCHASE!

Like most people, I was oblivious to the LINGO involved with purchasing a home prior to becoming a Real Estate Broker. Sure, I had a general understanding. But I didn’t know the specifics. And that made the thought of purchasing a home seem even more daunting.

BUT, I have some great news….that doesn’t have to be the case for you! Today I want to share some of the most common terms used when buying a home. It will help make buying a home in Alamogordo, NM or Otero County seem much less intimidating.

So here we go….let’s build that confidence together!

APPRAISAL

The Appraisal is a professional analysis used to estimate the value of the home. A necessary step in validating the home’s worth to you….and a required step by your lender to secure financing.

Appraisers determine value by looking at the property, assessing it’s condition and comparing it to other homes in the area that have recently sold (Comparable Sales). Once they’ve compiled their information, they use that information to assign an appraised value to the home.

The appraised value is then delivered to your lender (if you’re financing the purchase of the home). Lenders require an appraisal to ensure that the collateral, aka the home, is equal to or greater than the amount of the borrowers loan. Why? Should you default on the loan, the lender wants to ensure that they can recoup the money they lent to you by selling the home.

CLOSING COSTS

CLOSING COSTS are the costs to complete a real estate transaction. Paid at closing, they include:

  • POINTS TO LENDER
  • PROPERTY TAXES
  • MORTGAGE INSURANCE
  • HOMEOWNERS INSURANCE
  • APPRAISAL FEES
  • FINANCING COSTS
  • PREPAIDS (as required by lender)

These fees vary depending on the loan product you are using to purchase your home. I highly recommend asking your lender for a list of closing cost items early in the loan process. It will help you to better understand where the money is going that you will need to bring to closing.

CREDIT SCORE

Your CREDIT SCORE is a number ranging from 300-850, that is based on an analysis of your credit history. It helps lenders to determine the likelihood that you’ll repay future debts.

Your credit score is calculated based on a number of factors, including things like total debt, length of credit history, and payment history. There are a number of steps you can take to improve your credit score.

It’s important to know your credit score, as it will influence the mortgage rate you receive and many loan products have minimum credit score requirements. (Learn more about credit scores and how they affect your interest rate)

I HIGHLY recommend talking with your lender about your credit score and what loan product will be the best fit for you. It may be worth putting off your home purchase for 6-12 months to improve your credit score, as it will save you THOUSANDS of dollars in interest by being able to qualify for a lower interest rate.

DOWN PAYMENT

A DOWN PAYMENT is the initial payment made towards a real estate purchase. It is the difference between your purchase price of the home and the amount of your mortgage.

Different loan products will have different down payment requirements. The amount of a down payment is typically expressed as a percentage of the home’s purchase price. And will range from 3% to 20%, with there even being 0% down payment loan products available as well.

Right now the lending standards for many lenders are still very lax, so low down payment programs are still very common. Making it a great time to purchase a home.

There are also down payment assistance programs available to buyers/borrowers who qualify. If you’d like more information about possible down payment assistance programs, get in-touch with me and I’ll be happy to provide you that information.

MORTGAGE RATE

The MORTGAGE RATE is the interest rate you pay to borrow money, from a lender, to buy your home. The lower the interest rate, the better.

You may have heard about different types of mortgages and financing options that will have an impact on your mortgage rate. The two most common types of mortgages for residential homes are FIXED RATE MORTGAGES and ADJUSTABLE RATE MORTGAGES.

  • FIXED RATE MORTGAGES: Is a mortgage where the mortgage rate remains the same throughout the life of the loan. Your payments will always remain the same because your interest rate and other terms do not change. For most buyers, this is the type of mortgage that you want to have.
  • ADJUSTABLE RATE MORTGAGES (ARMs): Is a mortgage where the mortgage rate is subject to changes in interest rates. This type of mortgage has an introductory rate that lasts a set period of time and then adjusts annually thereafter for the remaining time period. This mortgage type is typically seen as riskier because your interest rate will likely go up after the initial fixed period.

As of October 2018, these are Today’s Average Rates for Conventional and Government Loans:

PRE-APPROVAL LETTER

A PRE-APPROVAL LETTER is a letter from a lender indicating that you qualify for a mortgage of a specific amount.

The Pre-Approval Letter differs from a Pre-Qualification Letter in the sense that the lender will require documentation and verification of your income, assets, and debts. It will often require a credit check as well.

Having a Pre-Approval Letter allows you to show a Seller that you are able to move forward with the purchase of a home, should you agree on price and terms. I highly recommend obtaining a Pre-Approval Letter from a lender prior to making an offer on a home. It will allow your offer to stand above other buyers who have not completed this step.

REAL ESTATE PROFESSIONAL

Ahh, the REAL ESTATE PROFESSIONAL….this is the person who provides services to those buying and selling real estate. Real Estate Professionals are there to help you through all the confusing paperwork, find your dream home, negotiate all the details of your purchase and to help inform you about all that is going on in the housing market.

Prior to settling on a Real Estate Professional, take some time to find out more information about the agents and brokers in your local area. Determine who you’d like to interview, ensuring you find a good fit. Having a Real Estate Professional that you work well with will make the home buying process much more enjoyable and fun.

SUMMARY

I’m glad that you took some time to read and learn about some of the most common “LINGO” you’ll hear when buying a home. It will certainly make the home buying process more fun and enjoyable for you.

I know that once I better understood the LINGO, I had a much better feeling and experience. I hope the same is true for you.

If I can help answer any other questions you have, please get in-touch with me….I’m more than happy to help!

Cheers!

ABOUT THE AUTHOR

NICHOLAS PAUL

Nick is a husband, a real estate broker and investor, a friend, a foodie and lover of water (oceans/rivers/lakes). Born in Albuquerque, NM and raised in Alamogordo, NM he has a unique and interesting perspective on local real estate that he can’t wait to share with you. Nick resides in Alamogordo and enjoys getting to meet all the wonderful and vibrant people of Alamogordo and Otero County.