November 8, 2016 | Therese Antonelli
When I take on a new client with dreams of owning a home, they cannot wait to start looking for it.  After we discuss their wants I start talking to them about loans, deposits, being qualified and other important terms buyers need to know when buying a home.  I find out that many people are not aware of what it takes to buy a home.  My advice to anyone that is ready to get into the real estate market is to educate yourself with some basic terms.  An informed buyer is a smart buyer!
Pre-Approved/Pre-Qualified - Contacting a lender and giving them information about credit history, employment and debt to see how much home (price) the bank says a person can borrow.  Very important to note-An offer cannot be made on a home without a person being prequalified for a loan. It is best practice to get qualified before even seeing homes.
Mortgage - A loan a person qualifies for with a lender to purchase a home.   There are different types of loans a person can take out.  
Cash Offer - When someone comes to closing with the funds to buy the home and no mortgage is necessary.
Conventional Loan - This is a typical loan, not insured by the government.  A Conventional loan requires a minimum of 5% down. Sellers really prefer a buyer to be qualified for this kind of loan when they consider an offer. Talk to a lender for more details.
FHA Loan (Federal Housing Administration) - This loan allows a borrower to put a minimum down payment of 3.5% and it is insured by the government.  This protects the lender from losing the money if the borrower defaults on the loan.  The borrower will need to pay for mortgage insurance (PMI) for the lifetime of the loan.  There are restrictions with this type of loan. Talk to a lender for more details.
VA Loan (Veteran Affairs) - This loan allows a borrower to put ZERO down to buy a home and it is insured by the U.S. department of Veteran Affairs.  There are restrictions with this type of loan, as well as lenders that offer this loan.  Talk to a lender for more details.
Rural Development Loan - This loan is for suburban and rural homebuyers that allows them to put ZERO down on the loan.  An RD loan is backed by the U.S. Department of Agriculture.  You don’t need to be a farmer for this loan, the property that a person is interested in simply must qualify under the rural development guidelines. There are restrictions on who can qualify for this loan. Talk to a lender for more details.   Go to this website to see if a property you are interested in qualifies:
MHSDA (Michigan State Housing Development Authority) - Another loan that is associated with your mortgage.  A person can take up to $7,500 that helps borrowers with down payment and closing cost.  There are restrictions with this type of loan. Talk to a lender for more details.
Purchase Agreement - A contract between the buyer and seller, that offers $XXX for purchase of real estate property.
45-60 days - The average time it takes from the time your offer is accepted to the time you receive your keys to your new home.
EMD (Earnest Money Deposit) - A deposit made with the purchase agreement that shows a seller that a buyer is willing to give up if they decide to just walk away. When a person makes an offer, an EMD must come with it. Usually a good EMD is 1-2% of the price you are offering to pay for the property. Please note, there are ways to receive you EMD back if something happens during the inspection, appraisal, the loan falling through, or if the seller backs out.  If you decide to walk away or you find another home you like, chances are you will not get your EMD back.
PMI (Private Mortgage Insurance) - When you put less than 20% down on a conventional loan, a lender requires private mortgage insurance. This protects them from losing money if you stop paying on the loan and foreclose. Once a home has 20% of equity into it, PMI will go away but you would need to get another appraisal done on the home to determine this.  
Inspection - As soon as your offer is accepted, you or your realtor will find a reputable inspector to come out to the home and look it over from top to bottom. This will need to be done in the first 7 days after the offer is accepted.  The buyer will need to pay for this at the time of service.  The average cost is around $300-$400.
Appraisal - Once an offer is accepted an appraisal will be ordered by the lender. The buyer pays for this at closing. Average cost is around $400-$500. This tells the lender how much the home is worth from other homes that have sold like it in the area and the highest the lender is willing to lend to the buyer.
Closing Cost - Before you get the keys to your new home there are some fees you will need to pay as well as your down payment. Title Insurance, escrow(taxes), home insurance, appraisal and other fees. Your lender and title company will explain.  Your EMD will be included in paying for these fees.
Title Company - When it is time to close on your home, a title company will work with the lender to produce all necessary paperwork to transfer the deed to the buyer.
Title Insurance - A buyer pays for this in their closing cost to protect them or a lender from fraud, title defects, liens and other matters that could be attached to the home.
These are just some of the terms you will need to become familiar with when looking for a home.  A home is a big investment, knowing as much as you can will help you make smart choices.
Happy House Hunting!
Jill Penna
Moving The Mitten Realtor


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