Home youth program budget Escalation clause? Relay loan? Real Estate Terms for Buyers to Know

Escalation clause? Relay loan? Real Estate Terms for Buyers to Know

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Today’s real estate market is a bit like a merry-go-round in a theme park: it’s unpredictable with twists and surprises at every turn. If you’re a buyer who’s been there for a minute (read: the best half of the last two years), you’re used to the heartbreaking process of making an offer on a house, outbidding, and having to say goodbye to the house you thought you were The One.

Truth be told, there’s no silver bullet to making your offer on a stick at home (except, of course, having Jeff Bezos cash levels). But knowledge is power, and buyers who understand some crucial real estate terms can strategically navigate their home buying journey.

So buckle up and familiarize yourself with the following real estate terms. Adding this real estate jargon to your manual can help you get ahead of the competition.

1. Valuation contingency

Having an appraisal contingency in your purchase agreement means that you will only buy the house if the appraisal of the house is equal to or higher than the sale price. This is important because it gives you the option to negotiate a lower sale price or walk away.

But if you’re confident that the home appraisal won’t change the asking price of the home or your ability to buy the home, you may decide to forego the appraisal contingency to make your offer more attractive to the home. seller.

2. Best and last offer

When a seller’s broker hopes to avoid a bidding war (sounds strange, but it does happen), the broker may ask interested buyers to submit their best and final offer. The seller then selects the most favorable terms and works with that buyer.

“Each bidder has a fair chance – and only one chance – to give their best and final offer. There will be no further negotiations at this stage,” said Jane Katz, real estate broker for Coldwell Banker Warburg. “A good buyer’s broker will try to find information and what will make their offer a winner.”

3. Escalation clause

You can also try to beat the competition by including an escalation clause in your best and last offer. An escalation clause will indicate how much you are willing to pay on the highest verified offer.

4. Bridge loan

A bridge loan is a short-term loan that allows borrowers to purchase a new property using their current home as collateral. This type of loan is a good option for borrowers who need a lot of cash. They are commonly used for people who want to buy and sell a house simultaneously.

“A bridging loan can help cover the cost of buying the new home,” says Mihal Gartenberg, licensed real estate salesperson for Coldwell Banker Warburg. “Once the old one is sold, the buyer can start paying off the bridging loan.”

5. Debt to income ratio

Also known as DTI, the debt-to-income ratio is an equation that compares the amount of money you owe to the money you earn. DTI is the amount of money used for debt and property costs (such as taxes and maintenance) relative to a person’s income.

It is extremely important for buyers to know their DTI, as it affects their eligibility for a mortgage.

“Banks have various DTI requirements, but I always recommend that my buyers try not to spend more than a third of their income,” says Gartenberg. “Many New York City co-ops only allow a DTI of 25% to 30% or less.”

6. Deposit

The earnest money deposit, or good faith deposit, shows sellers that you really want to buy their home. This is a sum of money paid by buyers when signing the real estate purchase contract but before closing. The deposit funds go toward the down payment and closing costs.

Typically, buyers can expect to hand over 1-3% of the total purchase price of a home. In a seller’s market, the closer you get to 3%, the better.

7. Highest and Best Bid

Not to be confused with best and latest, highest and best are similar in that they come into play when there is a hot property with multiple offers.

“Highest and best bids are used to start bidding wars where buyers can be pitted against each other, while high and final bids are meant to be the buyer’s final offer – one and done,” says Katz.

If you find yourself in a highest and best bid situation, cash will be king. But you can also ask your real estate agent to find out the most advantageous conditions for the seller and to adapt your offer accordingly. For example, will the seller require a tenancy agreement after closing? Does the seller need to unload the house quickly and want an offer with a quick closing of 30 days or less?

8. Pre-approval

If you are pre-approved for a home, a lender has guaranteed to give you a mortgage.

A pre-approval letter lets you see how much money you can borrow, and all serious buyers should have it on hand. For a seller, the pre-approval letter shows a buyer’s financial qualifications and is proof that the buyer can close.

“It’s important to have this when doing door-to-door shopping, so the buyer can include it in their offer which they may need to make quickly,” says Katz.

9. Private Mortgage Insurance

Today’s astronomical home prices make it very difficult to put down a down payment, but most lenders are wary of backing a buyer who can’t deposit a significant amount of change. That’s why lenders typically require private mortgage insurance, or PMI, from homebuyers if they’re paying less than 20% of the home’s value. If you are unable to repay your loan, PMI will protect your lender.

Expect your PMI payment to range from around 0.3% to 1.15% of your home loan.

If you plan to pay PMI, it is important to factor this into your overall home buying budget.