During this week’s Real Estate Roundup, Steve spoke with Terry Story, a 31-year veteran at Keller Williams about some important and interesting terms in the real estate industry. These terms are often simplified into acronyms to make them easier to remember. Understanding what these terms mean is important for you if you’re buying or thinking about buying a home. They also briefly discussed some signs to look for to determine if the housing market is rebounding or not.
APR And FRM
APR stan...
During this week’s Real Estate Roundup, Steve spoke with Terry Story, a 31-year veteran at Keller Williams about some important and interesting terms in the real estate industry. These terms are often simplified into acronyms to make them easier to remember. Understanding what these terms mean is important for you if you’re buying or thinking about buying a home. They also briefly discussed some signs to look for to determine if the housing market is rebounding or not.
APR And FRM
APR stands for the annual percentage rate. It’s what you pay annually for borrowing money. This is based on the amount of the loan, the interest rate on the loan, and certain fees that are attached to the loan.
So, for example, if you go to buy a car and take out a loan with a loan rate of 3.5%, the APR might be 3.75%. The APR is different because it takes into account not only the interest rate you pay but also any annual fees that may be attached to the loan.
The same happens with a mortgage. You borrow a certain amount of money and have interest and fees attached to the loan. The APR tells you the amount, as a percentage of the loan, that you’ll actually be paying yearly. This is important to know because it helps you get a better sense of exactly what your expenditure is going to be.
FRM stands for fixed-mortgage rate. This term is pretty simple and is typically sought after by a lot of mortgage seekers because it means the interest rate attached to your loan doesn’t change. From one year or one payment period to the next, the rate stays the same.
DTI – Debt To Income
DTI refers to the debt to income ratio. This is a financial metric that reflects the percentage of your monthly income that goes toward paying your debts. If you’re buying a home, lenders prefer limiting a home loan to no more than about 36% of your income. There are variables when it comes to the true percentage that lenders will recommend that you spend. These variables include things such as other significant debts and your credit rating.
Why wouldn’t lenders want you to spend more? This is pretty simple: they don’t want you to go broke. This is bad for you and bad for them because it means you’re less likely to be able to pay off the entirety of the loan. If it’s a loan that requires collateral, they get something back, meaning they can foreclose on your home, but they may not get back the entirety of the money they lent you, and they have to go through the hassle of trying to then sell your home.
PMI – Private Mortgage Insurance
PMI stands for private mortgage insurance. Principal and interest are portions of your monthly mortgage payment that go toward paying off the money you borrowed in order to buy your home. If you put less than 20% down on a home, that’s really when you should get PMI. The lender needs to know that you have enough money to cover them and insure the loan.
Once you’ve started to pay down the full cost of the loan—when your loan to asset ratio is better—you can stop paying for PMI. But this isn’t a decision you get to make on your own. You have to bring this to the attention of the lender. They’ll more often than not send your information to an appraiser to determine the value of your assets and determine if your rate can be calculated differently.
But you have to be proactive. If you think you’re close to the 20% mark, check with your lender. It may even be worth talking to a realtor first. They can give you a good idea of the value of your home/assets and if the amount you’ve paid will qualify you for a better rate.
Signs Of A Rebounding Housing Market
Part of buying a home is knowing the terms. But part of it is also knowing whether the housing market is rebounding or not. One trend to look for is consecutive months of growth with existing home sales numbers. The market is cyclical and has a lot of ups and downs. You really want to watch for at least three months of home sales numbers increasing.
The next trend to watch for involves pending home sales. These are contracts that are in the works but haven’t been closed yet. What you want to look for there is a growing number of pending home sales in each of the four major regions of the country. Increasing numbers of pending sales means that there is potential for growth in the future, that inventory is growing, and it’s probably a good time to buy or think about buying.
The final thing to watch for is buyer traffic. Pay attention to the number of people realistically shopping for homes versus the same time during the previous year and for the first time in 12 to 13 months. If traffic is up, it’s a good sign that the housing market is rebounding.
All of these statistics can easily be Googled to help you get a good sense of where the housing market is and where it’s going. This is something you can do for yourself before you start shopping for a home.
If you’d like to learn more about buying or selling a home, check out Keller Williams!
