Equity is the percentage of the house you own. When you first purchase a house, the bank owns most of it. When you start making payments, most of the payment goes toward paying the interest on the loan, but a drop or two goes toward the equity bucket. As you pay off more of the loan, more drops go into the equity bucket. When you sell your home, that bucket is yours. To figure out how much equity you have, take the selling price of the house and subtract the amount you still owe. For example, if you sold your house for $100,000 and owed $80,000, you'd still have $20,000 in equity.
Foreclosure is what happens when someone fails to make payment on a home and the bank starts the proceedings to force payment by seizing and selling the property.
You may hear lenders use the term loan-to-value or LTV. If you put down 10% and finance 90%, that's called a 90% LTV loan.
Many buyers are confused how house payments are paid and why interest is due at closing in some cases. When you rent an apartment, you pay in advance. On August 1, you pay the rent for the month of August. When you purse a house, you pay in arrears, or back pay on the house. For instance, your payment for August 1 pays for the month of July.
What's an escrow account? Basically, the lender doesn't trust you to save up the money to pay taxes and insurance when they come due. So the lender requires you to pay 1/12 of your insurance and tax amount each month. This money is kept in an escrow account. When the tax and insurance bills come due, your lender pays them from this account. Escrow accounts are negotiable.
Keep in mind that if you ask your agent to estimate how much house you can afford, they are aware of exactly how much house that translates to. You might actually be able to afford a $300,000 house, but that doesn't mean that is how much you are looking to spend. be sure the agent understands the price range you want to stay within. If that agent starts to show you homes out of the range you feel comfortable with, let them know.
With an experienced agent, you can sometimes do some creative financing to be able to qualify for a loan. Your agent won't recommend anything illegal, but he or she may be able to make suggestions about how to lower your monthly debts or how to finance your loan. Just be careful not to get in over your head.
If you have several credit cards, get rid of most of them before you apply for a loan. Having too many credit cards may be looked on unfavorably by lenders. With easy access to credit, you could get yourself into trouble.
If you are both listing your house and looking for a new house, the sales commission may be negotiable. Ask your agent. Agents may be willing to lower the commission if they both list and sell the house.
When you think about what you need for the house, think about the future. Will you have children? Will your children be grown and moving out? What about your parents? Consider all possibilities and be sure you feel you can accommodate them in your new house.
Remember that what you see from the outside can be deceiving. A home that looks small on the outside may be a lot larger once you get inside. Basements especially can add a lot to the size of the house. Purchasing a similar size new home may cost a lot more.
The worst decision you can make is to buy a house and thinking you will just make do until something better is available. It takes time and money to move, and you may end up stuck in that house for longer than you think. Be sure you are happy with the house.
When planning a move, keep in mind the timeframe it takes and how that will mesh with your life. You might want to try to time the move with your children's school schedules. You may want to avoid moving during the holidays. Think about the best and worst scenario of a move and try to plan accordingly.
You may think that there's just one home that is perfect for you, but there are probably several. Keep your perspective. If a deal doesn't go through on that perfect home, rest assured that you will find another one that you will like just as well, or even better!