New homeowner? Common home repairs and what they cost

There’s an old saying among boat owners: “A boat is nothing more than a hole in the water into which you throw money.”

The same can be said for some homes, especially older homes that haven’t been updated.

Regardless of how old a home is, it will require some sort of repair during the time you own it. In fact, a Hippo survey found that 77% of new homeowners will experience some sort of “… unexpected issue …” that needs repair during the first year of ownership.

Some repairs will be minor and, perhaps, DIY-able. Others are of the “OMG, I’m going to be sick” variety.

Today we’ll take a look at the less-cardiac-inducing and most common home repairs and how much you can expect to pay for them.

Common home repairs and how much they’ll set you back

We’ve combed the various home repair sites to come up with an average cost for some of the most common repairs.

Remember, we are currently experiencing inflation, supply chain issues and more, so these prices may increase by the time you need to make any of the repairs.

But, at least you’ll have a ballpark figure to work with when it comes to setting up your home repair fund.

Electrical problems

Electrical problems top the list of most common repairs needed after a home purchase. The most common problem seems to be insufficient Ground Fault Circuit Interrupters (GFCI) installed in and around the home.

“A GFCI should be used in any indoor or outdoor area where water may come into contact with electrical products. The National Electrical Code currently requires that GFCIs be used in all kitchens, bathrooms, garages, and outdoors,” according to the experts at the Electrical Safety Foundation International.

Unless you are very familiar with electrical work, you’ll need to hire a professional electrician. Plan on spending between $7 and $25 for the outlet itself.

Then, you’re looking at between “. . . $125 to $250 per outlet depending on if you’re replacing an existing or adding a new location,” claims Lauren Lloyd at forbes.com.

Water heater repair or replacement

Consider yourself lucky if your home inspector finds the water heater problem so that you can negotiate with the seller to make the repair.

Otherwise, you are looking at paying nearly $600 for repair. This is the national average cost, according to HomeAdvisor.com. “The typical range for repairs is between $220 and $958,” they claim.

If you need a new water heater you’ll pay between $600 to $1,800.

Plumbing problems

Leaky, dripping faucets and pipes are one of the most common plumbing problems encountered by the new homeowner. Thankfully, they are also among the cheapest to remedy.

If you feel that your DIY skills aren’t up to the task, however, call a plumber.

“The average cost [nationwide] for labor and parts to repair a dripping faucet is $200 to $330, with most repairs costing $270,” according to research performed by the pros at homeadvisor.com.

Leaking pipes can be a bit pricey to fix, especially if the plumber needs to find the pipe that’s leaking.

According to homeadvisor.com, sleuthing may tack on $100 to the average cost of $150 to $350 to repair the pipe and another $250 to $750 to repair the drywall after the repair.

How will you pay for these repairs?

“Money expert” Clark Howard suggests that you create a Fix-It Fund to help save for unexpected home repair expenses. He urges homeowners to put “. . . the equivalent of two monthly mortgage payments aside in a maintenance and repair fund for your home.”

With the prices of most everything skyrocketing, this is easier said than done. But it’s not impossible. Although Howard suggests that you save this money over the course of a year, right now you may want to be more flexible with the deadline.

Just start saving, whatever you can, every month in a dedicated account and don’t touch it for anything but home repairs.

To learn more about how to start your Fix-It Fund, visit clark.com.

Balancing the Pros and Cons of a Home for Sale

No matter how much time you spend looking at houses, buying a home ultimately comes down to deciding which house you really want. You can choose your home in a number of ways, from gut instinct (not generally recommended) to tallying up the pros and cons of an individual home. Here are some factors to consider during the home shopping process.

Mortgage Costs and Financial Considerations

One of the biggest mistakes people make when buying a home is purchasing more house than they can afford. This is easy to do unless you are aware that  homeowner’s costs include far more than just the mortgage. Associated monthly costs include:

  • Association, neighborhood or condo fees
  • Electricity, water and other utilities
  • Homeowner’s insurance
  • Maintenance and repair costs
  • Mortgage insurance
  • Mortgage payments
  • Property taxes

It’s all too easy to overextend your finances trying to buy the “perfect” home. Be sure you can afford the home you choose. Your dreams shouldn’t exceed your finances.

The Basics: Structure, Design and Location

The structural integrity of the house is extremely important when you choose a home. It may seem beautiful, but if it isn’t well built, home maintenance costs could cripple a new owner’s finances. From the moment you start looking at homes, keep the houses’ structural soundness in mind.

Design and floor plans are also important when choosing a home. A badly designed floor plan greatly detracts from people’s enjoyment of a home. If an odd-shaped room or tiny kitchen drives you to distraction, maybe you should keep looking at homes until you find something that suits you better.

Location is also critical. What are the pros and cons of a home’s location? Possible considerations include:

  • Commuting distance
  • Future development projects planned for the area
  • Local crime
  • Local economy
  • Neighborhood age and cleanliness
  • Neighborhood traffic noise
  • Property values
  • Proximity to shops, hospitals and schools
  • Nearby traffic noise from cars, railways and airports

Evaluating Other Pros and Cons

Once you’ve evaluated a home’s structural quality and other major pros and cons, the final decision often comes down to little details.

Do you like the carpeting, the windows, and the general feel of the home? Is there anything special about this house you haven’t seen elsewhere while looking at homes?

How long can you see yourself living in this house? What would you change about it if you could? Would you be able to afford those changes?

While it’s not advisable to make a gut decision about buying a house before checking major concerns, once you’ve determined a house is well-built and well-located, your final decision may be emotional.

At one level you’re deciding whether or not to buy a house- but you’re also deciding whether or not to make that house your home. And when all the pros and cons of house buying are considered, whether or not a house feels like home is an important consideration.

How to avoid being the homebuyer from heck

A homeowner whose home is on the market has given up a lot of privacy. It is almost guaranteed that buyers will open drawers, peek inside cabinets and touch items that are obviously personal and not included in the sale.

Coming home from work to find that the impeccably-made bed they left in the morning is now covered in a ball of linens is annoying.

These are just a few examples of nightmare homebuyers behaving badly. Read on to learn how to not turn off the seller of your dream home.

Don’t be a time bandit

Savvy home sellers spend a great deal of time ensuring that the home is presentable during the marketing period. They clean, de-clutter and then inconvenience themselves by skedaddling before the potential buyers show up.

Therefore, buyers that cancel appointments at the last minute, or just don’t bother showing up, are behaving quite badly.

Unless an emergency came up and there was no time to call your agent, try to provide your agent with at least several hours’ notice that you won’t be touring the home. It’s the polite thing to do and it just might save the seller from needlessly preparing for your arrival.

“Time is of the essence” is a term you’ll see in most real estate purchase contracts. What it means is that all specified deadlines in the agreement are mandatory — sort of. Yes, you can request an extension of a date and it will most likely be granted, if the reason for the request is compelling enough.

Frivolous requests, however, or those made repeatedly, are time stealers.

Sellers are frequently on a tight schedule to get the transaction to the closing table. Just as you are excited to get into your new home, the seller has plans as well. Keeping contract deadline extension requests to a minimum is one way you can contribute to a smooth transaction.

Then there is the homebuyer that, once the ink dries on the contract, treats the home as if it’s unoccupied and equipped with a revolving door. One week it’s their interior decorator that needs access to take measurement, perhaps the next week it will be their architect.

Many buyers want to show family members their new home – before it is actually their new home.

The seller, in the meantime is packing for the move, having repairs completed, accommodating the appraiser and inspectors all while attempting to live a normal life. Additional home tours are more than an inconvenience, they are time stealers.

If you must gain access to the home, ask your agent to find out when the inspector or appraiser will be in the home and arrange to be there at the same time.

The Nit-Picker

Nit picking is neither a price-reduction nor negotiating strategy, as those buyers who have tried it can attest. Bankrate.com’s Dana Gratch calls these buyers “gladiator wannabes,” who, after they’ve agreed to purchase the home, come in with a long list of things that are wrong with it or a list of concessions.

The art of negotiating depends on give and take, not a barrage of one-sided demands. Let your real estate agent do the negotiating. If you truly feel that what is wrong with the house commands a price reduction, your agent should be able to justify it with a list of comparables and reasons why the seller’s home doesn’t stack up.

The Unprepared

There are several reasons a real estate agent suggests that a buyer get fully approved for a loan before submitting an offer to purchase. Buyers that don’t take this important step run the risk of derailing the entire transaction.

Even a pre-approval commitment from a lender isn’t firm. Once the loan application is in the hands of the underwriter, anything can happen. Many times, the buyer will receive a letter from the bank – in the middle of the transaction — listing all the conditions that must be met before the loan is approved.

Satisfying these conditions not only takes time, but, depending on the conditions, may result in a cancelled sale.

Take the time to work with your lender to ensure that you will get the loan before committing to purchase a home. Don’t make any major purchases until the home closes escrow.

Entering into the process knowing that you’ll get the loan is not only a courtesy to the seller but the peace of mind it gives you is priceless.

Both parties to a real estate transaction have schedules that need to be accommodated during the purchase process and, yes, sellers can behave badly as well (we’ll take a look at that in a future blog post). Respecting one another’s needs helps make the transaction run smoother and more comfortably for all concerned.

5 things you need to know about your credit score

Think finding the perfect home is the is the most important step in the homebuying process?

Think again.

It’s the financial aspects of the process that will determine how dreamy of a home you can buy and how you can comfortably pay for it every month.

The bedrock of these aspects is your credit score. Sadly, many Americans have little to no understanding of how vital this score is to your success when buying a home, an auto and even in the purchase of insurance.

If you’re trying to figure out how to raise your credit score, it’s important to understand what impacts it, both negatively and positively.

  1. Late payments show up so quickly on credit reports it’s as if the bureaus are standing over our shoulders when we write the check, or go online, to pay a bill. In all fairness, the experts at Equifax.com say that average time period from late payment of a bill to this information being reported to the credit bureaus is 30 days.

Which is a bit scary, because “Even one late payment can cause credit scores to drop,” according to these same experts.

To top it off, each time you make a late payment, and it ends up in your credit report, it will remain there for seven years.

The moral of this story is to pay your bills on time every month.

  1. Closing credit card accounts that you no longer use may seem like a good way to help build your credit score. It’s not.

This is because one of the factors used to determine your credit scores is your “debt-to-credit” ratio. “That ratio is how much of your available credit you’re using compared to the total amount available to you,” say the pros at Equifax.com.

When you close an account you’ll end up with less available credit, raising your ratio.

Consider as well that older accounts have more clout than newer ones. “The history of your credit accounts makes up 15% of your FICO Score,” according to Lora Shinn at LendingTree.com.

“So that credit card you opened 15 years ago may well be helping to boost your credit score by increasing your average age of accounts,” she concludes.

  1. Opening new credit card accounts seems like it would give you a leg up on a credit score, but it will do the opposite.

Opening new credit card accounts “… may impact your credit scores in two ways: the hard inquiries resulting from those applications … and the new accounts themselves may lower the average age of your credit accounts,” caution the pros at Equifax.

  1. Not utilizing the credit you have may have a negative impact on your score; yet another factor that seems counterintuitive to many. If you don’t use a credit account, no new information is reported by the bureaus. This, in turn, “… may make it more difficult for lenders and creditors to evaluate your application for credit or services,” according to the credit experts at Equifax.com.

If the inactivity goes on for a certain amount of time, the creditor may close the account. As mentioned earlier, a closed account may have a negative impact on your credit score.

Use your credit accounts, especially for small purchases, and pay the bills when due.

  1. You’re entitled to a free copy of your credit reports every 12 months. It’s important to take advantage of this offer if you hope to keep track of your credit score. Go to annualcreditreport.com (the only source authorized by the federal government) for the details.

3 Big To-Do’s Before You List Your Home

When it comes to its value, both financially and sentimentally, a home is really in a league of its own. Regardless of size and amenities, a place to live will always carry importance and the process of selling or buying is not to be taken lightly. Instead of starting with no gameplan, make sure to employ the services of a real estate agent to guide you through the process.

It would certainly be ideal to be able to plan a sale beforehand and to give yourself enough time to figure out every detail. Unfortunately, many transactions happen out of need and are caused by an important event in the life of a family, like bringing a child into the world, marriage or in some cases, the death of a family member.

Even without the luxury of premeditating your every move, here are a few pointers in case you want to sell your home:

Make Sure You Really Want To Sell

As stated above, selling a home is a big step. Before starting the process you’ll want to make sure that this is really what you want and that it will have the desired effect for you. Think ahead and plan accordingly. Did you settle on a new home already or at least made sure you have narrowed down your choices? If not, take a step back and think it over.

Without a clear notion of what you want, you might be tempted to just test the waters. That usually involves over-evaluating your home and placing it on the market with a much higher price than it should have. This is something no real estate agent would ever recommend. Since living spaces are expensive, buyers will, much more often than not, be informed and have at least a ballpark idea of how much your home is really worth.

There’s little room for trial and error in real estate, and that’s because you’ll carry your history with you. Even if you later drop the price for your home, the listings will show the previous entries and potential buyers will interpret the change badly, either by assuming there is something wrong with the property or by thinking that the seller is not being straight-forward with them.

Plan Ahead & Know The Market

Some changes sneak their way into your life and compel you to take action, but others give you enough time to prepare. The addition of a new family member or a change in the place of employment are such fortunate cases that allow you to do your research and make the most out of the sale.

Don’t just throw your home out there the moment you realize you’ll have to sell, not unless you have to. There’s always something to be done around the house to increase that property’s value and net you more money once you do sell, from a new coat of paint to replacing bathroom tiles to the shingles on the roof.

A real estate agent can come to your aid in regards to watching the market, see what the competition is up to and when is the ideal time for you to place the home on the market. Keeping an eye on other sellers can also give you a good idea on just how many buyers are out and about looking for a new place to live.

Remember That The Demand Is Always There

While you may dread the idea of moving in the winter, especially if you live in areas with a harsh climate, selling your home then could be more profitable. That’s because the number of buyers does not drop drastically, however there aren’t nearly as many sellers. If able, try to assess the situation and the market as bet as possible. Professional help really comes in handy here. And most importantly, don’t sell in a hurry.

In real estate, slow and steady wins the game. If you rush the sale and don’t get your property in decent enough shape, you will miss an opportunity of getting more money from it.

If you let feelings get a hold of you and dictate the price, you’ll not only miss the chance to sell, but also have that mistake follow you for the future, possible transaction. Be patient and cerebral, make a plan and stick to it, the desired result will be just around the corner.

Rising interest rates and how they impact the home sale

It’s May and the Fed recently held their latest pow-wow. When they met in March, they raised “… the federal funds interest rate by 25 basis points,” Rick Dennen, president and CEO of Oak Street Funding, told InsideIndianaBusiness.com.

This month, they raised it 50 basis points, “… the biggest rate increase in more than two decades,” according to Taylor Tepper at forbes.com.

The media loves to tell us how the hike in interest rates impacts the homebuyer, but we hear little about the plight of sellers. Let’s take a look at what happens to this population when interest rates rise.

Mortgages get more expensive

With each tick up in mortgage rates, loans become more expensive for homebuyers. For those on tight budgets, that additional expense may just be what pushes them out of the housing market.

Ryan Boykin at investopedia.com crunches the numbers for a hypothetical homebuyer to illustrate how rising interest rates impact homebuyers.

“… if Johnny Home Buyer wants a 4% rate on a 30-year fixed mortgage on a home worth $400,000, his monthly mortgage payment would be $1,900,” calculates Boykin.

“But if Johnny only qualified for a 5% rate on a 30-year fixed mortgage, his monthly payment would rise to $2,138.”

For each 1% rate increase, Johnny’s payment increases by “… $238, or roughly 13% … A 1% increase in mortgage interest decreases Johnny’s purchasing power by $45,000.” Boykin concludes.

That $45,000 (or more) loss in buying power particularly impacts homebuyers on tight budgets. Naturally, demand for homes is diminished when a large portion of the homebuying pool disappears.

More expensive loans, combined with inflation fears and stock market volatility are contributing to what many experts believe is a slight cooling of the housing market.

As interest rates rise and homebuyers leave the market, sellers will find their home values dipping and homes will sit on the market longer than they have in the past few years.

It’s not all doom and gloom for home sellers

On average, if you put your home on the market now, you are likely to get 47% more for it than you would have if you sold it last year, according to Clare Trapasso at realtor.com.

In fact, the median home price is up nearly 15% from this time last year and now sits at a nation-wide average of $391,200.

So, although the volume of homes sold dropped in April, home prices continue to climb.

For how long?

Now we circle back to how increasing mortgage rates impact home sellers. Most housing market experts predict that the market will change slowly, with price reductions of homes for sale gradually becoming more common.

In fact, the number crunchers at one of the big real estate conglomerates recently said that 12% of homes for sale in the U.S. experienced price drops during late March into early April.

Uncertainty is the watchword right now in the housing market. There is a big “if” in the expectation that the housing market change will be gradual.

“If the economy grows fast enough, rising mortgage rates will not have as great an effect on property value and housing prices, as long as salaries and wages correspondingly grow as well,” Boykin claims.

The economy, as you know if you follow the news, isn’t growing and talk of a looming recession is becoming more common.

“Eventually mortgage rates will slow down home prices …” economist Ken H. Johnson tells bankrate.com.

If you want to, or must, sell your home and you want the most money you can get for it, the time to sell is right now.

DIYs for instant impact in your garden

Passionate gardeners wait month after dreary month for spring. But poring over seed and plant catalogs, on and offline, can only help so much.

Now that spring is in full swing, the soil is warm, the temperatures are climbing, it’s definitely time to celebrate your garden.

Today, however, we’ll take a look at some non-plant ideas to consider for your landscaping. Known as “hardscaping,” it can completely (unlike plants that take time to grow to maturity) transform your garden instantly.

Adding hardscaping to your garden can not only be a cheap way to make a statement, but present a creative outlet as well.

Create curiosity with a pathway

Where does it lead? What will I see along the way? These are just two of the questions we subconsciously ask ourselves when we see a pathway.

You don’t have to bust your landscaping budget, however. Pathways can be created from items you may have lying around the home, including wood, pebbles, sand, gravel and mulch. Find cheap pathway ideas online at familyhandyman.com.

If you prefer pavers, “Bluestone, granite, limestone and slate are all popular choices,” according to Jeannie Matteucci at hgtv.com.

Add creative lighting

Consider lighting for your new pathway, as a spotlight on a feature planting, on the patio, strung from a fence or one of the many ideas you’ll find online at apieceofrainbow.com.

Oh, and for a really easy DIY solution, check out solar-powered landscape lighting.

Install a water feature

“Sounds like birdsong and flowing water may alleviate stress, help lower blood pressure and lead to feelings of tranquility,” claims Brian Handwerk, science correspondent with smitsonianmag.com.

What better way to achieve these benefits than in your own backyard? Water features to consider include a birdbath with a fountain, a waterfall, DIY vases and urns turned into bubblers and more. Check out additional ideas (including links to DIY instructions) at earthdevelopment.com.

Separate the lawn from landscape plants

Sometimes, hidden garden edging isn’t enough. If you have a particularly striking tree or other plant in the landscape, consider adding edging around it.

Whether you choose a circle, square or freeform shape, materials for the edging can range from bricks, rocks, ready-made short fences in metal, wood, bamboo and more.

Get DIY tips and inspiration on youtube.com and pinterest.com.

Plant vines on a trellis or arbor

Although the trellis and/or arbor are the workhorses of the garden, they can be as attractive as they are functional.

If what you’ll grow on them will cover the structure, the arbor or trellis’ beauty isn’t a consideration. Get DIY tips for these online at youtube.com.

If functional and gorgeous is your aim, check out these beauties at Pinterest.com.

Garden décor

Patios are the perfect place for garden décor, but do consider letting it spill out onto the backyard as well.

  • Statuary
  • Decorative wind chimes
  • Wall art

On the fence about selling your home?

If you are toying with the idea of selling your home, but have misgivings, they may just be misunderstandings. Once you understand the process, prepare yourself for it and hire the right listing agent, you’ll have little to worry about.

While staging and cleaning the home is important, there are things to mull over right now, while you’re still deciding.

1. Determine your motivation

If your motivation isn’t obvious, such as a job transfer or divorce, get clear on exactly why you want or need to sell the home. The reason that motivates you to sell will carry you from marketing to close of escrow. It is something to remind yourself of, to keep you motivated if times get tough during the sale process.

2. What would you like in a new home?

Decide exactly what you want in a new home. Put it on paper. Brainstorm with your spouse or partner and come up with at least two “must-have’s” for each of you, plus a list of items you really want but are willing to compromise on.

Check out what is available in the neighborhoods you’ve been eying. Check on prices in those neighborhoods to see if they fit what you can afford.

3. You’ll need a real estate agent to help you market the home professionally

One of the worst mistakes we see many homeowners make is that they feel they have to hire the friend or relative who holds a real estate license. Loyalty is admirable, but not when there are hundreds of thousands of dollars and your future comfort on the line.

Friends and family members tend to treat their clients as just that – friends or family members.

They may put your scheduling needs behind those of their “real” clients, assuming you’ll understand. It happens more than we care to think about.

Then, there is always the chance that your Aunt Martha-the-real-estate-agent doesn’t do a good job. How will you fire her?

Finally, consider all the personal “stuff” divulged in the average real estate transaction. Do you really want Cousin Elmer knowing all that?

Do yourself a favor and interview several agents for the job of marketing your home for sale.

Treat the presentation of the CMA, or market analysis, as a job interview. After all, you are interviewing someone for the job of selling your home.

Furthermore, you are going to pay this person a substantial amount of money to do it.  YOU are the boss, you are in the driver’s seat. Ask specific questions and keep asking until you get a suitable answer.

A final note about the agent interview: do not be intimidated by a pushy agent. If he or she hands you a pen, hand it right back, explaining that you still have other agents to interview.

Questions? We’re happy to answer them

 

 

Simple ways to save money on cooling costs this summer

Scorching. That’s the type of weather the folks at almanac.com say we can expect this summer. “On average, we’re predicting summer temperatures to be hotter than normal across most of the country, ranging from the Atlantic Corridor south to Florida, across to the West Coast, and almost everywhere in between.”

Add to that the very sad but real fact that in 2021, electricity rates rose faster than they have since 2008. Summer won’t be just hot, but expensive as well.

We scoured the internet for tips from experts on how we can all keep comfortable at home without breaking our budgets. Let’s take a look at a few of these tips.

Tune it up

Every year as we approach late spring, air conditioning contractors ramp up their advertising about the importance of annual maintenance.

They have a point.

“An air conditioner’s filters, coils, and fins require regular maintenance for the unit to function effectively and efficiently throughout its years of service,” explain the experts at the U.S. Department of Energy (DOE)

“Neglecting necessary maintenance ensures a steady decline in air conditioning performance while energy use steadily increases.”

Researchers at homeadvisor.com suggest that you plan on spending between $75 to $200 for a “simple tune-up.”

Sounds crazy but …

Raise the thermostat on your AC system. “The smaller the difference between the indoor and outdoor temperatures, the lower your overall cooling bill will be,” claims our pro at the DOE.

Experiment with various temperature settings to find one that you can live comfortably with all summer. Seventy-eight degrees Fahrenheit while you are at home is what most of the pros recommend and 85 degrees if you’re leaving home and won’t return for at least four hours.

Need some incentive? You can realize a 1% to 3% savings on your energy bill for each degree higher that you set the AC system’s thermostat.

Wind chill in the summer?

Consider purchasing several circulating fans and using your ceiling fans. “These fans create a wind chill effect that will make you more comfortable in your home, even if it’s also cooled by natural ventilation or air conditioning,” say our friends at energy.gov.

Because they tend to amplify the feeling of cooler air, you may be able to bump that AC thermostat a notch or two higher.

In fact, the folks at energy.gov say that “If you use air conditioning to cool your home, a ceiling fan will allow you to raise the thermostat setting about 4°F with no reduction in comfort.” That’s money saved, right there.

Additional tips

  • Turn off the AC and open the doors and windows when the air outside is cooler than that inside the home.
  • Do some gardening. Shrubs and trees in the landscape not only help raise the value of your home, but, if placed strategically, they will shade the home, cooling it off naturally.

Clean energy company Constellation offers a list of ways to cool your home with strategic landscaping. Surprisingly, they claim that “The net cooling effect of a young, healthy tree is equivalent to 10 room-sized air conditioners that operate 20 hours a day” and “Just three trees, properly placed around a house, can reduce energy use by up to 30%.”

  • Consider installing window film and block-out curtains to keep the summer sun from heating up your home. The curtains are available at many retailers, including bedbathandbeyond.com, target.com and amazon.com.

Check out heat-blocking window film at homedepot.com, amazon.com and lowes.com.

 

Deciphering the mortgage process

For the first-time homebuyer, pursuing a home loan is a bit like visiting a foreign country where you don’t speak the language. Those who work in the industry tend to fling terms and acronyms around, expecting others to understand exactly what they’re talking about.

Have no fear, soon-to-be homeowner; we’ve created a handy glossary, of sorts, to help you out.

What exactly IS a mortgage?

“Mortgage” is an old French word that’s been in use since the turn of the 15th century. Once you learn the definition, we think you will never forget it:

“Mort” = “Dead”

“Gage” = “Pledge”

Sounds rather morbid, but the long-form definition is “… the deal dies either when the debt is paid or when payment fails,” according to the Online Etymology Dictionary.

We think it’s just a whole lot easier to think of it as a type of a loan, because, essentially, it is.

The people part of the mortgage

It’s easy to understand where all those mortgage fees to once you understand just how many people have their fingers in the pie.

Let’s get to know some of the players.

Mortagor/Mortgagee

When you borrow money for a mortgage, you become known as the “mortgagor.” The lender, on the other hand, is the “mortgagee.”

Mortgage Broker

This person is a middle-man or woman who shops among many lenders to help his or her clients find a mortgage that is right for them.

Loan Officer

Should you decide to go directly to a lender (your local bank, for instance), the first person you will be introduced to will most likely be the loan officer.

The loan officer will counsel you on the preapproval process and ensure that you turn over all the documents required to get moving on the loan.

Loan Processor

The loan officer will bundle up all that paperwork you completed and hand it over to the loan processor. This is the person who will check the paperwork for accuracy, verify your credit and make sure you aren’t fibbing about your income.

Once this process is complete, he or she will hand off the entire package to the underwriter.

Underwriter

The loan’s underwriter is the one person in the process that you’d like to be besties with.

This is the person who will determine how much of a risk the lender faces by lending money to you for a home.

The underwriter will do an analysis of everything, determining whether or not:

  • your application is complete and includes all documentation.
  • you are eligible for the loan.
  • you can afford to make the payments on the loan.
  • the home is worth what you’ve agreed to pay for it.

These are just some of the underwriter’s duties, but they are the most significant for you.

Appraiser

We mentioned above that the underwriter must ensure that the home is worth at least the amount you want to borrow. He or she does this by using a professional property appraiser.

Common mortgage terms

Amortization: “Mortgage amortization is a financial term that refers to your home loan pay off process,” according to the prose at Chase.com.

The payments on your loan will gradually change over the course of repayment to being those that pay for mostly interest to those that go toward primarily the principle.

You’ll find an easy explainer online at nerdwallet.com.

Closing Costs: Expenses incurred in financing the home. Closing costs vary and some are negotiable.

Escrow Impounds: You will be asked to prepay taxes and insurance when escrow closes. This money goes into an escrow account and is used to ensure the timely payment of these bills. The lender may require up to two months’ worth of payments to be impounded.

Principal: The amount you originally borrow.

PITI: An acronym for Principal, Interest, Taxes and Insurance. This is your monthly mortgage payment.

Point: What the lender charges for originating the loan. One point equals 1 percent of the loan amount.

Private Mortgage Insurance: Typically known as “PMI,” the borrower pays for this policy and the lender benefits if the borrower defaults on the mortgage.

With an FHA-backed mortgage, you’ll notice that this insurance is called “MPI,” short for mortgage insurance premium.

Mortgage insurance is required, generally, if the loan-to-value ratio is greater than 80%.