203(k) Loan – A specific loan product backed by FHA that enables home buyers to finance repairs or renovations.
AMC (Appraisal Management Company) - A company separate from the lender that is responsible for ordering and handling the appraiser and the appraisal report.
Amortization - Amortization is how loans and their payments are calculated to ensure payoff by the end of the period (15 or 30years most typical) and the same payment through the life of the loan. This is not the entire mortgage payment (see PITI). This part of the monthly payment is only the interest, which is what the bank charges to borrow their money, and principal, which is the amount of money borrowed. Full disclosure, your monthly payment may increase due to taxes or insurance but will never increase because of the principle and interest owed on the loan.
Appraisal report - Ordered by the bank and paid for by the buyer. Report is not given to anyone except the buyer.
APR (Annual Percentage Rate) - The APR is a standardized way of showing the total cost of borrowing money. The APR is expressed as a yearly interest rate and includes a combination of the interest charged by the creditor, points, mortgage insurance, and other fees associated with the loan.
ARM (Adjustable Rate Mortgage) - The interest rates of an ARM will change from time-to-time over the life of the loan. Most agreements have language where the interest rate increases gradually every few years until it reaches a preset limit. At closing, buyer will sign disclosures regarding how, when, and why the rates may change.
Back-end ratio - One version of DTI (debt-to-income), computed by dividing monthly minimum debt payments (not including rent or mortgage) by monthly take-home pay.
Balloon payment/mortgage - One way that lending a mortgage is made affordable is to create one larger payment due at the end of the loan. These are often used by investors who know they will be selling the house before that payment is due.
Binder - This is the amount the buyer offers to the closing agent to hold while the contract is contingent or pending. This amount varies significantly in Tallahassee from $500 to thousands depending on the price of the home. This can be a personal check; it is cashed immediately by the title agent. This is the buyer’s money unless the buyer defaults on the contract.
Bridal registry - One of the only ways a couple can receive gifts of cash to help them purchase a home. FHA that allows couples to open a bridal registry account into which family and friends can deposit cash gifts.
Buyer’s market - When there is more than six months’ worth of inventory on the market, we consider it a buyer’s market. These are the market conditions that exist when there are more homes for sale than buyers. Homes sit on the market a long time, and prices drop.
CD (Closing Disclosures) - A five-page document sent to the buyer at least three days before closing. This document spells out all the terms of the loan: the amount of the principle and monthly payment, the interest rate, mortgage insurance, the estimated escrow amount and closing costs. Seller side also receives final closing disclosures at the same time which will provide accurate seller’s proceeds that will be paid at the closing table or after the loan funds (whichever is later).
CDD (Community Development District) - This is separate from the fees from the homeowner’s association. A community development district shifts the burden of maintaining roads and landscaping, the clubhouses, and other amenities (pool, golf course) from the developer to the homeowners under the CDD. The CDD is run by a board chosen by the developer. It issues bonds to pay for the infrastructure and other community improvements before and during construction. The homeowners then pay back the bonds over time through their tax bill. Most bond payments last 20 to 30 years. The amount homeowners are assessed for this is added to their tax bill. Southwood is the most common CDD in the Tallahassee area.
Closing - This is the time at which the property is legally transferred from the seller to the buyer. The borrower assumes the loan obligation (if there is one), both pay closing costs, and title transfers from the seller to the buyer. It involved both sides signing documents in an office with a notary to make it official. Before the pandemic, buyers and sellers would gather in one room to sign the documents together. This does not happen as frequently now.
Closing costs - Above the down payment on the loan for the buyer, and the commission for the seller, there are costs associated with transferring ownership. Some closing costs are tax-deductible.
Closing fee - This is the amount the title/closing agent/attorney charges to process the paperwork. This is usually a buyer’s expense.
CMA (Comparative Market Analysis) - Completed by the licensed Real Estate agent, this is an analysis done to compare the property of interest with local homes that have sold. It is done before a home is listed by the listing agent and again by the selling agent before the buyer makes an offer. It is completed using MLS and tax records. It is not an appraisal.
Comps - Short for comparable sales, these are homes located close to the home of interest that have sold within the past six months. It is used to help determine a home’s value.
Condominium - A form of homeownership where the homebuyer receives exclusive title to the interior space in a multi-unit structure (usually an apartment building or a high-rise), and shares title to the common areas of the residential property (usually parking lots, lobby, or swimming pool). A condo homeowners' association, through a Condo Association Manager (CAM – usually licensed), typically manages the common areas and oversees the covenants, conditions, and restrictions (CC&Rs) that apply to the property. Many condos in Tallahassee will not qualify for financing for one of four reasons.
Contingency - This is a provision in the contract stating that some, or all, of the terms of the contract will be altered or voided by the occurrence of a specific event, usually by specific dates leading up to the closing. For example, in Tallahassee most contracts contain a 15-dayinspection contingency. The buyer has 15days to perform all the inspections necessary to feel comfortable with their purchase. If the buyer does not approve the inspection reports, or the physical condition of the property, the buyer does not have to complete the purchase. The buyer does not have to purchase an inspection to terminate a contract. Most contracts also have a shorter financing contingency as well.
Contingent - Usually seen on-line when looking at homes, these home sellers have negotiated a contract with buyers, but have not passed their contingency period. The listing will stay in ‘active-contingent’ status until the contingencies have passed. Once all contingencies have passed, the home will move to ‘pending’ status and the marketing will stop. Please note, not all agents are diligent about changing the status when they should.
Conventional - There are a variety of different loans and mortgages available for homebuyers. A conventional loan is usually the route most experienced homebuyers will take. A conventional loan requires at least3% for the down payment. They are not typically advisable for people with low credit scores. Conventional loans are not guaranteed by a government agency and can be more flexible in regard to the condition of the property.
Courier fees / Edoc fee - If a signer (buyer or seller) lives out of the area there may be fees associated with mailing the documents. There is also a fee to be paid for papers that are filed electronically with the Clerk of Courts.
Credit report* - When buying a home, the credit score helps loan officers determine the risk level of an applicant for a mortgage. These scores are calculated by a third party using a formula that assesses a comprehensive credit history. The higher the credit score, the more options as a homebuyer. Credit reports will include information on loans, credit cards, and other revolving debt, bills, and accounts, as well as a record of the buyer's addresses and employers. Some lenders will pull another credit report just before closing. Depends upon the bank/loan rules, and credit worthiness.
Deed - This is the legal document that shows that an owner of a piece of real property has title to that property. Once a deed is filed and recorded with the Clerk of Courts, the deed becomes a public record.
Detached single family - These are homes that make up the bulk of sales in Tallahassee and are stand-alone structures that do not share any walls with any other structures owned by someone else.
Discount points - Discount points are paid by the buyer to lower the rate and obtain a lower monthly payment on the loan.
Distressed property - This term covers property where the seller is being forced to sell. Usually the seller has had a ‘Lis Pendens’ on file with the clerk of courts and that means a foreclosure process has started.
Document stamp on deed - Tax paid to Tallahassee/Leon County on the name change to the deed. On REO properties, this must be paid by the buyer. This is otherwise a seller’s expense in Tallahassee. The buyer’s pays for the doc stamp on the mortgage.
Document stamp on mortgage - Tax paid to Tallahassee/Leon County on the recording of the mortgage in public records.
DOM (Days on Market) - Days on market, meaning the amount of time the sellers have been searching for a buyer for their house.
Down payment on loan - Varies with type of loan. VA and USDA offer zero down payment loans to borrowers and properties that qualify. FHA loans require at least 3.5%and Conventional loans require at least 3%, depending on income and home buyer status.
DTI (Debt-To-Income) - The debt-to-income ratio is the monthly debt payments divided by monthly income. This is a widely used measure of credit worthiness.
EMD (Earnest Money Deposit) - Also called a “good faith” deposit, or binder deposit, these are funds held by a neutral third party (closing agent) to demonstrate the buyer has serious interest in purchasing a property. This amount can be a personal check and is submitted to the closing agent when a contract with the seller is negotiated. Most of the time, this money belongs to the buyers and is deducted from the costs of closing. However, IF once passed the contingency period, the buyer cannot or chooses not to close on the property this money will usually be paid to the seller. This amount is usually somewhere between$500 and $5,000, but the amount can be negotiated.
Encumbrance - An encumbrance, also sometimes called a cloud, is anything that affects or limits the fee simple title to property. It can include such things as mortgages, leases, easements, or restrictions.
Equity - The owner’s financial interest in the house. It is the difference between how much the property is worth and the balance of the mortgage. If there is no equity, or negative equity, the owner owes more than the house would sell for on the market.
Escrow - Escrow is money placed with a neutral third party (designated on page one of the contract for sale and purchase) for “safe keeping.” During a Real Estate purchase, the buyer is typically required to place a portion of their down payment in an escrow account where it is held until the closing.
Escrow account - After the home is purchased, a portion of each mortgage payment is typically held in an “escrow” account to pay for the property’s taxes and insurance. At the end of the calendar year, the mortgage holder will pay the taxes from this account. In a year from closing, the homeowner’s insurance will be paid from this account. If there is not enough held in escrow to cover these expenses, the borrower will be required to cover the difference with a check and/or pay a higher amount to the lender monthly.
Existing mortgage payoff - Sellers must pay off the mortgage at closing to transfer ownership. To make sure the correct amount is paid the closing agent will ask the mortgage holder for the payoff amount. This amount will change if the day of closing changes. Generally, the closing agent will reach out to the seller for permission to obtain this information about two weeks before closing.
Fannie Mae (FNMA) - Is short for the Federal National Mortgage Association (FNMA). Fannie Mae a federally chartered enterprise owned by private stockholders that purchases residential mortgages. By purchasing mortgages, Fannie Mae supplies funds that lenders may loan to other home buyers. Fannie Mae is the nation’s largest mortgage buyer. For banks and lenders to be able to continue to lend money, they sell their mortgages in bulk to Fannie Mae(and Freddie Mac). Mortgage must meet Fannie Mae’s lending guidelines. The U.S. President appoints some of the members of its Board of Directors. It supports the secondary residential mortgage market.
FHA (Federal Housing Administration) - Created in1934, the Federal Housing Administration was established to help expand homeownership opportunities for all Americans. The FHA assists many first-time homebuyers by providing mortgage insurance to lenders to cover most losses that occur when a borrower defaults on their loan.
FHA Loans - Home loans that are insured by the Federal Housing Administration are referred to as “FHA or FHA-Insured Loans.”
Flood certificate - Required by lender for properties in or near a flood zone. If the house is suspected, or reported to be, in a flood zone, an elevation study may be required. Elevation surveys are ordered from licensed surveyors and costs$300-500. It is usually a one-time cost when buying a home.
Flood Insurance - If the home is in a flood zone, the lender will require their investment to be covered by a flood insurance policy as a condition of approval. This type of insurance covers the loss due to water intrusion and can also potentially cover damages from leaking or busted pipes.
Freddie Mac (FHLMC) - Federal Home Loan Mortgage Corporation (FHLMC), like Fannie Mae above, is a federally chartered enterprise owned by private stockholders that purchases residential mortgages. By purchasing mortgages, funds are freed up that allow lenders to loan to other potential homebuyers.
FSBO (For Sale By Owner) - Sounds like ‘FIZZ-BO’ and is a term used to describe a home that is being sold by the owner, without assistance from a Real Estate broker. The seller is attempting to save money by avoiding agent’s and broker’s fees, but the buyer should be careful to make sure that the terms of sale comply with all applicable federal, state, and local regulations. Studies have shown homes are in danger of not selling at market value – meaning the buyer can overpay compared to other buyers, or sellers may leave money on the table due to ignorance of selling customs.
Funding fee - A fee that protects lenders from losses and helps fund the loan program itself. Examples include the VA funding fee and the FHA funding fee.
Gentrification - When an area of older homes starts being rehabilitated, this is the renewal that occurs in the urban setting. Often the as the demographic changes the rents and property values increase, and lower-income residents are often displaced.
HOA (Homeowners Association) - This is the governing body of a housing development, condo or townhome complex that sets rules and regulations. Associations can also charge dues and special assessments to maintain common areas and cover unexpected expenses. If the home is subject to an HOA, and you do not sign the HOA disclosure, you may be able to walk away from the contract up to the day of closing.
HOA estoppel fee - The official document that records the amount of HOA dues owed by the seller. If paid monthly, buyer is responsible for the month after closing.
Holdback - Sometimes a repair is called for after closing. Depending on bank, or contract guidelines, the closing agent will hold the money for the repair in an escrow account until repairs are complete and appropriate permits have been closed. Then the closing agent will pay the contractor directly to avoid mechanics liens being placed on the property.
Home warranty premium - Often negotiated back and forth between buyer and seller. Sellers– if you are living in the home, many Tallahassee buyers expect you to offer a home warranty. Buyers- in a seller’s market, they are not as commonly offered. We do not recommend them currently.
Homeowners Insurance - A policy that protects the holder of the policy from damages to the structure of the home, its contents, injury to others and living expenses should damage be severe enough to displace the occupant. You will be required to get coverage that covers the lender if you have a mortgage. Consider the personal property and any outbuildings you will want covered by insurance as well. If the home is in a flood zone, owner may be required to carry flood insurance as well.
Homestead Exemption - Florida’s homestead exemption reduces the value of a home for assessment of property taxes by $50,000. If a home is worth$100,000 it would be taxed as though it was only worth $50,000. However, the second $25,000 of homestead coverage does not apply to the portion of the property tax for schools, and only applies to the third $25,000 of a property's total value (i.e., that portion of a property's value between$50,000-$75,000). The Florida homestead exemption also limits the rate at which property assessments can be increased annually. Homestead exemption only applies to primary residences.
Housing ratio - One of two debt-to-income ratios that a lender analyzes to determine a borrower’s ability to repay a home loan. The ratio compares total housing cost (principal, homeowners insurance, taxes and private mortgage insurance) to gross income. Most lenders want this below 35%,but this varies depending on type of loan and lender.
HUD (Housing and Urban Development) - The U.S. Department of Housing and Urban Development was established in 1965 and works to create a decent home and suitable living environment for all Americans. It addresses housing needs, helps to improve, and develop American communities, and enforces fair housing laws.
Insurance - The property insurance yearly premium is generally collected at closing and sent to the insurance agent. Lender may require the equivalent amount to X months to be placed in the escrow account, depending on lender/loan requirements.
Intangible tax - This is the tax on the loan paid to the State of Florida when the mortgage is recorded. It is collected at closing. This tax is calculated by multiplying the amount of the promissory note by 0.2%.
Interest - Interest has two meanings in Real Estate. 1. It is the fee and lender charges for the use of their money. It is usually stated as an annual percentage or annual rate. 2.Interest is also a right, share, or title in property.
Lender credit* -Lender can offer a higher rate so they can contribute to the buyer’s closing costs with a credit at closing.
Lender’s title insurance policy - This policy covers the lender for as long as there is a mortgage on the property. It is a required closing expense for the buyer. It covers the lender from any outside claim to the property.
Lien - A lien is a legal hold or claim of a creditor on the property as security for a debt.
Listing price - The value the seller has set for the home.
Loan origination fee/Processing fee* - Most loans fees are the responsibility of the borrower. This is a bank’s administrative fee for handling the loan paperwork.
LTV (Loan to Value) - This is the amount of the loan divided by the price of the house. Lenders tend to reward lower LTV ratios.
Mail out fees - If either buyer or seller are not in the Tallahassee area for closing, there may be an additional charge for postage and packaging.
Mechanic’s lien - A claim against a property, that is filed in the county clerk’s office by a contractor who has done work on a home but has not been paid. If the homeowner refuses to pay, the lien keeps the seller from selling the property before paying the contractor. This lien would have to be settled before the ownership would be allowed to transfer. The mechanics lien helps a vendor to be paid from the closing proceeds.
MLS – This stands for Multiple Listing Service and is the database where Realtors ‘list’ properties for sale and agree to cooperate and share the commission that was negotiated by the listing agent with the seller.
Owner’s title insurance policy - This insurance policy covers the buyer for as long as buyer owns the house from any claims on the house that are missed in the title search. Statewide, this is typically paid by whoever chooses the closing agent. In Tallahassee, there is one Real Estate company that requires closing with an attorney who is the brother of the broker/owner and they require the buyer to pay for the policies.
Payoff demand fee - Sometimes banks charge you to prepare the exact amount you owe for the closing agent.
Pending - Pending status is often seen online for homes that have passed the contingency period and are waiting for the lender and title agent to complete paperwork and transfer the ownership of the house.
PITI - An acronym for the major expenses that make up the total mortgage payment. It includes: Principal (the amount borrowed), Interest, (property) Taxes, and (homeowners') Insurance.
PMI (Private Mortgage Insurance) - A monthly insurance payment that may be required if a buyer’s down payment is less than20 percent of the home’s purchase price. It protects lenders against loss incase a borrower defaults and does not pay the mortgage in a timely manner.
Points - This is pre-paid interest on a loan, and equal to one percent of the loan amount. The advantage of paying points up front is that a lower interest rate can be secured for the lifetime of the loan –lowering the monthly mortgage payment and the total amount of the note. This may be a good deal if a buyer plans to stay in the home for many years (so the long-term interest savings outweigh the initial cost in points).
Pre-paids (interest, premiums, etc.) - Mostly covered above with points and insurance. Could also include interest for the month of closing, escrow funds, HOA dues.
Prepayment penalty on existing mortgage. - These are not as common as they were. Read the fine print of the note you signed, and you may find out that they charge to pay it off earlier than expected.
Principle - The amount of money buyers borrows from the lender for the purchase of property; doesn’t include interest or additional fees.
Property Inspections - Amount varies with type of property, inspectors, and inspections ordered. While it may be tempting to waive inspections to win a multiple offer situation, we do not advise it. Inspections are the buyer’s responsibility and due diligence is called for when making a large investment.
Property repairs required by loan – Most commonly it is the VA and FHA loans that have conditions placed on them by the appraiser that would need to be repaired by seller before closing. These repairs need to be verified by an appraiser before closing. Most of the time, the repairs are going to be required for the insurance provider and not the loan. The homeowner’s insurance policy covering the mortgage is a required condition to borrow the money. Repairs seen most often in Tallahassee are roofs, railings, and wood rot.
Property taxes - This one can be confusing. These taxes are collected in arrears – meaning you pay 2021 taxes when 2021 ends. Seller owes taxes from January 1 up to the day of closing. Buyer receives a credit at closing for the seller’s portion of property taxes. At the end of the year (or beginning of the next)– the buyer pays the entire tax bill. If the buyer has a mortgage, this is paid out of the escrow account.
Real Estate broker - Under Florida law, the broker is the one responsible for paying and oversight of sales agents and broker associates who have ‘hung’ their license at the Real Estate company. Only the broker of record can pay an agent for Real Estate related activities.
Realtor’s commissions – This is usually paid by the seller. Listing agent negotiates the commission for both agents. Not all agents split it evenly. Jerks.
Recording fees - This is what Tallahassee/Leon County charges to officially record the mortgage and change the owner information in the official court documents.
Reno loan - A mortgage that covers the costs of making repairs or renovations to a property. The costs of the rehabilitation is rolled into the mortgage. Repairs are generally required to be complete within 6 weeks of closing and prior to the buyer moving in (depending on there pair). The most common type of renovation mortgage is FHA’s 203(k) program. Almost any repair or renovation can be rolled into the loan, but buyer is usually NOT allowed to be the one to complete the repairs, even if the buyer happens to be a general contractor.
REO - Stands for Real Estate Owned and refers to property that is bank owned. After the housing crash, Fannie Mae or Freddie Mac—took ownership of thousands of foreclosed properties and sold them in staggered timing on the market. Often buying these distressed properties cost slightly more at the closing table than the average home because the quasi-governmental agencies do not pay taxes.
Sellers’ market - When there are more buyers than homes to sell them, it is considered a seller’s market. Six months of inventory is considered a balanced market, significantly less inventory leads to bidding wars.
Selling price - This is the price the buyer and seller have mutually agreed the home is worth.
Short sale - When an owner owes more on the home than the home will sell for, the seller is considered “underwater” or “upside down”. To sell, the owner’s bank must approve a lower sales price than is owed before the home can be sold. In Tallahassee, these are less than 5% of the market and generally take 6 months or more to close. The bank approval process is onerous and time consuming.
Special assessment - A fee charged by a managing organization (often a COA/HOA or local government body) when there is not enough cash on reserve to cover unexpected repairs, maintenance, or expenses. It can also occur when a neighborhood is improved by the municipal organization it belongs to decides to improve the roads or other infrastructure. This is a tax shared by the owners of the homes in the effected neighborhood.
Stamp tax - Fees imposed by the municipality to transfer the title.
Termite (WDO – Wood Destroying Organism Report) –Usually ordered and paid for by buyer. This inspection and a ‘clear/clean’ report are required for VA loans and some FHA and conventional loans. It is not a bad idea for the seller to offer a ‘clear’ WDO when marketing to a population that includes many veterans. Not 'clearing’ the WDO has caused more closing delays than most other repairs in our experience.
Title Insurance - This is an insurance policy that protect against any unknown liens or debts that may be placed against the property. Before issuing title insurance, public records are searched to ensure that the current owner has legal rights to the title as well as the legal ability to sell the home and that no liens are held against the property. A survey will also be required prior to closing. Banks require a policy to protect them for as long as there is a mortgage on the house. An owner’s policy is not required, but highly recommended. If it is possible the buyer will keep the home once it is paid off, the buyer should consider an owner’s policy to protect the owner even after the mortgage is paid off.
Title Report - The written analysis of a Real Estate title search. It includes a property description, names of titleholders and how title is held (joint tenants, for example), tax rate, encumbrances (mortgages, liens, deeds of trust, recorded judgments), and Real Estate taxes due. A title report is needed before a lender will agree to finance purchase of the property. A title report is prepared by a title company, an abstracter, an attorney, or an escrow company, depending on who is responsible for transferring ownership of the house per the contract.
Townhouse - In Tallahassee, these are usually one- or two- story houses that share a common wall with at least one other house. Often these will have small yards that are private for the owner.
Transfer fees – Generally paid by the sellers, this is what the Tallahassee/Leon County charges you to remove seller’s information in the official court documents and replace it with the buyer’s info.
Underwater (Upside down) - This is when an owner owes more on the mortgage than the house can sell for on the open market. There have been fewer of these on the market each year since the 2012. These are also called distressed sales. If sold the seller will either bring the difference between the sales price and the remaining balance on the loan to the closing table, or have the bank approve a short sale. Some banks will report this waiver to the IRS as income depending on the details of the situation.
Underwriting - The process a lender follows to assess a home loan applicant’s income, assets and credit, and the risk involved in offering the applicant a mortgage.
Underwriting fee* - A fee that goes to the company/organization that underwrites the loan.
USDA Loan - The RDA is a loan program whereby the USDA subsidizes the interest on a loan if the applicant earns less than a certain amount annually. In Tallahassee, RDA loans are only available outside of Capital Circle. These loans have ZERO down payments, and the underwriting requirements are similar to that of FHA loans.
VA Financing - A home loan partially guaranteed by the United States Department of Veteran Affairs and offered by private lenders, such as banks and mortgage companies to help veterans purchase properties with ZERO down payment.
VA water test - With properties on well water, the VA may require an independent well water test for safety.
Walk through - The buyer’s final inspection of a home, usually completed the day of or before closing.
WDO (Wood Destroying Organism) - This is also called a termite inspection. A report showing no damage is required for VA loans. These can be ordered from pest control companies and are completed on the Department of Agriculture’s approved form.
* The fees charged per loan vary greatly from lender to lender, and borrower to borrower. Shop your mortgage around and ask lenders to explain their fees and costs to borrow.