5 Mortgage Closing Terms Every Buyer Should Know

When the housing crisis and economic recession hit, it put many prospective home buyers’ plans on hold, forcing those considering purchasing a home into the rental market. Now, as the economy continues to improve, some of those renters are looking to own. 

However, there are many factors to consider when buying a home. When it comes to the closing process, it is a good idea to know the terminology that will be discussed. This can help make the situation much more comfortable and professional for all parties involved. Below are some of the terms that may be discussed during the closing process.

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Should You Rent or Buy?

Have you ever considered how much you pay in rent over an extended period of time? It is probably a lot more than you realize. The amount you spend for rent each month could be applied to a mortgage, not only building equity in your own property, but, in most cases, substantially reducing the Federal and State income taxes you pay each year. And, what happens to your rent money? It’s gone! There’s no interest, no equity, no return.

We've put together a chart to break down how much money the average renter will spend over the years: Screen Shot 2018-01-09 at 12.36.39 PMPerhaps you're still not convinced that buying a home is the better choice for your personal wealth, here's a side by side comparison of the key-takeaways from renting or buying your home.


RENT

    • No interest-payment deductions
    • Rental amount may increase at any time
    • Landlord approval needed for any changes
    • No capitalization; your money disappears forever
    • Rental is temporary and often subject to a 30-day notice

BUY

  • Mortgage interest may be tax deductible
  • Decorate and make changes, without prior landlord approval
  • The value of your property may increase in time
  • Your house will become a home, not a temporary living situation; you are not at the mercy of a landlord

 

Another rent vs. buy comparison can be calculated using the price-to-rent ratio.

The price-to-rent ratio is a well-established economic principle used for real estate valuation. It is typically calculated as the ratio of home prices to annualized rent in a given location. At its most basic level, the price-to-rent ratio is a benchmark for understanding whether is it better to rent or buy a property.

Usually, if the price-to-rent ratio is anything less than 20, then buying may be the better option. This goes without saying but any price-to-rent ratio is only useful when comparing close to similar real estate properties. beautiful house in the countryside in vibrant colours.jpeg

It’s also extremely important to rank and weigh what makes each real estate property unique and special. If you're debating between renting a two-bedroom in New York City or buying a newly built 3 bedroom home in the suburbs -- the price-to-rent ratio would not apply. There are too many differences and benefits between the two properties and you need to make an educated decision based on your own wants and needs. 

If you're reading this and you're ready to explore buying your first home, here are key real estate professionals that you need to know: 

KEY REAL ESTATE PROFESSIONALS 

Knowledgeable, customer-focused professionals are available to answer your title and settlement questions. Throughout the home buying and selling process, you may also encounter the following industry specialists who are able to professionally answer questions in their area of expertise.

REAL ESTATE AGENT

Licensed by the state to represent parties in the transfer of property.

HOME INSPECTOR

Objectively and independently provides a comprehensive analysis of a home’s major systems and components.

LOAN OFFICER/LENDER

A representative of a bank or other financial institution. They help customers identify their borrowing options, help them understand the terms of their loan, and are responsible for providing the Closing Disclosure to the borrower.

APPRAISER

Works on behalf of a lender and provides a market analysis of the subject property. An appraiser’s finding is subjective and combined with market findings of sold properties within the surrounding neighborhood.

INSURANCE AGENT

Helps a home buyer determine the homeowner’s protection coverage needed and then finds the right insurance policy to fit those needs.

REAL ESTATE ATTORNEY

Can give advice on all legal aspects of the real estate transaction. Additionally, they are able to draft and review contracts, help decide how to take title and assist with the closing process. In some states, real estate closings can only be conducted by attorneys.

ESCROW/CLOSING OFFICER

A non-biased third party who works with all participants to facilitate a successful closing of a real estate transaction. At closing, the closing officer will collect the purchase money funds from the buyer and lender as well as the settlement costs from each party. They disburse the funds in accordance with the closing documents and record the necessary documents to transfer ownership of the property.

CLOSING/SETTLEMENT/TITLE

Performs title searches to ensure a clear title so a title insurance policy can be issued. In some states, they facilitate the transfer of real estate. This is where Hamlet Title Agency comes in. We are a family owned and operated full service title agency since 2004, with over 100 years of title experience. Keep us in mind when you're buying your first home, we will provide you with the best title insurance and 24/7 customer service so you can always reach us with any questions. 

Check out our helpful resource for first-time homebuyers, "The Ultimate Guide to Home-Buying": how to buy a home 

Tony Bellettieri
ABOUT THE AUTHOR | Tony Bellettieri

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