Consumer spending increased by .5% in September, as incomes also rose and the economic outlook improved around the nation. According to the Commerce Department, the market is holding up surprisingly well, despite the effects of Hurricanes Katrina and Rita. This recent rise in spending following a dip in August of the same percentage.

Americans’ incomes, meanwhile, increased by 1.7% in September, the largest gain since December 2004. That marked an improvement from the 0.9 percent plunge in incomes in August — a decline that mainly reflected fallout from Katrina.

While the marketis surviving the storms, they still had major effects. Uninsured losses to residential and business property reduced incomes by about $5 billion on an annualized basis in September and by about $240 billion, annualized, in August, the government estimated. Spending growth for September matched economists’ expectations, but the increase in income was larger than forecast.

In-depth Consumer Spending
So what are these numbers reflective of? Despite the sting of high energy bills, consumers spent briskly in the third quarter, helping the economy grow by a 3.8 %annual rate, the government reported last week. Consumer spending in the July-to-September quarter reflected a big appetite for big-ticket durable goods, such as cars, which had been discounted and promoted to lure buyers.

Consumer spending should slow down in the final three months of this year, as auto sales drop off with the waning of generous incentives and energy prices cause belt-tightening. Analysts are predicting that any moderation in consumer spending, however, will be more than offset by stronger spending elsewhere, which should allow the economy to grow at a solid pace in the current October-to-December period.

Despite the solid spending last month and the continually strong home sales, consumer confidence in the economy has been plummeting, as people are growing anxious about President Bush’s economic leadership. The public’s perception has been shaped by the following:

1. High energy bills

2. The hurricanes and job losses wracked up from the disasters

To combat inflation, the Federal Reserve is expected to boost interest rates by another quarter-point on Tuesday, the 12th increase of that size since June 2004.

The Boston Globe reports that the housing market in Southern Maine - an area just 75-100 miles from Boston with quaint New England villages and vacation spots - is showing signs of cooling off after years of red-hot sales. The region’s major real estate brokers are reporting that for sale listings are increasing and that sales are declining. As houses stay on the market longer, owners have been forced to lower their asking prices - a practice rarely seen in the booming sellers’ market of recent years.

While Maine’s median sales price in September was $194,600 - a figure nearly 10 percent higher than a year ago and twice the median statewide price ($97,000) of six years ago - the Portland Board of Realtors reports that business is off track for the first time in years. Many Maine real estate experts believe that with more supply than demand (due in part to the rise in mortgage rates nationwide) the market is gradually shifting to one more friendly to buyers.

What does this mean for a potential buyer? If you’re looking to buy, it’s still a good investment in the long run. The years of 10-15 percent increases may be over, but appreciation will still be slow and steady, experts believe. But be sure you recognize this market trend when you go house hunting, however, as you don’t want to be stuck with a house worth less than you paid for it. You have more leverage than you think at this stage - so take advantage. For further advice, see Florida Home Loan’s guide to making an offer on a house.

The condominium craze raging through Las Vegas, Nevada, is pushing the prices for once modest homes and land through the roof, the Houston Chronicle reports.

Manuel Corchuelo, a Colombian immigrant and former catering waiter, bought a 700-square foot home just off the famed Las Vegas strip for $30,000 in 1978. Now his modest WWII-era dwelling is nestled snugly amidst 93 luxury condominium projects - totaling 175 towers and representing 10,000 units - making Corchuelo a millionaire-in-waiting. Residing one block off Las Vegas Boulevard, and across the street from the future “Allure,” a 41-story luxury complex under construction, the house is on the market for $1.2 million.

Talk about a return on an investment.

It’s all a distant memory that the very same block was once home to card dealers and strippers, or that in the 1980s, it became a neighborhood of rampant prostitution and crime. Now, the streets are lined with well-kept homes, hotels and public housing - with speculators and real estate agents cruising the place as frequently as the residents. In 2000, Las Vegas lifted its longstanding height and parking restrictions in an effort to lure developmers and boost the area’s economy.

It worked.

• The cost of a vacant acre in the Las Vegas vicinity is now $601,600 — an increase of 88 percent over last year.
• Developers dream of Vegas’ “Manhattanization,” or “verticality” instead of sprawl, and are courting out-of-towners as investors and residents. Approximately 85 percent of condo buyers are non-Nevada residents / investors, according to recent data.

While some real estate agents in the area doubt that Corchuelo will receive his asking price (a house similar to his and on the same block recently went for $520,000), he is banking on the market rising as quickly as the towers around him. Developers already covet his property, and it may become a matter of who can hold out the longest. No matter what happens, his case is indicative of just how quickly Las Vegas’ urban revitalization is transpiring - perhaps even more quickly than the Florida real estate condo craze.

Mortgage bankers better hope they took advantage of the last four years. Thanks to increasing interest rates, the real estate industry is now getting ready for a slowdown that could prompt a handful of lenders to merge with their competitors.

Who would benefit the most from this result? Consumers. During the months leading up to this possible consolidation, the mortgage banking scramble for customers will pay off for potential home buyers. These individuals are already seeing lenders cutting loans fees, while some lenders are offering lower mortgage rates, even if it decreases their profits.

Dougless Duncan, the chief economist at the Mortgage Bankers Association, discussed the recent home mortgage trend.

“Companies are losing money to keep market share,” he said. “The consumer is being subsidized because the competition is so fierce. For the short run, the consumer is getting a better deal.”

Unfortunately, once this period of consolidation and mergers is over, consumers are unlikely to get such a good deal. There won’t be price gouging after a wave of mergers, according to Duncasn, but fees probably won’t be slashed as much as they are today.

At a recent mortgage banking industry convention, many executives were worried about rising interest rates dimishing consumers’ interest in looking to buy homes or refinance existing mortgages. Lenders expect to process $2.26 trillion of home loans next year, down from this year’s expected $2.78 trillion and far lower than 2003’s record of nearly $4 trillion worth of loans processed.

“As mortgage rates move up there’ll be more consolidation, mergers and people leaving the business,” said Ray Morris, a director of business development at GMAC Mortgage Corp.’s servicing business. “We’re a scale business and companies that do large-scale business survive.”

More than half the loans made directly to consumers are arranged by loan brokers that work for approximately 8,500 lending companies or mortgage banks. The thinning in the industry’s ranks is expected in all levels, particularly brokers who were attracted to the industry by its rapid growth.

In Septemner, sales of previously owned homes remained strong - at their second-highest level on record - because demand was increased by hurricane refugees buying homes. The National Association of Realtors said sales of existing homes last month were unchanged, standing at a seasonally adjusted annual rate of 7.28 million, equal to the numbers in August. The Realtors said sales would have fallen without the increased demand for houses because of the devastation from Hurricane Katrina.

The September performance suprised economists. They had expected sales to decline by 1.2%, reflecting a belief that rising mortgage rates will begin to cool off the booming housing market.
The median price of an existing home stood at $212,000 in September, up by 13.4% from September 2004. That was a slight slowing from the 15.6% price appreciation recorded in August from the same period a year ago.

David Sleeper of Realty of Maine in Bangor said the media’s focus on a potential real estate bubble bursting has prompted some homeowners to list their properties just in case prices start to fall. In his state, September median prices stood at $194,600, compared to $177,450 from a year earlier.

Economists are predicting that rising mortgage rates will slow the pace of sales nationally and the rate of price appreciation in coming months. Rates for 30-year mortgage are now above 6% for the first time since last March.

Katrina had a major impact on sales in the areas most affected, the Realtors said. Sales plunged by 85% in New Orleans but were up 150% in nearby Baton Rouge.
“The nearby regions picked up a great deal of activity very quickly,” said David Lereah, chief economist for the Realtors. Lereah said that, on balance, Katrina lifted sales nationally from where they would have been had the hurricane not struck. By region of the country, sales were up the most in the South — which bore the brunt of Katrina — for a gain of 3.7%.

For the year, Lereah said he had revised his forecast for total sales up slightly to 7.10 million units, which would mark the fifth straight year of record sales. However, for 2006, Lereah said he was now predicting that sales would edge down slightly to 6.86 million units, reflecting the impact of rising mortgage rates. He also did not expect any type of crash in home sales that would send prices plummeting.

“I see no hot markets where balloons are ready to burst, but certainly some air is coming out of those balloons,” Lereah said

If you’re thinking about buying a home, you’re up to your eyeballs in paperwork. Not only that, but you are probably being bombarded with more keywords, industry terms and acronyms than you can shake a stick at. With that in mind, Florida Home Loan has researched, compiled and edited this comprehensive glossary. Below, you’ll literally find all there is to know about mortgages… from A to Z.

ACCELERATION CLAUSE
This is a clause in your mortgage agreement that allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender. This is also known as a “call down.”

ADJUSTABLE-RATE MORTGAGE (ARM)
A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. ARMs are all tied to various financial indexes. See our guide to different types of mortgages for more details!

AMORTIZATION
Paying off a loan consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Amortization is process in which the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is amortized (i.e. paid off) in the specified time. An amortization schedule is one that shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the overall balance from the day you close until it reaches $0.

ANNUAL PERCENTAGE RATE (APR)
The value created by a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. At least in theory. Confused? Use this as a guideline: deduct closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of the actual loan amount. You will come up with a number close to the APR.

APPLICATION
The form a borrower uses to apply for a mortgage, containing information about his or her income, savings, assets, debts, credit, and a whole host of additional things. For more information, please see our guide to the mortgage process.

APPRAISAL
A written assessment of the suggested price, or value of a property, based on an analysis of comparable sales of similar homes in the vicinity. The appraised value is really only an opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, the appraisal usually comes out to about the purchase price.

APPRAISER
An unbiased third party qualified by education, training, and experience to estimate the value of real estate. Although some appraisers work directly on behalf of mortgage lenders, most are independent individuals or companies.

APPRECIATION
The increase in the value of a property due. Can be caused by inflation, local and national economic conditions, or other factors.

ASSESSMENT
Shield your eyes from this one. It’s the process by which a value is placed on a property by a public tax assessor. Property taxes are coming, and there is no escape. An assessor is usually a public official of a town / municipality.

ASSET
Any item of value owned by an individual. You will probably have to establish your assets in order to get a mortgage. Assets that can be quickly converted into cash, such as bank accounts, stocks, bonds and mutual funds, are considered “liquid assets.” Other assets include real estate, personal property, and debts owed to an individual by others.

ASSIGNMENT
It is called an assignment when ownership of your mortgage is transferred from one company or individual to another.

ASSUMABLE MORTGAGE
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must “qualify” in order to assume the loan.

ASSUMPTION
The term applied when a buyer assumes the seller’s mortgage.

BANKRUPTCY
Declarations of bankruptcy have major impacts on your ability to receive loans or lines of credit of any kind. The basic gist is that by filing for bankruptcy protection in federal court, individuals can restructure or relieve themselves of debts and liabilities. The most common type of bankruptcy for an individual seems to be “Chapter 7 No Asset” which most types of the borrower’s debts. A borrower cannot usually qualify for an loan for a period of two years after the bankruptcy has been discharged and must re-establish an ability to repay debt.

BILL OF SALE
A written document that transfers the title to personal property. For example, if selling an automobile to acquire funds which will be used as a source of down payment or for mortgage closing costs, the lender will usually require the bill of sale (in addition to other items) to help document the source of funding.

BI-WEEKLY MORTGAGE
A mortgage in which you make payments every two weeks instead of once a month. Every two weeks equates to slightly more frequently than once a month, so essentially it’s like making 13 monthly payments instead of 12 - which reduces the principal significantly and allows for faster repayment of your 30-year mortgage. Some independent companies encourage borrowers to set up bi-weekly payment schedules on 30-year loans. In such cases, your funds are deposited into a trust account from which your monthly payment is then made, with the excess funds remaining in the account until enough has accrued to make the additional payment which will then be paid and reduce your principle. You can basically do the same thing yourself, however, by just making an extra payment every so often.

BRIDGE LOAN
Bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. Not as common in this generation of lower rates and bigger loans. When used, the bridge loan becomes the source of funds for the applicant’s down payment. Reasons for their decline in popularity include an increase in second mortgage lenders and sellers who will only accept offers from buyers who have already sold their property.

BROKER
What you will be if you aren’t careful. Just kidding. The term “broker” has several meanings in different situations. Most realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, a broker usually refers to a company or individual that does not lend money itself, but brokers loans to lenders or investors. Technically a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.

CAP
Adjustable Rate Mortgages (ARMs) have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six-month period, a 12-month period, and over the life of the loan. The limitations are known as “caps.” Some ARMs allow the interest rate to fluctuate freely and require a certain minimum payment which can change annually, in spite of their lifetime cap. There is a limit on how much said payment can change each year - a limit also referred to as a cap.

CASH-OUT REFINANCE
This is seen when a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of withdrawing money for personal use.

CHAIN OF TITLE
An analysis of the transfers of title to a piece of property for however many years it is a matter of record.

CLEAR TITLE
A title that is free of liens or legal questions as to ownership of the property.

CLOSING
Although this has different meanings in different states, it’s basically when all is said and done. In some states a real estate transaction is not consider “closed” until the documents are recorded at the local recorder’s office. In others, the “closing” is a meeting between the parties where the documents are signed and the money changes hands. In any case, it’s the end of the road.

CLOSING COSTS
This gets trickier. Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are, as their name suggests, costs that don’t occur again. In other words, any items paid just once as a result of buying the property or obtaining a loan. “Pre-paid” costs are items which recur over time, such as property taxes and homeowners insurance. The lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items in their “good faith estimate” that they issue to the borrower within three days of receiving his or her home loan application.

CLOUDS
What you see in the sky on almost any given day, but also a term for any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.

COLLATERAL
With any loan, collateral provides the issuer security. In the case of a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

COMMISSION
As in all business, salespeople earn commissions for the work that they do, and there are a number of such professionals involved in nearly all real estate transactions. Realtors, loan officers, title company representatives, lawyers, escrow administrators, home inspectors, appraisers, insurance agents — the list is never-ending. Commissions are paid by the buyer or seller, depending on the circumstances or service, as the parties move forward towards the transaction. Realtors generally earn the largest commissions, followed by lenders and further on down the line.

COMPARABLE SALES (COMPS)
Also referred to as “comps,” this means recent sales of similar properties in nearby areas and used to help determine the market value of a property.

CONDOMINIUM
Often mistakenly referred to as a type of construction or building / development, it actually refers to the type of ownership. A condominium is all of the owners own the property, common areas and the physical building(s) together, with the exception of the interior of the unit to which they have title. This type of ownership - along with the types of construction in which it is generally practiced - is becoming more common in major growth areas as population increases and empty-nest baby boomers look to downsize.

CONTINGENCY
Before a contract is legally binding, it must meet any contingencies stipulated by either party. For instance, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains an appraisal and/or a satisfactory inspection report from an qualified appraiser or home inspector, respected. You can find a greater explanation and a list of sample contingencies in our guide to making an offer on a house.

CONVENTIONAL LOAN
Refers to any home mortgages other than government loans (VA and FHA).

CONVERTIBLE ADJUSTABLE-RATE MORTGAGE (ARM)
A car with no roof? You wish. It’s an adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.

CREDIT
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date. One’s credit history is a record of an individual’s repayment of debt. Credit histories are reviewed my mortgage lenders as one of the main underwriting criteria in determining risk - and the interest rate you receive as a result.

CREDIT REPORT
A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s risk credit worthiness. A creditor is any person or company to whom money is owed, and all will factor into your report.

DEBT-TO-INCOME (DTI) RATIO
The primary calculation used in determining whether a borrower can qualify for a mortgage. It is a calculation of the borrower’s monthly housing costs (PITI, homeowners association fees, etc.) as a percentage of monthly income. Some variations also include housing costs along with other monthly debt.

DEED
The legal document conveying title to a property.

DEED-IN-LIEU
Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower provides a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. A deed-in-lieu may prevent having the documents leading up to a foreclosure being recorded and made public record.

DEED OF TRUST
Some states, most notably California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing. They also have an obsession with direct democracy and a former movie star as Governor, so you never know what you are going to find out West!

DEFAULT
Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.

DELINQUENCY
Failure to make mortgage payments when due. For most mortgages, payments are due on the first day of the month. Even though the lender may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan’s status delinquent. When a loan payment is more than 30 days late, most lenders consider the loan default and report the situation to one or more credit bureaus.

DEPOSIT
Money given in advance of a larger amount expected in the near future. In real estate it is often called an “earnest money deposit.”

DEPRECIATION
A decline in the value of property, or, in accounting terms, the declining monetary value of an asset.

DISCOUNT POINTS
This term is usually used in only in reference to government loans, meaning FHA and/or VA loans. Discount points refer to any “points” paid in addition to the one percent loan origination fee. A “point” is one percent of the overall loan amount.

DOWN PAYMENT
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage. Some lenders allow you to not put any money down, while many people opt for down payments of 20 percent or more.

DUE-ON-SALE PROVISION
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

EARNEST MONEY DEPOSIT (EMD)
A deposit made by the potential home buyer to show that he or she is serious about buying the house. It will be placed in escrow until the contract is either cancelled or signed by both parties.

EASEMENT
A right of way giving persons other than the owner access to or over a property.

EFFECTIVE AGE
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

EMINENT DOMAIN
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings, and has become a widely controversial issue in the past year with the Supreme Court’s landmark ruling in the Kelo v. New London (Conn.) case.

ENCROACHMENT
When the defensive linemen enter the neutral zone before the ball is snapped. Just kidding. It’s when an improvement made on one home or property intrudes illegally on another’s land.

EQUITY
The homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage (as well as other liens). With each mortgage payment, the principal balance paid turns to equity and increases your net worth.

ESCROW
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed. Once you close your purchase transaction, you may have an escrow with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they are due. The lender pays them with your money instead of you paying them yourself. The use of escrow funds to pay real estate taxes, hazard insurance and other property expenses as they become due is known as escrow disbursement.

EXAMINATION OF TITLE
The report on the title of a property from the public records of the title.

EXCLUSIVE LISTING
A written contract that gives a licensed real estate agent an exclusive right to sell a specific property for a specified length of time.

FAIR CREDIT REPORTING ACT
A law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies. This consumer protection law also establishes procedures for correcting mistakes on consumers’ credit records.

FAIR MARKET VALUE (FMV)
The highest price that a buyer would pay (a buyer who is willing but not obligated to buy) and the lowest a seller, who is likewise willing but not required to sell, would accept for a property.

FANNIE MAE (FNMA)
Fannie Mae stands for the Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company. As the nation’s largest supplier of home mortgage funds, Fannie Mae’s community based lending program provides an income-based community lending model. Mortgage insurers and Fannie Mae offer flexible underwriting guidelines increase a low- or moderate-income family’s buying power and to decrease the total amount of cash needed to purchase a home.

FEDERAL HOUSING ADMINISTRATION (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is providing insurance for residential mortgage loans made by private lenders. The FHA sets standards for underwriting and construction but does not lend money or plan / physically develop housing.

FHA MORTGAGE
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

FIRST MORTGAGE
The mortgage that is first - in terms of the date in which loans are recorded - among any loans recorded against a property.

FIXED-RATE MORTGAGE
A mortgage in which the interest rate does not change during the entire term of the loan. The most standard type of mortgage is a 30-year, fixed-rate loan.

FLOOD INSURANCE
It’s just what you think it is, and you may not have a choice of whether or not to buy it. This is insurance that compensates for physical property damage resulting from flooding, and it’s required for properties located in federally designated flood areas.

FORECLOSURE
The legal process by which a borrower in default is removed of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt. Check out the real estate section of your newspaper and you will usually see a few homes being sold under these provisions.

GOVERNMENT LOAN / MORTGAGE
All “non-conventional” loans. A government loan or mortgage is one that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS).

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
Also known as Ginnie Mae, this is another government-owned corporation performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans - with the only difference being that Ginnie Mae provides funds for government loans (FHA and VA).

GRANTEE
The person to whom an interest in real estate / property is conveyed.

GRANTOR
The person conveying an interest in real estate / property.

HAZARD INSURANCE
In addition to basic homeowner’s insurance (see below), this insurance covers you in the event of physical damage to a property from fire, wind, vandalism, or other hazards. The U.S. will likely see more hazard insurance claims in 2005 than any prior year in its history.

HOME EQUITY LINE OF CREDIT
A mortgage loan that allows the borrower to obtain cash drawn against the equity of his or her home, up to a predetermined amount and at a predetermined rate of interest.

HOME INSPECTION
A thorough inspection by a professional that evaluates the structural / mechanical conditions of a property. A satisfactory home inspection by an unbiased third party is often included as a contingency by the potential buyer.

HOMEOWNERS’ ASSOCIATION (HOA)
An association that manages the common areas of planned unit development (PUD) or condominium projects. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements. While non-profit, the HOA will likely require monthly or annual fees from residents in order to perform its duties.

HOMEOWNER’S INSURANCE
A required insurance policy that combines personal liability and hazard insurance coverage for a property and its contents.

HOMEOWNER’S WARRANTY
A type of insurance often purchased by home buyers to cover repairs to certain items, such as air conditioning or heating systems, for a certain period of time. The buyer often requests the seller to pay for this coverage as a condition of the sale, but buyers can pay independently as well.

HOUSING AND URBAN DEVELOPMENT (HUD)
The United States Government agency whose mission is to increase home ownership, support community development and increase access to affordable housing free of discrimination.

JUMBO LOANS
Yup, they’re big. Jumbo loans are mortgages that exceed Fannie Mae’s and Freddie Mac’s loan limits, established at $359,650 as of January 1, 2005. Also called a nonconforming loan.

LEASE
You know all about this if you have rented an apartment, or had tenants reside in a place that you own. A lease is a written agreement between the property owner and a tenant that stipulates the payment and conditions by which the tenant may possess the real estate for a specified time.

LEASE OPTION
This alternative financing option allows home buyers to lease a home with an option to buy. Each month’s rent may consist of the rent and an additional amount which can be applied toward the down payment on an already specified price.

LIABILITIES
A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others. Liability insurance is usually part of a homeowner’s insurance policy, and provides protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party.

LIEN
A legal claim against a property that must be paid off when the property is sold. A mortgage is considered a lien.

LIFE CAP
For an adjustable-rate mortgage (ARM), a life cap is the limit on the amount that the enterest rate can rise or drop over the duration of the loan.

LINE OF CREDIT
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount (and for a certain time) to an applicant.

LIQUID ASSETS
Cash, or an assets that are easily converted into cash.

LOAN
A sum of borrowed money repaid with interest. The original sum is known as the principal, with the accumulating interest tacked on as an annual percentage rate.

LOAN OFFICER
Also referred to by a variety of other terms, such as lender, loan representative, loan “rep,” account executive, and others. The loan officer has responsibilities that include: soliciting loans, representing the lending institution, and representing the borrower to the lending institution.

LOAN ORIGINATION
How a lender refers to the process of obtaining new loans.

LOAN SERVICING
After you obtain a loan, the company you make the payments to is “servicing” your loan. The loan company processes payments, sends statements, manages the escrow, provides collection efforts on delinquent accounts, ensures that insurance and property taxes are made on the property, and so on.

LOAN-TO-VALUE (LTV)
The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).

LOCK-IN
No, it’s not when you’re trapped in the lender’s office and can’t get out. Rather, a lock-in is an agreement in which the mortgage lender guarantees a specified interest rate for a certain amount of time. The time period during which the lender has guaranteed a rate to a borrower is known as the lock-in period.

MATURITY
What you need in order to understand and navigate through this process. Just kidding - although it does not hurt. In this case, maturity refers to the date upon which the principal balance of a loan becomes due and payable.

MODIFICATION
If any changes are made to the terms of your mortgage, it is called a modification. A lender will sometimes agree to modify the terms without requiring you to refinance.

MORTGAGE
A legal document that pledges a home or property to the lender as security for payment of a debt.

MORTGAGE BROKER
A company that originates loans, then places the loans with a variety of other lending institutions with whom it has pre-established relationships. A mortgage banker, conversely, is generally assumed to originate and fund its own loans, which are then sold on the secondary market - usually to Fannie Mae, Freddie Mac, et cetera. However, firms often loosely apply this term to themselves, whether they are true mortgage bankers or simply mortgage brokers or correspondents. An individual can also be a licensed mortgage broker.

MORTGAGEE
No, that’s not a typo! Rather, it’s the lender in any mortgage agreement.

MORTGAGE INSURANCE (MI)
Often mistakenly referred to as PMI, which is actually the name of one of the larger mortgage insurers, this is insurance that covers the lender against losses incurred as a result of a default on a home loan. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value (LTV) ratio higher than eighty percent. Mortgages above 80 percent LTV are usually a made at higher interest rates. Rather than the borrower paying the insurance premiums directly, they pay a higher interest rate to the lender, which then pays the mortgage insurance itself. FHA loans and certain first-time buyer programs require mortgage insurance regardless of LTV. The amount paid by the borrower is known as the mortgage insurance premium (MIP).

MORTGAGE LIFE / DISABILITY INSURANCE
A type of term life insurance often bought by borrowers. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is satisfied by insurance proceeds. Some policies also cover the event of disability. In the case of disability insurance, the insurance will make the mortgage payment for a specified amount of time during the disability.

MORTGAGOR
The weirdest-looking word of all time. Also, the borrower in a mortgage agreement.

MULTI-FAMILY HOME
A property that consists of a structure providing living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed. Often times, the owner will reside in one unit while renting out the others to help defray the cost of the mortgage.

NEGATIVE AMORTIZATION
Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all the interest normally due at the current interest rate. Essentially, the borrower is deferring the interest payment. The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.

NO-COST LOAN
Many lenders offer loans that you can obtain at “no cost.” Better read the fine print, because most of the time it really is too good to be true. You should inquire whether this means there are no “lender”costs” associated with the loan, or if it also covers the other costs you would normally have — title insurance, escrow fees, appraisal, etc. These fees and costs may be associated with buying a home or obtaining a loan, but are not charged directly by the lender. Keep in mind that, like a “no-point” loan, the interest rate will be higher than a loan that has costs associated with it. Almost all lenders offer loans at “no points.” You will find the APR on a “no points” loan is approximately 0.25 percent higher than on a loan where you pay one point.

NO DOC LOANS
A mortgage that can be secured without the usual list of documents providing income and credit verification. Please see our guide to no doc loans for a more thorough explanation.

ORIGINAL PRINCIPAL BALANCE
The total amount of principal owed on a mortgage before any payments are made.

ORIGINATION FEE
The loan origination fee refers to the total number of points a borrower pays when dealing with conventional loans. On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called “discount points.” One point equals one percent of the loan amount.

PAYMENT CHANGE DATE
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment.

PERIODIC PAYMENT CAP
For an adjustable-rate mortgage where the interest rate and the minimum payment amount fluctuate independently of each other, this is a limit on the amount that payments can increase or decrease during any one adjustment period.

PERIODIC RATE CAP
On an adjustable-rate mortgage, it’s the limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the related index(es) might be.

PITI
See Principal, Interest, Taxes & Insurance (below)

POINTS
A point is 1 percent of the amount of the mortgage.

PRE-APPROVAL
When a borrower has completed a loan application and provided debt, income, and savings documentation and has had his/her application reviewed and approved by a representative of the lending institution. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will be at the time the loan is actually made. It also estimates the amount that will be paid for taxes, insurance and other expenses. Once a property is chosen, it must also meet the guidelines of the lender. See also “Pre-Qualification.”

PREPAYMENT
An amount paid to reduce the principal of a loan before its due date. Payment in full on a mortgage may result from a sale of the property, the owner’s decision to pay off the loan in full, or foreclosure. In any case, prepayment means any payment occurring before the loan has fully amortized.

PREPAYMENT PENALTY
A fee that may be assessed to a borrower that pays off a loan before its due date. May not be applicable with certain lenders or loans.

PRE-QUALIFICATION
This refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan for a specific property, after the officer has made inquiries about debt, income and savings/assets. The information provided to the officer may have been presented verbally or in the form of documentation, and the loan officer may review a credit report on the borrower.

PRIME RATE
The interest rate that banks charge to their preferred customers. Fluctuations in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit.

PRINCIPAL
The amount borrowed, or remaining unpaid, on your mortgage. Or, the part of the monthly payment that reduces the remaining balance. The principal balance is the outstanding balance of principal on a mortgage, and does not include interest or any other charges.

PRINCIPAL, INTEREST, TAXES & INSURANCE (PITI)
The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts paid into an escrow account each month for property taxes and mortgage / hazard insurance. The lender still calculates this amount and uses it as part of determining your debt-to-income ratio.

PRIVATE MORTGAGE INSURANCE (PMI)
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

PROMISSORY NOTE
A written promise to repay a specified amount over a specified period of time.

PURCHASE AGREEMENT
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

REAL ESTATE
Land and property, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

REAL ESTATE AGENT
A person licensed to negotiate and transact the sale of real estate.

REALTOR
A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.

RECORDER
The official who keeps records of transactions that affect real estate in the area. Sometimes known as a “Registrar of Deeds” or “Town / County Clerk.” A recording is kept in the registrar’s office. It can be a properly executed legal document, such as a deed, mortgage note, satisfaction of mortgage, an extension of mortgage, anything made a part of the public record.

REFINANCING
The process of paying off one loan with the money from a new loan using the same property as collateral.

REMAINING TERM
The original amortization term minus the number of payments that have already been made.

RESERVES
The cash a borrower must have after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes and insurance (PITI) “reserves” must equal the amount of PITI that the borrower would pay over a predefined number of months - usually two or three.

REVERSE MORTGAGE
Also called a Home Equity Conversion Mortgage (HECM), what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to use their equity and convert it to cash, in the form of monthly payments. Unlike traditional home equity loans, a borrower can qualify solely on the value of his / her home. The loan doesn’t have to be repaid until the recipient no longer occupies the home. Please see our guide to the various types of mortgages to learn more.

REVOLVING DEBT
A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods or services. The borrower is billed for the actual amount borrowed plus any interest due.

RIGHT OF FIRST REFUSAL
A provision in an agreement in which the owner of a property agrees, legally, to give one specific party the first opportunity to purchase / lease the property before it is offered for sale / lease to others.

RIGHT OF INGRESS
The right to enter or leave designated premises. Most landlords reserve this right in the lease agreements their tenants sign.

SECOND MORTGAGE
A mortgage that has a lien position subordinate to the first mortgage. See “lien” and “first mortgage.” Even while making payments on their first mortgage, individuals can borrow again from the same lender or a different one.

SECONDARY MARKET
The buying and selling of existing mortgages.

SECURED LOAN
A loan backed by collateral.

SERVICING
The collection of mortgage payments from borrowers and related responsibilities of a loan servicer. An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts is called a “servicer.” The servicer often services mortgages purchased in the secondary mortgage market.

SURVEY
A drawing or map showing the legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other features.

TITLE
The legal document proving a person’s right to or ownership of a property. This is the most important document you will have, as it is official evidence that the home or land is, in fact, yours. Title companies are agencies that specialize in examining and insuring real estate titles. During the purchasing process, a title check of any records is often performed to ensure the seller is the legal owner of the property and that there are no liens or claims pending.

TITLE INSURANCE
Insurance that protects the lender or buyer (there are separate lender and owner policies) against any loss related to disputes over a property’s ownership.

TRANSFER OF OWNERSHIP
Any means by which the ownership of a property changes hands. All of the following situations are considered to be transfers of ownership: the purchase of a property using or “subject to” a mortgage, the assumption of the mortgage by the property purchaser, and any exchange of possession of the property under a land sales contract or land trust device. Transfer tax may apply.

TREASURY INDEX
A major index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its bills and securities or is derived from the U.S. Treasury’s daily yield curve - a figre based on the closing bid yields on actively traded securities in the over-the-counter (OTC) market.

TRUTH-IN-LENDING
The federal law requiring lenders to fully disclose the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

TWO-STEP MORTGAGE
An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

VA LOAN / MORTGAGE
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). See below.

VETERANS ADMINISTRATION (VA)
An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and therefore encourages lenders to issue mortgages to veterans. Once an applicant’s eligibility is confirmed, a Certificate of Eligibility is issued. Then, when the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.

VESTING
Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.

Potential buyers across the country have one thing in common: there’s a good chance they’ll have to pay brokers a real estate commission of at least 6%. This amount to an average of $12,000 on a home in the U.S. A recent analysis delves into the question of why this remains the case, despite the ease and expertise of the Internet age.

To give you an idea of where America stands in this context, think about the commission rates in other countries. They are approximately 1.5 percentage points lower, according to the American Homeowners Grassroots Alliance. In the United Kingdom, says University of California professor of economics Chang-Tai Hsieh, commissions average just 2%. How can we rank so much lower than a nation built similarly to our own?

On Tuesday, brokers, the National Association of Realtors (NAR), and a handful of critics came together in Washington to discuss industry competition and address why the 6% commission has remained steady throughout the years. The conference was organized by the Federal Trade Commission and the Department of Justice antitrust division.

Views of NAR

The NAR states that the industry is quite competitive. Economist Lawrence Yun points out there are more than 2.5 million licensed real estate agents in the United States; a quarter of a million new ones signed up last year. Meanwhile, the multiple listing service (MLS), a database of properties for sale in any one area, is available to any licensed agent and member of NAR. A new agent, Yun says, can open up next to a huge established brokerage and, with hard work, compete.

Moreover, reports Yun, recent data compiled by Real Trend, an industry information provider, showed that commissions have actually dropped, to an average of 5.1%. Critics, however, counter that the industry has systematically fought off innovative business models that would introduce efficiencies and save consumers billions of dollars.

Hsieh said one problem is that as home prices climb, more agents enter the industry in almost lock-step. That means more and more agents fighting over business — and a growing need to keep commissions high. In fact, despite record prices nationally, the average broker actually closed fewer transactions and earned less – $49,000 versus $52,000 — last year than the year before. Consequently, says Susan Creighton, the director of the Bureau of Competition for the FTC, traditional brokers try to maintain an advantage over Internet-based brokers, fee-for-service providers, and discount mortgage brokers that threaten to undermine high commission rates.

Here’s some of the methods, according to the FTC:

Don’t show discounter’s properties. Traditional brokers “boycott” discount-brokers’ listings. They refuse to show discount brokers’ properties and even refuse to show their own listings to buyers brought in by discounters. While unethical, this is still a common practice.

Take the case of Aaron Farmer, founder of Texas Discount Realty, a fee-for-service and discount mortgage broker in Texas. He says traditional agents harass him, tell clients that he is out of business, even berate his agents in public.

Seek legislative actions to restrain trade. One panelist, Steve DelBianco, an executive director of NetChoice Coalition, pointed out traditional brokers are not reluctant to seek legislative relief to protect their interests.

Brokers have persuaded about 15 state legislatures to enact so-called minimal-service requirement laws. These rules prohibit unbundling of services; that targets fee-for-service brokerages. If sellers only need minimum service, such as a listing on the MLS, they can pay a small flat fee of about $500 and get it. In minimum-service requirement states, they have to hire full-service brokers and pay five-figure commissions. At the conference, hardly anyone supported minimum-service laws. Various panelists described it as anti-consumer.

Make it difficult for discounters to get on the MLS. The MLS is essential to remain competitive as a real-estate broker. It’s a database of properties for sale in an area. Brokers with listings put the properties on the MLS so agents with buyers can see them and connect buyer with seller. The brokers split commissions.

Final Analysis

The real problem, which Hsieh calls “The Tragedy of the Commissions,” is that all these machinations don’t ultimately serve the broker, much less the public. He suggests that the NAR abandon its attempts to prop up commissions.

“Price protection,” he says, “ultimately does not benefit the price protectors. The efforts are self defeating.”

Hsieh states that brokers spend more time prospecting for clients — handing out business cards, cold calling, knocking on doors — than they spend selling and marketing homes. That’s just waste, of no actual value to their clients. He doesn’t have an exact solution, but offers these closing thoughts:

“We should try to think of ways to create structure to channel competition that will translate into better efficiency and better prices – not waste.”

Based on numbers from Bankrate.com, long-term mortgage rates rose this week. The 30-year fixed-rate average shot up to 5.71% yesterday, while the 10-year Treasury bond yield increaed to 4.59%. Other information includes:

• 15-year fixed-rates climbed to 5.3%
• One-year adjustable rates were up to 4.2%
• 30-year Treasury bond yield increased to 4.79%

Bankrate.com publishes nightly averages for interest rates based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.

The Mortgage Industry Standards Maintenance Organization (MISMO) has come out with the first ever eMortgage Guide for the industry. The guide’s goal is to to educate the industry about eMortgage business, as well as high-level technical aspects of eMortgages and their benefits.

“This guide is intended to be an executive-level guide addressing all aspects of eMortgage implementations — key concepts, benefits and ROI, legal background and industry best practices for the various steps of an eMortgage implementation,” said Igor Derensteyn, vice chair of the eMortgage Workgroup and senior vice president of eMortgage Technologies at Countrywide. “Many of the workgroup members who created this guide are experts and have generously contributed their knowledge to this release.”

Included in the guide are:

• the benefits of eMortgages
• key industry standards and concepts
• underlying legal framework and concepts
• general guidance for best practices
• sources of additional information to get started

Slowly, but steadily, the field is moving forward on eMortgage development and implementation because the resulting paperless processes promise significant time and money savings for businesses and consumers. MISMO is a nonprofit subsidiary of the Mortgage Bankers Association and the board of directors of that company recently endorsed the industry’s adoption of residential and commercial eMortgages.

During the transition from paper to eMortgages, both individual loans and loan pools may be hybrid, using combinations of paper, imaging, and electronic documents. The new guide provides a reference tool to help you move forward toward a standardized eMortgage environment.

Negotiation.

Does that word strike fear in your heart? No amount of research will take away the apprehensive feeling that is undeniably there. As confident and prepared as you might feel, it’s never easy to make a formal offer for this kind of money. Below is a guide to the process of making an offer that we hope will be helpful for beginners and experienced buyers alike.

Basically, the negotiations are going to go something like this:

1. The potential buyer makes an offer
2. Either the seller accepts your offer or makes a counter offer
3. If the seller makes counter offer, the buyer either accepts this figure or makes an
additional counter offer
4. Repeat Step #3, pull out hair, take deep breaths as needed.
5. Reach a compromise and celebrate!

The negotiations will probably take longer than you’d like, and they may not be pretty, but there’s no way around them if you want to get the best deal. So Florida Home Loan is here to make sure you do.

Get an idea much to offer
Buyers across the country associate this introductory step with varying degrees of difficulty. If you work with a buyer’s agent, he or she will be formally presenting your offers to the sellers. It is still your responsibility to research the market and formulate the actual offers, though. If you are going about the process yourself, for a home being sold by owner, you will have an even greater of responsibility.

A few factors to ascertain about a property as you begin:

• Has the house been on the market for a long time? If so, you are undeniably in a better position. If it’s new to the market, the sellers may be more inclined to see what kind of offers they can field, and less likely to compromise.
• Is the house in need of major repairs or renovations? We’re not talking things you would like to have done - we mean essential stuff. If it needs new windows, insulation, electrical work, plumbing or appliances, that is going to be costly and needs to be taken into consideration.
• How old is the roof? They last 20-25 years and replacing one costs five figures. Bear this in mind.
• What are the neighborhood’s dynamics, from an economic perspective? Is it in a growth area or one that might experience a downturn? The three keys to real estate are location, location and location, after all. Protect your investment by establishing this ahead of time.

After pondering these questions, the first and most important step is getting a list of “comps” or comparable properties, that will help you estimate your house’s worth. “Comps” are defined as houses sold within the last 6 months that are similar to the property you’re interested in - as in comparably sized, located, et cetera. By breaking down “comps,” you should be able to estimate what you should pay. Remember that you have to focus on sale prices, not primarily the amount that houses are initially listed for. Many sell for much less than the original asking price, so be on notice!

The buyer’s agent can quickly pull a list for you, or you can compile your own through the data contained on your county’s property appraisal website. For example, you can view the sites for the offices of the Miami-Dade County Property Appraiser and Palm Beach County Property Appraiser using these links. If the data presented is not clear to you, visit the office nearest you in person and ask the staff for assistance. They should be able to help you out. This information is public record, and you have every right to use it to your advantage!

Being Generous vs. “Low-balling”
It’s a fine line you are about to walk. In the past five years, in Florida and across the country, we have seen a highly competitive marketplace in which an offer near or above the asking price was customary to even get one’s foot in the door. Now, things are beginning to tip in the buyer’s favor. Homes are frequently selling for 5-10 percent below their initial list price, as higher interest rates are decreasing demand and causing things to cool off. Make too high a bid and you might cost yourself tens of thousands of dollars. Throw out lowball offers and you risk irritating the seller and losing your own credibility. So tread carefully.

With the seller looking to make as much money as possible, and the buyer out to secure the lowest possible price, it’s naive to expect everything to run smoothly. Naturally, the temptation is to bid as low as possible and hope that the seller brings down the price. However, the seller has likely done his or her own research, and will be insulted by an offer well below the home’s value. So regardless of the market conditions, the most important thing Florida Home Loan encourages is to do extensive research and make an offer that is fair for you, but not beyond reason. With trends beginning to shift, sellers will appreciate fair bids, even if they are lower than they might wish for.

Start by analyzing the “comps” and property appraisers’ data and establish fair market value (FMV) of the home you want to bid on. If the house is priced substantially higher than the FMV, you just want to bid the FMV, right? Not necessarily. That is what you want to end up paying, so making it your first offer might not be the best move. This is when you want to lowball a little, but not outrageously. Once you find out by how much the asking price exceeds FMV, consider offering that much less than the FMV. If a house is priced at $400,000 and your research puts the FMV at $375,000 or $380,000, come in with an offer at $350,000 or $360,000. It’s a serious bid that shows no disrespect, while at the same time putting your needs first. Then, theoretically, both sides will be happy to meet in the middle.

In addition to negotiating the price itself, a lot of buyers utilize closing costs as a bargaining tool. Let’s say (to use the pricing example above) you make the offer at $400,000 as the seller requests, but stipulate that the seller pays 3 percent concessions. Three percent sounds like nothing, but do not forget the size of the transaction at stake. You will end up saving a cool $12,000, as well as the hassle of paying the closing costs. Money is money, but sellers are often more receptive to this offer, since they will feel their initial selling price was reached.

The Importance of Contingencies
Webster’s Dictionary defines a contingency as a chance or possible event. You want to account for as many such events as possible.

When you make an offer on a house, you need to protect yourself by including a number of contingencies in your offer - or requirements for the deal to be finalized. The contract will be nullified if the contingencies are not met, and the reason you need to consider this is because a number of things can still go wrong late in the game. If you put an earnest money deposit (see below) down and then the deal falls through, for instance, you are out thousands of dollars. So it pays to look at the following list of possible contingencies you’ll want to include…

Essential Contingencies:

1. “Contingent on Financing” - Standard. If you are unable to secure the appropriate financing to get the deal done, the contract is void.
2. “Contingent on Appraisal” - Also standard. Your mortgage lender is going to require this before any money changes hands. You pay for it, of course. The appraisal will be based on an unbiased opinion from a third party as to how much the property is worth. Having this contingency in your agreement allows you to bail if the appraisal comes in far below what you were planning on paying. If you’re making a $380,000 offer on the example home we discussed earlier, and the appraisal comes in at $330,000, you will be out $50,000 without this contingency. Yeah. It’s serious stuff. Your lender will never loan you more than the home’s appraised value. You should have a fair idea of the FMV going in, but nevertheless, this is an essential contingency.
3. “Contingent on Inspection” - You should hire an inspector even if the house you are trying to buy is new and looking flawless. The seller is forced to fix any non-cosmetic problems found by the inspector (another unbiased third party) if this contingency is included in your offer. If these costs exceed a specified percentage (usually 3-6 percent of the price), the seller is often allowed to protect his/her self by canceling the contract as well. This contingency should cover your rights in case the repairs are not met, and be as specific as possible, including the dates you want the inspections completed and any particular factors you want looked at. Maybe you want a specific test for radon, mold or toxic substances in an older property, or a test to guarantee that your well water / septic system meet certain standards. You may desire a boundary survey that proves the lot is the size claimed by the owner.

Other Contingencies:

• Deeds / Easements - Many people include, in their offers, what type of deed the seller will provide them at closing, along with statement guaranteeing that the real estate contains no liens or legal issues caused by past owners. Also, there is the matter of easements, or the ability of others to use the property. Does the public have the right to access another place via your land? You definitely want to have this cleared up if there is even the slightest doubt.
• Legal Review - This generic contingency is often included by buyers as a potential means of getting out of any sales contract. It gives a lawyer the right to review it, which may present problems for the seller.
• Sale of House - If you’re selling your current house before buying this property, you can make the sale contingent on your selling your current home. Also not likely to be well received by sellers.

It would be great to have every one of the above contingencies included in your offer, wouldn’t it? Of course. But remember that the seller has to sign the papers too, and you have to think about how your actions are interpreted. The more stipulations you include, the less attractive your offer is going to look. They could be entertaining other offers that contain fewer. Waiting for you to sell your house is a huge risk, as no one can predict when that will happen. A seller might be led to believe you are not to be trusted, and an additional legal review also causes widespread balking.

THINK ABOUT IT: If they have an offer on the table for $360,000 with no contingencies, and your offer of $380,000 contains a laundry list of hassles that could result in them getting a big fat $0, which do you think they are going to accept?

Be sure to protect yourself, but not to go overboard here. Go with the contingencies you really need and leave it at that. Remember that every contract and potential sale is going to be unique. Brainstorm, research and consult with an attorney before you make an offer to purchase. Outline all your questions, establish the results you want to see, and turn them into legal contingencies that will make the process function effectively. Real estate lawyers will know more about properties in a specific area (if you are still a little unfamiliar with where you are moving) and will help with the wording of contingencies as well, making them invaluable resources.

The Earnest Money Deposit
Your earnest money deposit (EMD) is a sign of good faith, a small percentage of the price that you must provide up front to proceed with the sale. This money will be placed in the possession of your real estate agent or in an escrow account with an independent company. The funds in escrow will be held until the sale is complete (at which point the money goes to the seller) or the contract is mutually cancelled (and it gets sent back to you).

Assuming everything goes according to plan, the money you put down as an EMD will count towards your down payment when your mortgage is processed. However, be advised that in cases where you’re unable to fulfill your end of the contract, - i.e., your failure to honor the deal is NOT due to an officially listed contingency - you will lose the full amount in escrow. A reasonable sum to place in escrow as an EMD is 5 percent, but not higher than that. Larger amounts may mean smaller percentages.

Finalizing the Length of the Contract
Lastly, there is the question of how much time to allot for closing. It’s hard to say, since so many things can still hamper your plans. Assuming you are not selling a home on top of buying a new one, give yourself at least 30 days. If you are trying to sell your house on top of purchasing one, better double that to 60 days. You can get everything shored up more quickly than this in many cases, but there is no use cutting it close. Better safe than sorry, as they say!

Contact the Mortgage Company ASAP!
If you’ve got the contract signed, you are ready to move on to the financing stage! Excellent work! You have taken a huge step and are almost to the point where you can officially take ownership of the home! Please see our guide to choosing the best mortgage for your situation, as well as our sister guide to preparing for the mortgage process once you have a plan in place. We know this not easy but we are confident you are up to the task. Feel free to contact Florida Home Loan at any time for a discussion of your situation with no obligations.

The bottom line? Do your homework. Feel out the situation. Seek advice from professionals. Follow those three pieces of advice and success is virtually assured. Good luck!