MLS or Multiple Listing Service
The MLS stands for Multiple Listing Service and is a database created by real estate professionals and can only be used by licensed Realtors or their admins. This platform is where your Realtor will list your home, and it will feed into real estate sites through IDX, such as Realtor.com, Zillow, and Homes.com, among many others. This is also where your Realtor can see homes that have just been listed, are coming soon, pending sale, and sold, etc. There is more information available here than on sites like Zillow or Realtor.com, such as property disclosures, owners names, confidential agent remarks, lockbox or showing instructions, flood zone or easement information, surveys, and more, that again, only licensed Realtors have access to.
There are hundreds of MLS platforms in the United States. Our team only has access to the MLS system in Connecticut. The MLS we use is called SmartMLS.
Debt-to-Income (DTI) Ratio
This is a comparison of your monthly income to your debts (such as student loans, car payments, credit card balances, child support, etc). Expressed as a percentage, mortgage lenders use this ratio to measure your ability to pay your debts and to see if you can handle additional debt, like a mortgage. Your DTI should not be higher than 36%.
Down Payment
A down payment is the amount you pay for your home upfront, that is paid before or on closing day. A misconception is that buyers need to put down 20% of their purchase price (if they are purchasing a home for $500,000, their down payment would be $100,000), but a down payment can be whatever the buyer chooses and what makes sense financially – from 3% of the purchase price to 50% of the purchase price – we’ve seen it all over the board. The larger down payment you make, the lower your monthly costs will be, and a 20% down payment eliminates the need for PMI.
Different loan options require different down payment amounts. Physician loans are specialized loans that require 0% down and no PMI, but only licensed doctors can qualify. VA loans typically require 0% down payment for eligible active-duty military, veterans, and surviving spouses with full entitlement, according to RocketMortgage.com.
Private Mortgage Insurance (PMI)
This is something your mortgage company may require if you do not put 20 percent for your down payment (unless you qualify for a program like a physician loan). This is an additional monthly insurance that gets rolled into your mortgage payment and protects the mortgage company. Once you pay down a certain amount of your mortgage, the extra insurance is no longer necessary and will be removed as an additional payment.
Earnest Deposit/Good Faith Deposit
Earnest Money is a deposit you pay to the seller (held by the Real Estate Office or Attorney until closing) of real property to show your “good faith” and intentions of getting a mortgage to buy the property. It is usually 1% of the purchase price. The earnest money deposit can be refundable if you no longer wish to proceed after the inspection or cannot get a mortgage (prior to lifting the mortgage contingency).
Home Inspection Contingency
Most offers are subject (or contingent) on a satisfactory home inspection. A home inspection occurs within 7-10 days of an accepted offer. Buyers pay a licensed home inspector to visit the home and prepare a report on the condition of the building, mechanicals, radon, septic, and well (if applicable) and if any repairs are needed. That report is shared with the buyers only. Any repair requests can then be negotiated with the sellers within a certain timeframe. If the home inspection is satisfactory and any repairs are negotiated, the sale can proceed.
Cash Offer
A cash offer is exactly that – offering to purchase a home entirely in cash, without the help of a mortgage. Since there is no mortgage, there is no mortgage application, appraisal, or underwriting, which makes the process move much faster. Buyers can opt for a private appraisal. Cash offers are extremely competitive and attractive to sellers as the bank statement proves the buyers have the funds to purchase the home.
Closing Costs for Buyers
Buyers should expect to pay 2-5% of their purchase price on closing costs, which includes inspection fees, appraisal fees, lender fees, title insurance, attorney fees, deed recording fees, title search, credit report fee, underwriting fee, and others. This is an additional amount of money needed to bring to the closing table, but some fees can be paid beforehand, like the inspection and appraisal. These fees will be laid out in the Closing Disclosure that you will receive 3 business days prior to closing.
Closing Disclosure
This is a multi-page document that you will receive from your lender breaking down the loan term, loan amount, mortgage rate, cash needed to close, fees paid for before and after closing, and additional fees. It is a very in-depth document for buyers to review prior to closing. This must be sent to the buyers at least 3 days before closing day. After this is reviewed by the buyers, they will receive their “clear to close.”
Refinancing
When you have a mortgage, there may be times where you can replace your loan to one with better terms, such as when mortgage rates decrease. We recommend this to our buyers who have a mortgage with a high interest rate. Once rates decrease, they can refinance – which lowers their monthly payment. However, the process of refinancing is similar to applying for a mortgage – there will be underwriting, reviewing DTI, reviewing income and job status, submitting tax records, and closing costs. There will be fees, but the money saved each month with a new loan and interest amount may outweigh those factors. A mortgage lender will be the right person to talk to if you’re interested in refinancing.