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Mortgages don’t have to be a mystery. The process should be a simple step that gets you closer to home.

Unless you’re one of the few home buyers who plans to make an all-cash offer, applying for a mortgage is definitely in your future.

But don’t stress, a mortgage is basically a loan. To help guide you through, we’ve broken down all of the most important pieces of the process. Take a deep breath, read on and then get back to planning for your perfect home.

1. Start with the down payment.

As painful as it might be to pull together a hefty down payment, the amount you lay out initially will determine how much you need to borrow. While most lenders are looking for 20 percent down, the minimum requirement is 3.5 percent. Remember that if you put down less than 20 percent, you’ll need to factor mortgage insurance into the cost of your monthly mortgage payments (it could cost between .5% and 5% of the loan amount).

2. Get pre-approved vs. pre-qualified.

If you’ve already started house hunting, you may have heard the terms pre-qualified and pre-approved used interchangeably, which of course, is totally confusing. Let’s break it down. Being pre-qualified is an estimate. Based on some information you share verbally (income, existing debts, credit score), a lender can tell you how much you’ll probably be able to borrow. This will help give you a sense of your price range before you start shopping.

Pre-approval is the same process, but with the documentation to validate the information you give the bank—meaning the borrower and lender both can have more confidence in the estimate. Most sellers won’t accept an offer from someone who hasn’t been pre-approved. Take this step as soon as possible so you can make an offer on the home you love once you find it.  

3. What you qualify for isn’t always the same as what you can afford.

When it comes to mortgages, most banks will issue a loan using the 30 percent rule—a benchmark that assumes 30 percent of a borrower’s monthly gross income will go towards their housing costs. But just because you qualify for a certain sum doesn’t mean you should accept the full amount. Buying a house shouldn’t back you into a corner financially.

It’s important for people to evaluate their total housing expenses and make sure that they feel comfortable with their monthly output, especially if they want to achieve other goals, like save for retirement,” says Bungalo Mortgage Expert Berenice Perez.

Start by making a budget that factors in the mortgage payment and projected housing upkeep expenses (~1 percent per year of your home’s value) and your goals, to decide on what kind of mortgage payment you can afford.

Save up to $2000 off of closing costs when you finance a Bungalo Home with Bungalo Mortgage. 

4. You have some repayment options.

Mortgage repayment plans are pretty standard, but you have some options here, so it’s worth taking a closer look:  

First, you need to choose the term: how many years it will take to pay down the loan balance (including interest). Your can choose short-term (~15 years) or long-term (~30 years). With a short term loan, your payments are much higher but you pay less interest overall. With long-term, you have more financial flexibility because your monthly payments are lower.

Second, you can choose a fixed or adjustable interest rate. While the interest rate itself is determined by the market, a fixed-rate mortgage is a safer bet because the rate at the time of signing will never change—and neither will your monthly payments. With an adjustable-rate mortgage, the interest rates start out lower than average (usually for the first 5-10 years), but can change over remainder of the mortgage (often, increasing). You might be able to save money on interest in those early years, but there will be variability and unpredictability in those payments in the later years of the loan that could make it just as costly as a fixed-rate option.

The most common—for the purposes of financial flexibility and stability—is the 30-year, fixed rate mortgage.

5. More choices: FHA vs. conventional loans.

The “conventional” of conventional loan simply means not insured by a government agency. You’ll probably want to opt for a conventional loan if you can afford a down payment of at least 5 percent and you have a good credit score (620 or more). If not, the Federal Housing Administration (FHA) accepts credit scores as low as 580, down payments as low as 3.5 percent and offer lower interest rates. First-time home buyers often opt for the FHA loan because it requires less money up-front.  

FHA loans aren’t always less expensive than conventional loans, though, because of the mortgage insurance premium attached. Depending on the loan terms, an FHA loan can wind up being just as expensive as a conventional loan because it requires both an up-front insurance payment (1.75 percent of the loan amount) and annual insurance payments for 11 years or, more often, for the life of the loan. As of 2013, to remove the mortgage insurance premium, you’ll need to refinance to a conventional loan.

6. Bigger banks don’t necessarily make better lenders.

Though it’s tempting to opt for bigger, more established financial institutions when choosing a lender, shop around. Today the difference in rate and cost between lenders isn’t as significant as it used to be, so it makes sense to prioritize service, as well.

It’s a very stressful transaction, so look for someone that can spend more time with you and give you peace of mind,” Perez says.

Get pre-approved as soon as today.

Get a same day pre-approval* with Bungalo Mortgage, which is valid for 90 days. Learn more.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

While the 30 percent rule is a common mortgage benchmark, it might not be right for you.

If you’re preparing to apply for a mortgage, it’s likely you’ve heard a lot of jargon already, like amortization or the carry-cost rule. You’ve also probably been told (perhaps from your parents and your agent and your mortgage broker) to consider the 30 percent rule. While the oft-cited rule shouldn’t be your north star in the mortgage process, it’s still pretty important to the process. Here’s a closer look:

So, What is The 30 Percent Rule?

An oft-cited figure in the real estate industry, the 30 percent rule recommends 30 percent of your monthly gross income go towards housing costs. So, if you make $75,000 a year, you’d be able to afford a monthly payment of $1,875—right? If that figure feels uncomfortable, don’t worry. The 30 percent rule is just a guideline, not a tried-and-true rule.

It’s Just a Guideline…

The 30 percent rule is often criticized because it refers only to housing costs—the principal loan and interest, property taxes and homeowner’s insurance (including HOA and mortgage insurance)—and leaves out a whole host of factors, like what other debt you might have, and the ongoing costs of home renovation or repairs. What’s more, the 30 percent rule is often considered outdated, as it’s a benchmark borne from loan legislation passed 50 years ago.

…But You Shouldn’t Ignore It

“The challenge with just saying that it’s outdated is that it’s still relevant to how Fannie Mae and Freddie Mac approve loans today,” says Berenice Perez, VP of Customer Experience at Bungalo Mortgage. “As of today, it still happens to be the only benchmark that is consistent across the board.”

Meaning, when an underwriter is reviewing your income and assets to grant you a mortgage, they’ll likely use the 30 percent rule to assess the size of the loan you qualify for—not what kind of payment is comfortable for you.

​30 Percent of the Bigger Debt Picture

The 30 percent rule isn’t the only standard benchmark in the loan industry. It actually falls under a broader catch-all: the 50 percent debt-to-income ratio that governs most conventional loans. Meaning, your total debt—including student loans, a car loan, credit card debt, and your mortgage—can’t exceed 50 percent of your gross income. So, if you’re applying for a mortgage debt-free, you might qualify for more than 30 percent of your income. If you’re burdened by student loans or buried in credit card debt, you might qualify for less than 30 percent based on how much you still have to pay off.

A Note to the Self-Employed

For the growing number of self-employed individuals, qualifying for that 30 percent loan might be challenging.

People who are self-employed “are required to have a consistent two years of that type of income in order for [lenders] to even consider their income,” Perez says. “Whereas I could quit my job tomorrow and start a new job and, as long as there’s a salary, I could qualify with the new income I’m making.”

For individuals who are self-employed today, the best options are to be aware of the lead-time needed to get approved for a mortgage. Non-qualified mortgages are risky, but Perez says there are a growing number of these private mortgages available.

The Ultimate Mortgage Calculation

Qualifications aside, Perez says your current budget is probably the best barometer for deciding how much your mortgage should be.

If you can’t picture yourself spending $3,000 every month renting, then you probably can’t picture yourself spending $3,000 on a housing payment,” Perez says.

So while the 30 percent rule is important to know when qualifying for a mortgage, it’s not the be-all-end-all. The most important thing is to stay realistic about your spending capabilities—it will mean buying a home, and not a headache.

Competitive rates, expert guidance.

Find out how easy financing your next home can be. Learn more about Bungalo Mortgage.

 

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

In the world of mortgages, it’s normal to feel like you’re lost in a sea of confusing acronyms and bank-ish lingo. And since securing the right mortgage isn’t exactly something you want to “wing,” it’s a really good idea to head off your biggest questions at the pass. Let’s clear up some of the most common misunderstandings that come with financing a home so you can land your loan with the confidence of a mortgage Mr. Miyagi.

Misunderstanding #1: I should start the mortgage process AFTER I’ve found a home.

Many home buyers wait to start mortgage shopping until after they’ve found a home they love, and they’re ready to make an offer. But when you go this route, you might find yourself in a situation that slows down (or even prevents) your home purchase. Maybe you’re in a completely different financial situation than you originally thought. Maybe there’s an issue with your credit report you could have already sorted out. Maybe you can’t get your pre-approval documents together fast enough — things like recent bank statements, copy of your tax return, etc. — and someone else gets an official offer in before you.

In reality, getting pre-approved BEFORE you shop is one of the most vital steps in the entire home buying process. Doing the work to secure a pre-approval upfront will save you time and headaches when it matters most.

Get pre-approved as soon as today. Get a same day pre-approval* with Bungalo Mortgage, our affiliate company, which is valid for 90 days. Learn more.

You’ll have a better understanding of your own financial situation, what loan option is right for you, and how much home you can afford. Not to mention, with many lenders, your mortgage pre-approval typically lasts for 90 days. So even if you’re just getting started, getting pre-approved early means you’ll be ready to buy the moment you find a home you love.

Misunderstanding #2: The purchase price determines my monthly mortgage payments.

Let’s say you’re qualified for a mortgage of $300,000. Many buyers assume that this means they’re all set to buy a $300,000 home, and their monthly loan payments will reflect that purchase price. Well, it’s not quite that simple. When you think in terms of purchase price instead of mortgage payment, you overlook all kinds of costs that could impact your monthly housing expenses. For example, property taxes and homeowners insurance can vary greatly depending on the property type and where your home is located.

When comparing homes, you should consider what your total mortgage payment would look like, not just the purchase price. Your lender can help you figure out what to expect for things like property taxes and homeowners insurance, which will likely fluctuate over the life of the loan. Think through other possible costs that could be tacked on to your monthly payment too, like homeowner’s association (HOA) dues. The bottom line? You can avoid unnecessary budget surprises later by planning for your ideal monthly mortgage payment now.

Misunderstanding #3: Stellar credit score = stellar rate.

Yes, a higher credit score can often mean a better interest rate. But when a lender reviews your credit report, they’re actually looking at many other factors than just your score. Perhaps the most important of all? Debt. The number one reason buyers are denied financing is high Debt-To-Income Ratio (DTI). In easy-to-understand terms, DTI is a finance formula that basically compares your monthly income to your monthly debts, such as car payments or student loans. So, when you think about it, it’s quite possible for a buyer to have a great income and credit score, but too many debt obligations compared to their qualifying income.

Remember, a stellar credit score isn’t everything. Be proactive about pulling your credit and have a Loan Specialist review it with you. This is something you don’t want to (or have to) tackle on your own. A seasoned mortgage pro can help make sure your credit report is accurate, they can tell you your exact Debt-To-Income Ratio, and they can guide you toward the best rate and loan option for your individual financial situation.

Misunderstanding #4: The bigger down payment the better, right? 

At some point, you’ve probably heard the “golden rule” that a 20% down payment is required when you buy a house. And for many potential home buyers, the idea of coming up with a chunk of change that size makes the dream of homeownership seem like, well… only a dream. But we have some game-changing news for modern home buyers: The golden rule of 20% down isn’t the golden rule anymore. It’s an outdated concept from a bygone era of home buying (cue collective sigh of relief). 

The truth: Today, anything is possible — 10% down, 3% down, or even 0% down. Whether you’re a first-time home buyer or you’ve been through it before, an affordable down payment is more attainable than you think. If you need to buy without a down payment, you should look into government-backed zero-down programs like the US Department Of Agriculture (USDA) Loan, or for military families and veterans, the US Department Of Veterans Affairs (VA) Loan. There’s also the commonly utilized FHA (Federal Housing Authority) loan which has a minimum down payment requirement of only 3.5%. Not eligible for any of these programs? No worries. Depending on where you’re at financially, many Conventional lenders will approve you for a mortgage with a down payment as low as 3%. Yeah, sure sounds easier than emptying out your savings account.

Moral of the mortgage story? It’s easier to understand than you think.

Finding your way through the financing process is a notoriously tricky part of buying a home — especially if it’s your first time. But now that you know which major mortgage misunderstandings to look out for, you have a much clearer path ahead than most. Just remember when the acronyms do get your head spinning, you’re not expected to have all the answers. Because you’ve got an endless stream of resources and people here to help guide you through. And just like that, the student has become the master.

It’s never too early to start thinking about your mortgage.

Securing a mortgage today will make life so much easier tomorrow. Save yourself time, headaches, and money with Bungalo Mortgage.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation. *Same day pre-approval is contingent upon receipt of your required documents.

Buying a house is one of the biggest leaps you’ll take in your lifetime. And financially, that leap can feel giant. But with the large sum comes a home: A place that’s all yours, a place where your hopes and dreams are finally realized, and a sense of ease no price tag can take away.

Mortgage made easy with Bungalo Mortgage

Most people don’t make the purchase without some help, either. And in most cases that help comes in the form of a mortgage loan. Mortgages are often synonymous with some headaches, though: the terms can be confusing, rates fluctuate, and some lenders even offer low interest rates to get you in the door, but make up the difference with higher fees after the fact. Kind of feels rigged, right?

At Bungalo, we want to be the guiding light along your home buying journey. That means we’re with you every step of the way, including through the mortgage process. With Bungalo Mortgage, our affiliated Mortgage company, you can secure a home loan with greater speed and ease than you ever dreamed. No more sweaty palms when signing a check, or bills that add unexplained service charges after the fact. Bungalo Mortgage embraces transparency to get you the best loan option for your budget, on your terms, in a down-to-earth language you can understand.

Ok, so how does it work? Why should I get my home loan with Bungalo Mortgage?

Bungalo Mortgage offers competitive rates and that means more dream home for your dollar. You’ll have dedicated loan specialists working with you through a concierge service to ensure you get the best possible rate and loan option for your budget.

Sounds amazing. But how is Bungalo Mortgage different from other lenders?

You shouldn’t have to wait weeks to get pre-approved. Bungalo Mortgage offers same day pre-approval* (7 days a week—even on the weekend!) so you can be ready to buy early.

Plus, this streamlined mortgage process allows you to easily upload documents and complete a digital application within minutes. With Bungalo Mortgage, you can fill out your loan application and upload all necessary documents digitally—avoiding countless trips to the bank.

Thank you for making this such a smooth process. You’ve been so helpful every step of the way — Crystal and Joe H., Tampa

Awesome, but this is a big purchase. I think I’d prefer to work with a person.

No problem! Throughout the process you’ll have one dedicated loan specialist at your side walking you through your options, breaking down your mortgage payment, and answering any questions that might come up

Get same day pre-approval

I’m not buying a Bungalo home. Can I still use Bungalo Mortgage?

You bet. Whatever home you choose to buy, Bungalo Mortgage helps you get there with fast and stress-free financing.

I am buying a Bungalo home! What are some perks I can expect when I use Bungalo Mortgage?

Once you’re ready to buy a Bungalo home, a Bungalo Mortgage Loan Specialist will coordinate with your agent, the listing agent, the title company,  and everyone else involved to simplify the offer and closing process. It’s all under one roof! When you finance your Bungalo home with Bungalo Mortgage, you’ll save $1,000 off of closing costs. Plus, save an extra $1,000 when you use their preferred title company. Cha-ching!

Get pre-approved as soon as today.

Get a same day pre-approval with Bungalo Mortgage, which is valid for 90 days. Learn more.

 

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

*Same day pre-approval is contingent upon receipt of your required documents.

If you’re combing the web for advice on homebuying, you’ll have no trouble finding tips on the financial aspects of real estate: saving for a down payment, determining your debt to income ratio, and the pros and cons of loan types. But buying a home isn’t a decision that can only be boiled down to a cold, hard spreadsheet, and readiness isn’t just about your credit score or how many 0’s you have in your bank account.

As New York Times columnist David Brooks astutely points out, “people generally don’t select a house; they fall in love with it…you’re just buying an object, but your heart is suddenly on the line.” It’s a major financial decision, yes, but it’s also an emotional onenot unlike choosing a college, a job, or even a partner.

So, dollar signs aside, how do you know when you’re ready to take the plunge into homeownership? Here are two psychological signs it’s time to buy:

1. You’re ready for stability.

Whether it’s the flexibility to handle job relocations, lifestyle changes, or explore new cities and neighborhoods, renting gives wandering spirits a welcome sense of mobility. But there comes a point for many renters when they’re done packing boxes and are ready to hang their hat somewhere permanently.

“Home ownership is a lot about wanting an element of stability and planting roots,” says Joan Kagan, a realtor with Triplemint.  

Buying From the Heart | Bungalo

Whether you’re single, coupled up, have kids, or not, it’s normal for the house-hunting process to induce some self-reflection, especially if you’re a serial renter. And the truth is, nobody’s situation is 100% secure and settled and tied up with a bow. But if you’re tired of going from one rental agreement to another and comfortable with wherever you are in life, you’re probably ready to take that next step.

2. You’re searching for a dream home that fits your real life

To quote David Brooks again, “when people fall in love with a house, they aren’t really falling in love with the walls and the roof; they are falling in love with a beautiful vision of their future lives.” There’s nothing wrong with this, of course, but level-headed home-buyers also catch themselves while dream-weaving and will continuously pause for a gut check.

Studies have shown that, over time, it’s not so much the features of a dwelling that result in joyfulness, but the social connections people make inside and outside of their abodes. In other words, the social fabric of your family and neighborhood will ultimately matter more. But when house-hunting, we often can’t see the forest through the…fixtures.

One sign that you may not be ready to buy just yet: if you’re considering a major lifestyle trade-off—such as a long commute—in order to afford a home with lavish features. “If you’re moving to a place far away from your friends, but it has nicer stuff, it’s not a great deal for your happiness,” says Elizabeth Dunn, a psychologist at the University of British Columbia.

Buy From the Heart with Bungalo

Realtors say that successful home searches almost always involve toning down expectations, and clients who are ready to buy tend to be those who balance an understanding of the limitations of the market and their budgets with a focus on more than just a home’s features.

In other words, they want to fall head over heels in love with their home, but they don’t expect the structure itself to magically upgrade their lives.

“When you begin to look around [at homes] you realize one of two things is going to be more flexible: Either your budget is going to increase or the parameters [of the search] are going to get wider. One of those two things typically changes and when those things change, you know the buyer is serious,” says Anna Hargraves Hall, a realtor with Stribling.

Ready or not? Ask yourself these questions.

In some cases, your bank account and credit scores are green-lighting the way to homeownership, but you still may not feel ready for the final leap. If you’re in that boat, there are a few questions to ask yourself as you look at properties—or even before you start your search.

1. How does your present lifestyle fit into what you’re attracted to with your home search?
2. How will your future lifestyle possibly look in this home search?
3. What does “home” mean to you?
4. How important is the community around you? Do you crave space and solitude or neighbors dropping by?
5. Are you ready to invest the time it takes to properly care for a home?

Take some time with these questions, visualize the answers and use them to guide you on your path to home ownership.

Ready to start shopping for your next home?

Find and tour inspected and certified homes on Bungalo. Browse homes.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

When my husband and I bought our home—love at first sight—it felt like the end of a hard-won battle, a sensation familiar to many house-hunters. We’d toured over 100 properties over an enormous geographic area, politely traipsing through every room even at places we knew weren’t for us, making awkward conversations with homeowners and realtors all the while.

Needless to say, we learned a lot.

Naturally, if you’re house-hunting, you want to spend the least amount of time touring inappropriate homes and the maximum hours enjoying your new dream house. Here are some key tips on what to pay close attention to—and what you can quite literally ignore—on a house tour.

Where to Start

First off, know that there are all kinds of ways to tour homes, from the old school (often-awkward open houses with other potential buyers) to the new (touring yourself, even without a realtor, thanks to smartphone self-entry). If you’re proactively scouring the market, you’ll likely experience a little bit of everything.

Remember: You can tour any Bungalo home on your schedule, any time 8am-8pm, 7 days a week. Unlock home access.

No matter the format, however, the biggest challenge with house-hunting is keeping yourself focused on what ultimately matters most…to you. Know that any home on which you place an offer will have a professional building inspection—most mortgages are contingent upon it—so the touring stage of the house-hunting process has more to do with your personal checklist than behind-the-scenes elements such as working plumbing, roofing, and septic systems.

In other words, hone your definition of what makes a dream home with each tour, but conserve your precious energy. Don’t feel like you need to become a general contractor before you walk through that first front door.

What to Skip

Remember that your time is precious, and you’re on a mission. It may seem rude to not chat up the homeowner or partake of the crudité spread laid out by the realtor, but it’s really okay—you are all here to make a deal. Don’t feel awkward about getting down to business and briskly checking out every detail of the home.

In an ideal world, every for-sale home would be pre-inspected for your total peace of mind. But if you’re casting a wide net, you’ll come across all manner of design and renovation decisions. All pros agree that, yes, hideous decor can be off-putting, but it shouldn’t sour you on an otherwise solid home. Ugly paint jobs are easily and cheaply fixed, and the current owner’s living room set will be long gone before you move in. Focus instead on the underlying structure and layout of a home to see what glory may lie beneath.

Your home will likely be the biggest financial investment you’ll ever make, so don’t let anyone pressure you into a sale—not your family, your realtor, or your bestie who desperately wants you as a neighbor. If possible, ask the seller to let you visit the house on your own, without the distraction of other buyers or dealmakers; sit with the space and take it all in, quietly.

While you’re there, experts suggest that you do check that everyday fixtures and interior work are in proper working order: Open every tap, flick on every light switch, flush every toilet and take notes on anything that’s not up to snuff. (Little fixes can oftentimes add up to huge bucks, so be willing to move on if an initially dreamy property shows signs of being a money pit).

Finally, even though your ideal market might be tight, decide before you even begin your house hunt what things are negotiable and what are deal-breakers. It’s good to be flexible, say, about adding an extra five minutes to your commute for the perfect place, but if you have kids (or are planning for them), being within a great school district is non-negotiable.

Insider Tips

Most experts agree that the siting of a house and exposure to natural light is one of the most crucial factors in choosing a home. Abundant sunlight has been proven to boost our mood (not to mention making every interior much more Instagramable), and a home not hemmed in by hills or thick vegetation will “breathe” much more efficiently. Pay close attention to the landscape and trees surrounding every home you tour, and make sure there’s ample natural light in all of the rooms. For a house you truly love, it’s worth visiting at different times of the day to check out the exposure from sunup to sundown.

The powerful adage “how you do anything is how you do everything” also applies to homes. When you’re on a tour, take the time to look at the little things. Do the doors hang evenly in their frames? Is the tiling in the bathroom meticulously spaced and flush with the wall? Are the doorknobs and other fixtures fastened well and in good working order? Are any of the light bulbs burned out? If you see a bunch of small problems and things that seem “off,” it’s often a sign that the previous owners deferred maintenance.

And lastly, use your nose. Experienced real estate agents say that any potent masking scent—from candles, plug-in wax burners, even fresh-baked cookies—at a home tour is almost always a sure sign that the seller has something unsavory to hide. Don’t be shy: Poke around closets and under-sink cabinets and sniff for any indication of mold or decay.

The bottom line: the more houses you tour, the quicker you’ll learn to assess what makes for a great structure, and which ones you can skip walking into altogether. Don’t let yourself get rushed through a tour, stay true to your checklist, and feel free to revisit potential winners multiple times. With any luck, it’ll take you far fewer tours than our 100+ to find your very own home sweet home.

The outdated ways of home buying just got a much needed renovation.

Find and tour certified homes, get connected to fast and stress-free financing, and make an online offer, all through Bungalo. Browse homes. Browse homes.

At Bungalo, it’s our goal to take the frustration out of home-buying. We’re bringing much-needed transparency and simplicity to the process by putting every step—from tour to close—under one roof.

But there’s one thing we can’t wholly reimagine about the real estate industry: the jargon. From your first meeting with an agent to the moment you close on your dream home, the home-buying process is riddled with terms and acronyms that can be needlessly confusing and overwhelming.

Since we can’t give the common language of the real estate industry an overhaul, we put together this glossary of home-buying terms in plain language. Bookmark it. Print it. Save it on your phone. Think of it as a confidence-building resource to guide you through the myriad decisions and conversations that dot your path home.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Adjustable-rate mortgage (ARM): Also known as a variable-rate mortgage, this loan has an interest rate that is adjusted throughout the life of your loan.

Adjustment Period: This refers to the time when your interest rates in an ARM actually change. A 5/1 ARM, for example, means your interest rate stays the same for five years but can change every year after that. A loan with an adjustment period of one year is called a one-year ARM, meaning the interest rate can change once a year.

Amortization: Do you want your payments for your house to start high and get lower? Or do you want them to be consistent? Amortization lets you create a payment plan that simply lays out how much you will pay every month until the house is completely paid off. Most of these plans are designed to help you pay off the principal balance as soon as is feasible, so you can accumulate equity in the house and pay less interest overall on the loan.

Appraisal: It’s important that you and the seller agree on how much the home is truly worth. To determine the value of a home, an objective third-party inspector comes and appraises it—meaning they follow a list of rules and regulations to determine what shape the home is in. Other factors like location can also contribute to the home’s value.

APR (Annual Percentage Rate): This percentage is the interest rate on your mortgage for a given year.

B

Buydown: Looking for ways to lower your monthly mortgage payment? Consider buying down the rate—i.e. Paying your lender in fees so that you can pay less in interest. Typically, one point (which equals one percent of the loan) can reduce the interest rate by .25%. On a $300,000 loan, that might save you about $40 a month—or almost $500/year. You can opt for a a permanent buydown, you pay an amount that brings interest rate down for the life of the loan. In a temporary buydown, you’d pay to lower the interest rate on the loan temporarily.

C

Certificate of title: A title that gives you legal rights to do what you would like with your newly purchased property, this piece of paper shows that you own it—fair and square.

CMA (Comparative Market Analysis): A CMA is a report that helps you understand the housing market as a whole. It includes active, sold, canceled and pending listings which can be a great tool when trying to understand if the house you’re interested in fairly priced or a good investment. Your agent should be able to provide this information to you.

“Comps” or Comparable sales: This term refers to homes that are very similar to a home that you’re looking to buy. Do the houses around the one you’re eying have the same price per square foot break down? Comps will help you figure that out.

Contingencies: If contingencies are involved, you’ve nearly crossed the finish line. Both buyers and sellers have the option to add contingencies or conditions into the real estate contract that essentially say I agree to complete the purchase as long as X happens or as long as X is true. If contingencies are not met (often, within a specified time frame), either party has the option to back out. Contingencies include things like mortgage approval, so just hang tight until it all gets finalized.

D

Deed: This part of the process dates back to feudal England, where a physical piece of land (some dirt or a twig) would trade hands to signify the transfer of ownership. These days, we pass off a piece of paper called a deed, but the sentiment is the same. Unlike a certificate of title, a deed is used only for transfering property, and both parties are involved in the transaction.

E

Earnest money: An earnest money payment proves to the seller that you are serious about purchasing their home. This money (about 1% or 2% of the purchase price) gets placed in the hands of a third party, putting it in escrow, until after closing when it gets delivered to the seller. Also known as “good faith money” or “hand money,” think of this payment as a deposit—you’ll submit the remainder of the down payment later.

Effective age: A home can be listed as “built in the 1920s,” but you want to make sure that the effective age is lower than that. This is the age of a home that an appraiser claims based on the physical shape that the property is in—ideally not nearly 100 years old.

Escrow: An escrow is a third party holder (usually a title company) of your earnest deposit. They will only release the funds at closing.

Equity: This is the figure you get when you subtract the amount you owe on your home from the amount it is worth. So, if you owe very little on your home (which obviously happens as you make payments over time), you have a lot of equity—nice!

F

FHA Loan: For many aspiring homeowners, a 20 percent down payment and a credit score in the high 600s can be a major barrier to getting into the housing market. To help, consider a loan insured by the the Federal Housing Administration (of the Department of Housing and Urban Development)—these FHA loans require less money down and a lower credit score to qualify.

Fixed-rate mortgage: Once you’ve secured a mortgage, you can decide on a fixed-rate or variable-rate mortgage. If you choose a fixed rate, the interest rate won’t change—until about 30 years from now, then it won’t exist!

G

H

I

J

K

L

Loan officer: After you narrow your search for a home, the mortgage company will pair you with a loan officer. This person will work for the institution or bank that is supplying the money for your loan. They are responsible for gathering all the relevant information associated with your loan application, and they then give all of this information to the underwriter.

M

Mortgage broker: While this is an optional step in your home-buying process, you can hire a mortgage broker to manage loan offers from various lenders. In the end, ideally, you’ll have choices and can pick who is giving you your ideal loan.

N

O

Option: Purchasing an option means you’ve purchased the exclusive right to buy a particular property at a fixed price, within a given period of time.

Option period: Once think you’re ready to buy a house, you might want some extra time to make a final decision—a.k.a. An option period. Buyers can pay a small, non-refundable fee (often $500 or less depending on the house’s worth) to the seller to take the house of the market for ~7-14 days. The buyer can terminate the contract for any reason during this period without forfeiting their earnest deposit. Since the final inspection usually happens during the option period, it’s a low-risk investment for peace of mind as you enter the closing process.

P

PMI (private mortgage insurance): If your down payment is less than 20% of the total cost of the home, PMI will come into play. Essentially, you pay it in order to protect the lender from losing money in case you aren’t able to make your payments. Often, this additional fee can make it easier to obtain a loan, too.

Pocket listing: Rather than list their home publicly, some buyers will entrust their home to one real estate agent. This agent keeps the listing in their “pocket,” showing the home to only a select group of buyers in their network.

Pre-approved: If you anticipate needing loan (read: mortgage) to buy your home, you’ll want to confirm the bank will grant you that loan. You submit financial paperwork, and a loan officer will review it to confirm how much the bank will lend you before you need to take out the actual loan.

Pre-qualified: This is similar to pre-approval, but the figure the bank gives you is just an estimate based on an unverified account of your financial state—i.e. you don’t need to submit any paperwork. To ensure a seller will accept your offer, make sure to get pre-approved.

Q

R

Real estate agent: An agent, unlike a broker, works for an agency (usually owned and operated by a broker). An agent hasn’t gone through as much schooling as a broker. This doesn’t mean one is superior to the other, but worth knowing a broker’s done more schooling and can sign off on more things.

Real estate broker: This person is similar to an agent (he can do everything an agent can), but he’s passed a few more tests and has his broker’s license. This mean he can own his own and manage his own brokerage where other agents can work.

Realtor: A realtor is an agent or broker that is a member of the National Association of Realtors—meaning they are bound to the standards and practices of that organization (but they do they same thing as an agent).

S

Seller’s disclosure: The seller’s disclosure requires a seller to provide a detailed report of everything that could be wrong with a home (no flooded basements or leaky roofs!). You should receive this disclosure before the inspection takes place.

T

Term sheet: Before things get legally binding, a term sheet comes into play. A term sheet is a document that will give you a general idea for what to expect if you are going to move forward with the transaction.

U

Underwriter: The person who actually determines if you qualify for a loan. Basically, they look over all of your information to see if you have the means to pay the money back

V

W

X

Y

Z

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

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A step-by-step guide for going from dreaming of homeownership to making an offer.

It’s an understatement to say that there are a mountain of details involved in buying a house. If you’re feeling paralyzed by the thought of finding the money for a down payment or applying for a loan, you’re not alone. But it doesn’t have to be as daunting as you think.

Buying a home doesn’t take nerves of steel, it takes organization. Let’s turn your dream into a reality and take the process step by step.

Step 1: Tackle the down payment

For most of us, coming up with a huge sum of money is, well, a huge hurdle. Student loans and the all-too-common reality of living paycheck to paycheck can make down payment requirements of up to 20 percent feel unachievable. But stay with us!

There are different ways to get the amount,” Hunter Fendley, Bungalo’s Managing Broker explains. “If you qualify for an HFA Preferred mortgage, the down payment reduces to 3.5 percent. You can also have money gifted to you from a family member [in 2018, family members can gift up to $15,000 tax-free] or set aside a percentage of your paycheck every pay period for the time it will take to get the total.”

Another way to better understand what kind of home you can afford, is to plug some basic numbers into an online mortgage calculator, which will ask you about your income as well as your debts, and the costs associated with the home you’re interested in (like property taxes or homeowner’s insurance). Paired with the pre-qualification amount, it’s another tool to help you set your budget.

Step 2: Find a loan officer

A loan who? A loan officer works for the bank or lending institution and will help you apply for a mortgage. They’ll go over your credit and finances, as well as get you pre-qualified (an estimate of how much you can afford) or pre-approved (a tentative commitment from a lender based on an application) for a mortgage. Fendley suggests asking the real estate agent you are working with if they have officers whom they would recommend. Also, ask about loan officers at the bank where you have your personal account, since you already have a relationship with that institution.

Feeling nervous or unsure that you’ll qualify?

Some [loan officers] can work around credit issues or income ratios and get the job done,” he says.

Step 3: Get tough with your credit score

If you’ve never downloaded your credit report before, now’s the time. There are three major credit reporting agencies—Equifax, Experian or TransUnion (you are entitled to review your credit report from each of the three agencies once a year for free). Depending how your credit looks—you want your score to be at least 580—you may need to press pause on your plans for buying, and focus your efforts on straightening up your financial profile.

Deep breath! First make sure there aren’t any mistakes on your report that need to be fixed (like an incorrect late payment on a credit card, which can significantly impact your credit health). Then, if you are behind on any credit card balances, set yourself payment reminders to get on track. Also, apps like Mint or Acorn can help you set and stick to a budget if that’s something you struggle with.

If your credit problems are more complicated (think student loan default), go through a credit counseling service, which can help you resolve past issues and set you up for future success. These programs vary in cost and services, so it’s worth reviewing a few before making any decisions.

Unfortunately, a low credit score is a speed bump along the way to buying a home, but it’s not the end of the road. It just means being patient and motivated.

Be prepared to set aside six to eight months if you have a high balance or low credit score,” Fendley says.

Step 4: Envision your dream home

Set some guidelines for yourself and start a wishlist, determining details like the number of bedrooms and bathrooms, size of the outdoor space, ideal neighborhood and school district, plus any other feature—from a multi-car garage to a swimming pool. And then divide that list into two columns: must-haves and nice-to-haves (for example, minimum of two full-size baths might be a requirement, but a yard big enough for a vegetable garden might be negotiable). It’s a helpful list to share with your broker and to use as you begin to scour real estate listings.

Step 5: Start house hunting

Reviewing online listings is a good start, but it’s important to get out there and visit neighborhoods—it can be a lot of fun to go on tours with your agent or drop by open houses. You may find yourself considering areas you may not have thought of before, but that offer more space for your money. And don’t be shy about asking questions! It’s helpful to know how many times the house has been sold before, the condition of the bones of the house (think roof, septic, pipes, water heater, etc.), and what the neighbors are like—can you look forward to summer block parties?

Step 6: Make an offer

That feeling you get when you find the house of your dreams is equal parts exhilarating and terrifying—because making an offer is tricky, right? It doesn’t have to be. Remember, the sellers might have sentimental feelings about the home. A very low bid might be a nonstarter (and potentially insulting to the seller), so have in mind the most you are willing to pay for the house. Submit your offer in writing, and if it’s rejected, either move on or make another offer. If the offer is accepted, it’s cause for (cautious) celebration—you’re one step closer to owning your own home, but you still have a few more hurdles to clear!

Step 7: After your offer is accepted, sit tight

Sitting tight means be patient…and do not go shopping for big-ticket items that could impact your credit rating.

“Don’t buy a car, don’t open a new line of credit. Each time you do that, your credit gets pulled again and the mortgage lender will be notified,” says Fendley. “Many people go into contract and are so excited they head to a furniture store to decorate their new home—and take out a store credit card while there.”

There are a few more steps to take before you get the keys and moving into your new home—soon, we promise!

Read our Guide to Closing on Your Dream Home to finalize your checklist and minimize stress.

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This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.