There’s no 2-minute warning for rate shocks, even with Fed at the zero bound

The mortgage industry is notorious for its use of acronyms and even acronyms inside acronyms (TRID, anyone?). However, there is an acronym that is highly relevant to the current rate environment: ZIRP, which stands for “Zero Interest Rate Policy.” As its definition implies, this term describes the Federal Reserve’ s current policy of holding the Fed funds rate at near 0% for the foreseeable future due to the economic challenges presented by the COVID-19 pandemic.

It may be easy for some to assume a locked-down Fed Funds rate means mortgage rates will remain at the historically ultra-low levels the industry has seen throughout the pandemic. Not only does history tells us this is not the case, but the recent uptick in interest rates due to the rise in the Treasury yield and increased economic spending provides even more current proof that rate swings are possible, if not inevitable during ZIRP. As such, lenders and their capital markets executives must be prepared for interest rate swings in either direction despite the current ZIRP.

The last time the Fed instituted ZIRP was following the Global Financial Crisis, which lasted for a span of seven years, from December 2008 to December 2015. In December 2008, the average note rate for 30-year mortgages was 5.14%, when ZIRP ended in December 2015 the par note rate was 3.31%. However, that lengthy seven-year span was not a gentle expressway ramp; it was riddled with both bull and bear markets for mortgage rates despite the continued Fed pledge of “lower for longer.” Despite a Federal Open Markets Committee (FOMC) target on short-term rates of 0.00% – 0.25%, mortgage rates experienced several violent swings.

During what was known as the taper tantrum (remember hearing that talk again earlier this month?), the market was afraid the Fed was going to taper off its purchases of Treasuries and mortgage-backed securities so mortgage rates went up over 100 basis points over 3 short months. During another span of only 9 weeks prices on the lowest-coupon mortgage-backed security declined by a whopping 800 basis points, from 101 all the way down to a 93 handle. All of this activity occurred more than two years before the Fed actually instituted the very tiniest bit of liftoff in their Fed funds rate policy.

Looking at the current environment, the Fed has indicated that it will not raise the Fed funds rate until at least 2023. However, as the industry has observed before, this does not mean that mortgage rates are going to languish around the same range they’ve been in for the last 10 months. In fact, it would not be unusual to see changes of even an entire whole percentage point up, or down, for however long this current ZIRP is in place. In fact, Fannie Mae and Freddie Mac have both forecasted moderate increases in interest rates in 2021 in anticipation of this inevitability, though rates could certainly head in the opposite direction given the right market conditions.

In these past few months, I’ve heard people say things like “The market’s not going anywhere for a few years. The Fed said so, and it’s already priced in, right?” While that may be the case for the Interest on Excess Reserves and Fed Funds, which the Fed has pegged at near zero, there will not be an alarm that goes off letting lenders know to lock the doors. Just because the Fed is staying put doesn’t mean that mortgage rates, and prices of MBS, are staying put as well. As history has shown us, shocks can — and do — come when markets least expect them.

Source: nationalmortgagenews.com

APR vs. APY – Difference Between Annual Percentage Yield & Rate

What is the difference between APR and APY? Advertisements and contracts will rattle off one of the two, among a number of other acronyms, leading many to misunderstand or simply gloss right over them. The difference between APR and APY is one of the basic considerations that you need to know for handling your own finances.

Both APR and APY are pieces of information that help you understand an interest rate. APR is used primarily as a borrower’s side to understand the real cost of a debt, while APY is used on the investor side to view the yield of an investment.

Annual Percentage Rate (APR): Interest Rate & Charges

Annual percentage rates (APRs) help you understand a loan’s interest rate charge combined with all other expenses that may be part of your loan. It is a measure of the costs of your loan. APR is communicated as an annual percentage of the loan’s principal, or as a percentage of how much you borrowed.

APR is calculated as the loan’s fees and interest divided by the principal, then divided by the number of days in the loan term. Finally, this number is multiplied by 365 and then multiplied by 100 to give you the final annualized rate expressed as a percentage.

For example, if you have a loan with an APR of 10% and a principal of $1000, you’ll pay $100 in interest per year. If you pay $200 per year in payments, you’ll then only be paying $100 toward the principal while the other $100 is paying for the interest.

APR has a serious limitation in that it does not show the effect of compounding. If you try to use the APR to calculate how to pay off your credit card debts, your calculations will likely be off because the high interest rates will quickly grow the principal while you’re trying to pay it down. APR does, however, give you a realistic way to compare the costs or rates offered by various lenders.

Annual Percentage Yield (APY): Compounding Yields

By contrast, annual percentage yields (APYs) show the actual yield of an investment. The mathematical formula behind APY has compounding interest built into it. Compounding interest computes interest on the outstanding principal and on any interest not paid in the previous compounding period, generating “interest on interest.”

The formula for calculating APY is 1 plus the annual interest rate divided by the number of times that it is compounded per year. Then this total is raised to the power of the number of compounding periods per year — for example, if there are 12 compounding periods, raise the figure to the 12th power. Finally, subtract 1 from the result to get the yield expressed as an annual percentage.

If you use the APR and APY formulae on the same instance, they will give you slightly different rates unless the interest rates are compounded annually for the first year. If it is compounded over multiple years, APY will end up being larger than APR. In turn, the more frequently the interest is compounded, the more the APY rate will grow relative to the APR.

This is because the APR is, functionally, showing you the periodic rate, which may or may not be the same as the annual interest rate. The periodic rate is the annual rate of interest divided by the number of periods. So if your annual interest rate is 12%, the monthly interest rate is 1%. Whether that 1% interest each month is compounding upon itself throughout the year — or not — changes the effective annual rate shown by the APY formula.

In general, many financial products are better understood over a long term using the effective APY rather than the APR. This is especially important when borrowing money because APR and APY can result in very different effective rates, which can obscure what you’re actually paying in interest.

The Big Picture of APR and APY

APR and APY each have their uses. APR gives you a good idea what your monthly payments will be, helping you to understand what the impact of a loan will be on your cash flow. APY, by contrast, helps you understand the longer-term yields on your investments or total costs of your debts, better allowing you to understand these things at a strategic level.

Broadly speaking, APR works well as a tactical view, while APY gives you that higher-level view.

What to Watch For

Comparing APY with APR will leave you with a false comparison. When shopping for the best rates, make sure to compare apples to apples.

Financial institutions — whether they are local credit unions or companies selling complex financial products — tend to include these two rates along with other terms like “current rates” and “effective rates” to make comparing unlike products more difficult. This is a common sales tactic aimed at hindering your understanding of how quickly interest accrues in your favour or how fast debt or costs will compound against you.

Banks and credit card companies often use APR to advertise debt and loan options in order to obfuscate the realities of compounding interest rates on your balance. By contrast, nearly every savings or investment option will advertise its APY to reinforce the importance of the interest or returns compounding for you.

Final Word

APR and APY are both effective ways of portraying interest rates and can be effective tools in understanding the financial products you use. Be aware that those who are seeking to sell you something may try to use one or the other of these figures to give you a good story, and not necessarily paint the most accurate picture of how your costs or interest will grow over the long term.

Like everything else in life, these are tools that can be used effectively if you use them intelligently.

Source: moneycrashers.com

How to Make a Career Change After Years at the Same Job

Editor’s note: This story was originally published in December 2018.

After 10 years in human resources at a nonprofit, Laura Niebauer Palmer figured she wouldn’t have any problem finding a new HR job when she and her husband moved from Chicago to Austin, Texas.

Then she started reading the job postings — which asked for advanced training and experience with programs she didn’t use — and realized her old skills weren’t marketable for a new position.

“My heart sank,” Palmer said. “I was like, “What am I going to do? How am I going to bridge this gap?’”

So how is it that 10 years of experience could become a detriment rather than a strength for a job candidate?

Many longtime workers are falling behind on the skills required in rapidly changing industries, according to Alvin Nesbot, the New York City market manager for Manpower.

“People who are just joining the job market — maybe within the past three to five years or so — are making moves a lot faster than people who have been working for 10-plus years,” Nesbot said. “There are those people who have worked a lot longer who have stayed in a lull and gotten stagnant.”

And it’s not just another co-worker who’ll offer the skills you’re lacking — at least, not a human one. It’s estimated that half of the work activities companies pay people to do could be automated by 2055, according to a study by the McKinsey Global Institute.

Read on for strategies for making a change after years in the same role.

How to Make a Career Change

If you’re a bit unsure about what’s happening outside your cubicle walls, here are five strategies for avoiding — or escaping — a dead-end job.

1. Network for a Job

Leaving your comfort zone to network may seem intimidating, but it’s a great way to find out what is going on in your industry. It’s part of the reason it’s so important to maintain networking relationships even after you have found a job.

Being around your peers is not only helpful for finding contacts for the next job but also for discovering what credentials and terminology are becoming more prominent within your field.

Pro Tip

If in-person networking isn’t an option, consider setting up or attending Zoom events — just remember to keep your camera turned on and stay engaged in the conversation.

“You have like-minded people to bounce ideas off,” Palmer said. “Also, it’s very eye-opening when you’re around a bunch of people and they’re having conversations about topics you don’t really know about or are using acronyms that you’re like, ‘Wait, what does that mean?’”

And if the thought of a networking event makes you break out in hives, try one-on-one networking with former colleagues, Palmer suggested.

“What I would have done differently is definitely caught up with people who had left the company,” she said. She added that by asking about the transition to new roles, you’ll get a better idea of what technology and skills are in demand outside your office.

2. Update Your Resume

If your resume touts WordPerfect expertise and includes your AOL address, it’s probably time for a resume makeover. (Also, stop wearing that sundress over a T-shirt.)

Reading your resume with a critical eye is essential for identifying skills or programs that are no longer relevant for your position, according to Nesbot.

“What you were doing seven to 10 years ago is not going to be relevant or as important as what is going on today,” Nesbot said. “Are there things making [your resume] look dated?”

Starting over doesn’t mean you have to forget your past experiences. Instead, take some time to compile a comprehensive list of training and accomplishments, Nesbot suggested.

“Sometimes we don’t look at our resumes in a while, and we realize there are things we’ve been doing that we haven’t highlighted,” Nesbot said. “Include any certifications or training that you’ve done to help set you apart from any other candidate.”

Once you have your list, compare it to current job postings and craft your resume so it includes recent credentials and popular terms within your industry.

“Make sure you have buzz words that are going to stand out to whoever is reading your resume,” Nesbot said.

3. Find a Mentor

Once she got to Austin, Palmer ended up at a staffing agency looking for work. The agency placed her in a temporary three-month position to fill in for a woman on maternity leave.

Palmer used those months to take advantage of the in-house training department to connect with someone who could provide long-term career advice.

“The biggest part that helped me develop was the mentorship that I had with my boss,” she said. “I learned so much from her; my confidence rose 100%.

“You can’t replicate that with a course.”

At the end of her temporary gig, the company offered Palmer a full-time position in the HR department.

4. Volunteer for Experience

Rather than repeating past mistakes, Palmer said, she took the opportunity at her new job to question what she really wanted in the next five or 10 years — and it turns out, it wasn’t HR.

After spending some time figuring out what she really wanted to do, Palmer decided  to work for free in exchange for the experience she was lacking rather than pour money into additional education.

“I volunteered at two organizations, and one of them specifically was something that I wouldn’t have been able to land a job at because I had no experience,” Palmer said.

Because she was volunteering her time, Palmer said the organization was more willing to invest in training her for the position.

Thanks to that experience, Palmer was able to snag a part-time job at a small company. That allowed her to spend time with her young son and to write articles sharing her expertise — including some for The Penny Hoarder.

5. Apply for Jobs Before You Need One

Even if you’re happy in your job right now, it doesn’t hurt to start investigating what’s out there.

After all, the best way to discover if you’re growing or stagnating in your career is to find out if someone will hire you — and there’s always a chance you’ll find your dream job in the process, Palmer said.

Pro Tip

You can pursue professional development on your own if you’re seeking a new career. Here are five online certifications that can help you sharpen those all-so-important soft skills.

“Look at the jobs right now and actually apply to them and go through interviewing,” Palmer said. “I don’t think there’s anything wrong with that to see where your skills are — if they’re lining up with what is currently needed in the market.

“But you also might land a job that you didn’t even know you wanted.”

Why You’re Not Job Hunting — But Should Be

Reevaluating your skills every few years takes some work, but the rewards are a more fulfilling career with greater chances for growth. Admittedly, that can be hard to do when you’re happy — or at least satisfied — with your current position.

Your salary and benefits might tempt you to stay put, but you’ll suffer in the long run if you’re too scared to change, according to Palmer. Part of the reason she stayed at her first job for so long was the generous paid time off and health care coverage.

“It’s hard because you’re trying to balance furthering yourself but also realizing if you further yourself, you’re taking a risk,” Palmer said. “ But if you’re looking to grow in your career… you need to challenge yourself.”

Tiffany Wendeln Connors is a staff writer/editor with The Penny Hoarder. She likes all kinds of change, but pennies are her favorite.



Source: thepennyhoarder.com

Say What? Home-Buying Lingo You Should Know

Need a crash course on real estate terms? This glossary will get you started.

DTI, PMI, LTV … TBH, it can be hard to keep all this stuff straight. This lexicon of real estate terms and acronyms will help you speak the language like a pro.

Appraisal management company (AMC): An institution operated independently of a lender that, once notified by a lender, orders a home appraisal.

Appraisal: An informed, impartial and well-documented opinion of the value of a home, prepared by a licensed and certified appraiser and based on data about comparable homes in the area, as well as the appraiser’s own walkthrough.

Approved for short sale: A term that indicates that a homeowner’s bank has approved a reduced listing price on a home, and the home is ready for resale.

American Society of Home Inspectors (ASHI): A not-for-profit professional association that sets and promotes standards for property inspections and provides educational opportunities to its members. (i.e., Look for this accreditation or something similar when shopping for a home inspector.)

Attorney state: A state in which a real estate attorney is responsible for closing.

Back-end ratio: One of two debt-to-income ratios that a lender analyzes to determine a borrower’s eligibility for a home loan. The ratio compares the borrower’s monthly debt payments (proposed housing expenses, plus student loan, car payment, credit card debt, maintenance or child support and installment loans) to gross income.

Buyers market: Market conditions that exist when homes for sale outnumber buyers. Homes sit on the market a long time, and prices drop.

Cancellation of escrow: A situation in which a buyer backs out of a home purchase.

Capacity: The amount of money a home buyer can afford to borrow.

Cash-value policy: A homeowners insurance policy that pays the replacement cost of a home, minus depreciation, should damage occur.

Closing: A one- to two-hour meeting during which ownership of a home is transferred from seller to buyer. A closing is usually attended by the buyer, the seller, both real estate agents and the lender.

Closing costs: Fees associated with the purchase of a home that are due at the end of the sales transaction. Fees may include the appraisal, the home inspection, a title search, a pest inspection and more. Buyers should budget for an amount that is 1% to 3% of the home’s purchase price.

Closing disclosure (CD): A five-page document sent to the buyer three days before closing. This document spells out all the terms of the loan: the amount, the interest rate, the monthly payment, mortgage insurance, the monthly escrow amount and all closing costs.

Closing escrow: The final and official transfer of property from seller to buyer and delivery of appropriate paperwork to each party. Closing of escrow is the responsibility of the escrow agent.

Comparative market analysis (CMA): An in-depth analysis, prepared by a real estate agent, that determines the estimated value of a home based on recently sold homes of similar condition, size, features and age that are located in the same area.

Compliance agreement: A document signed by the buyer at closing, in which they agree to cooperate if the lender needs to fix any mistakes in the loan documents.

Comps: Or comparable sales, are homes in a given area that have sold within the past six months that a real estate agent uses to determine a home’s value.

Condo insurance: Homeowners insurance that covers personal property and the interior of a condo unit should damage occur.

Contingencies: Conditions written into a home purchase contract that protect the buyer should issues arise with financing, the home inspection, etc.

Conventional 97: A home loan that requires a down payment equivalent to 3% of the home’s purchase price. Private mortgage insurance, which is required, can be canceled when the owner reaches 80% equity.

Conventional loan: A home loan not guaranteed by a government agency, such as the FHA or the VA.

Days on market (DOM): The number of days a property listing is considered active.

Depository institutions: Banks, savings and loans, and credit unions. These institutions underwrite as well as set home loan pricing in-house.

Down payment: A certain portion of the home’s purchase price that a buyer must pay. A minimum requirement is often dictated by the loan type.

Debt-to-income ratio (DTI): A ratio that compares a home buyer’s expenses to gross income.

Earnest money: A security deposit made by the buyer to assure the seller of his or her intent to purchase.

Equity: A percentage of the home’s value owned by the homeowner.

Escrow account: An account required by a lender and funded by a buyer’s mortgage payment to pay the buyer’s homeowners insurance and property taxes.

Escrow agent: A neutral third-party officer who holds all paperwork and funding in trust until all parties in the transaction fulfill their obligations as part of the transfer of property ownership.

Escrow state: A state in which an escrow agent is responsible for closing.

Fannie Mae: A government-sponsored enterprise chartered in 1938 to help ensure a reliable and affordable supply of mortgage funds throughout the country.

Federal Reserve: The central bank of the United States, established in 1913 to provide the nation with a safer, more flexible and more stable monetary and financial system.

Federal Housing Administration (FHA): A government agency created by the National Housing Act of 1934 that insures loans made by private lenders.

FHA 203(k): A rehabilitation loan backed by the federal government that permits home buyers to finance money into a mortgage to repair, improve or upgrade a home.

Foreclosure: A property repossessed by a bank when the owner fails to make mortgage payments.

Freddie Mac: A government agency chartered by Congress in 1970 to provide a constant source of mortgage funding for the nation’s housing markets.

Funding fee: A fee that protects the lender from loss and also funds the loan program itself. Examples include the VA funding fee and the FHA funding fee.

Gentrification: The process of rehabilitation and renewal that occurs in an urban area as the demographic changes. Rents and property values increase, culture changes and lower-income residents are often displaced.

Guaranteed replacement coverage: Homeowners insurance that covers what it would cost to replace property based on today’s prices, not original purchase price, should damage occur.

Homeowners association (HOA): The governing body of a housing development, condo or townhome complex that sets rules and regulations and charges dues and special assessments used to maintain common areas and cover unexpected expenses respectively.

Home equity line of credit (HELOC): A revolving line of credit with an adjustable interest rate. Like a credit card, this line of credit has a limit. There is a specified time during which money can be drawn. Payment in full is due at the end of the draw period.

Home equity loan: A lump-sum loan that allows the homeowner to use the equity in their home as collateral. The loan places a lien against the property and reduces home equity.

Home inspection: A nondestructive visual look at the systems in a building. Inspection occurs when the home is under contract or in escrow.

Homeowners insurance: A policy that protects the structure of the home, its contents, injury to others and living expenses should damage occur.

Housing ratio: One of two debt-to-income ratios that a lender analyzes to determine a borrower’s eligibility for a home loan. The ratio compares total housing cost (principal, homeowners insurance, taxes and private mortgage insurance) to gross income.

In escrow: A period of time (30 days or longer) after a buyer has made an offer on a home and a seller has accepted. During this time, the home is inspected and appraised, and the title searched for liens, etc.

Jumbo loan: A loan amount that exceeds the Fannie Mae/Freddie Mac limit, which is generally $425,100 in most parts of the U.S.

Listing price: The price of a home, as set by the seller.

Loan estimate: A three-page document sent to an applicant three days after they apply for a home loan. The document includes loan terms, monthly payment and closing costs.

Loan-to-value ratio (LTV): The amount of the loan divided by the price of the house. Lenders reward lower LTV ratios.

Market value coverage: Homeowners insurance that covers the amount the home would go for on the market, not the cost to repair, should damage occur.

Mechanic’s lien: A hold against a property, filed in the county recorder’s office by someone who’s done work on a home and not been paid. If the homeowner refuses to pay, the lien allows a foreclosure action.

Mortgage broker: A licensed professional who works on behalf of the buyer to secure financing through a bank or other lending institution.

Mortgage companies: Lenders who underwrite loans in-house and fund loans from a line of credit before selling them off to a loan buyer.

Mortgage interest deduction: Mortgage interest paid in a year subtracted from annual gross salary.

Mortgage interest rate: The price of borrowing money. The base rate is set by the Federal Reserve and then customized per borrower, based on credit score, down payment, property type and points the buyer pays to lower the rate.

Multiple listing service (MLS): A database where real estate agents list properties for sale.

Origination fee: A fee, charged by a broker or lender, to initiate and complete the home loan application process.

Piggyback loan: A combination of loans bundled to avoid private mortgage Insurance. One loan covers 80% of the home’s value, another loan covers 10% to 15% of the home’s value, and the buyer contributes the remainder.

Principal, interest, property taxes and homeowners insurance (PITI): The components of a monthly mortgage payment.

Private mortgage insurance (PMI): A fee charged to borrowers who make a down payment that is less than 20% of the home’s value. The fee, 0.3% to 1.5% of the yearly loan amount, can be canceled in certain circumstances when the borrower reaches 20% equity.

Points: Prepaid interest owed at closing, with one point representing 1% of the loan. Paying points, which are tax deductible, will lower the monthly mortgage payment.

Pre-approval: A thorough assessment of a borrower’s income, assets and other data to determine a loan amount they would qualify for. A real estate agent will request a pre-approval or pre-qualification letter before showing a buyer a home.

Pre-qualification: A basic assessment of income, assets and credit score to determine what, if any, loan programs a borrower might qualify for. A real estate agent will request a pre-approval or pre-qualification letter before showing a buyer a home.

Property tax exemption: A reduction in taxes based on specific criteria, such as installation of a renewable energy system or rehabilitation of a historic home.

Round table closing: All parties (the buyer, the seller, the real estate agents and maybe the lender) meet at a specified time to sign paperwork, pay fees and finalize the transfer of homeownership.

Sellers market: Market conditions that exist when buyers outnumber homes for sale. Bidding wars are common.

Short sale: The sale of a home by an owner who owes more on the home than it’s worth (i.e., “underwater” or “upside down”). The owner’s bank must approve a lower listing price before the home can be sold.

Special assessment: A fee charged by a condo complex HOA when cash on reserve is not enough to cover unexpected expenses.

Tax lien: The government’s legal claim against property when the homeowner neglects or fails to pay a tax debt.

Third-party review required: Verbiage included in a home listing to indicate that the lender has not yet approved the home for short sale. The seller must submit the buyer’s offer to the lender for approval.

Title insurance: Insurance that protects the buyer and lender should an individual or entity step forward with a claim that was attached to the property before the seller transferred legal ownership of the property or “title” to the buyer.

Transfer stamps: The form in which transfer taxes are paid by the home buyer. Stamps can also serve as proof of transfer tax payment.

Transfer taxes: Fees imposed by the state, county or municipality on transfer of title.

Under contract: A period of time (30 days or longer) after a buyer has made an offer on a home and a seller has accepted. During this time, the home is inspected and appraised, and the title is searched for liens, etc.

Underwater or upside down: A situation in which a homeowner owes more for a property than it’s worth.

Underwriting: A process a lender follows to assess a home loan applicant’s income, assets and credit, and the risk involved in offering the applicant a mortgage.

VA home loan: A home loan partially guaranteed by the United States Department of Veteran Affairs and offered by private lenders, such as banks and mortgage companies.

VantageScore: A credit scoring model lenders use to make lending decisions. A borrower’s score is based on bill-paying habits, debt balances, age, variety of credit accounts and number of inquiries on credit reports.

Walkthrough: A buyer’s final inspection of a home before closing.

Water certificate: A document that certifies that a water account has been paid in full. The seller must produce this certificate at closing.

Related:

Source: zillow.com

Acronyms of Real Estate: What Homebuyers Need to Know

Real estate is a regular smorgasbord of acronyms – everything from APR to REO. Here’s a list of the ones you’re likely to run into and what they mean when you’re buying or selling a house:

Acronyms You’ll Hear Associated with Real Estate Professionals

Real estate agents, builders and most other realty-related professions have numerous professional designations, all designed to set them apart from those who haven’t taken advanced courses in their fields. These designations don’t mean that professionals without letters after their names are not as experienced or skilled, but rather only that they haven’t taken the time to further their educations.

Read: How to Build Your Real Estate Team

Let’s start with the letter “R,” which stands for Realtor. A Realtor is a member of the National Association of Realtors, the nation’s largest trade group. NAR says it speaks for homeowners, and it usually does. But in that rare occasion when the interests of its members and owners don’t align, it sides with those who pay their dues.

Read: A Timeline of the History of Real Estate

NAR embraces a strict code of ethics. There are about 2 million active and licensed real estate agents nationwide, and 1.34 million can call themselves Realtors.

NAR members sometimes have the letters GRI or CRS after their names. The Graduate, REALTOR® Institute (GRI) designation signifies the successful completion of 90 hours of classroom instruction beyond the continuing education courses required by many states for agents to maintain their licenses. After the GRI, an agent may become a Certified Residential Specialist (CRS) by advancing his or her education even further.

black family touring a house to buy racial homeownership gap discriminationblack family touring a house to buy racial homeownership gap discrimination

Builders can obtain the GBI – Graduate Builder Institute – designation by completing nine one-day classes sponsored by the educational arm of the National Association of Home Builders. Those who pass more advanced courses become Graduate Master Builders, or GMBs. Remodeling specialists with at least five years of experience can be Certified Graduate Remodelers, or CGRs. And, salespeople can be CSPs, or Certified New Home Sales Professionals.

In the mortgage profession, the Mortgage Bankers Association awards the Certified Mortgage Banker (CMB) and Accredited Residential Originator (ARO) designations, but only after completing a training program that may take up to five years to finish. To start the process, CMB and ARO candidates must have at least three years’ experience and be recommended by a senior officer in their companies.

Acronyms Associated with Mortgage Lending

When obtaining a mortgage, you will be quoted an interest rate; however, perhaps the more important rate is the annual percentage rate, or APR, which is the total cost of the loan per year over the loan’s term. It measures the interest rate plus other fees and charges.

An FRM is a fixed-rate mortgage, the terms of which never change. Conversely, an Adjustable Rate Mortgage (ARM) allows rates to increase or decrease at certain intervals over the life of the loan, depending on rates at the time of the adjustment.

Female client consulting with a agent in the officeFemale client consulting with a agent in the office

A conventional loan is one with an amount at or less than the conforming loan limit set by federal regulators on Fannie Mae and Freddie Mac, the two major suppliers of funds for home loans. These two quasi-government outfits replenish the coffers of main street lenders by buying their loans and packing them into securities for sale to investors worldwide.

Other key agencies you should be familiar with are the FHA and the VA. The Federal Housing Administration (FHA) insures mortgages up to an amount which changes annually, as does the conforming loan ceiling. The Veterans Administration (VA) guarantees loans made to veterans and active duty servicemen and women.

LTV stands for loan-to-value. This important ratio measures what your are borrowing against the value of the home. Some lenders want as much as 20% down, meaning the LTV would be 80%. But in many cases, the LTV can be as great as 97%.

Private mortgage insurance (PMI), is a fee you’ll have to pay if you make less than a 20% down payment. PMI covers the lender should you default, but you have to pay the freight. Fortunately, you can cancel coverage once your LTV dips below 80%.

Your monthly payment likely will include more than just principal and interest. Many lenders also want borrowers to include one-twelfth of their property tax and insurance bills every month, as well. That way, lenders will have enough money on hand to pay these annual bills when they come due. Thus, the acronym PITI (principle, interest, taxes, and insurance).

Real-estate owned (REO) properties are foreclosed upon by lenders when borrowers fail to make their payments. When you buy a foreclosure, you buy REO. Short sales are not REO because, while they are in danger of being repossessed, they are still owned by the borrower.

houses real estate market selling buyinghouses real estate market selling buying

Acronyms You’ll Hear During an Appraisal

There is no acronym for an appraisal, which is an opinion of value prepared by a certified or licensed appraiser (though sometimes other types of valuation methods are used in the buying and selling process).

A Certified Market Analysis (CMA) is prepared by a real estate agent or broker to help determine a home’s listing price. A Broker Price Opinion (BPO) is a more advanced estimate of the probable future selling price of a property, and an automated valuation model (AVM) is a software program that provides valuations based on mathematical modeling.

AVMs are currently used by some lenders and investors to confirm an appraiser’s valuation, but they are becoming increasingly popular as replacements of appraisals, especially in lower price ranges.

Other Terms to Know

If you hear the term MLS, you should know it stands for multiple listing service. An MLS is a database that allows real estate brokers to share data on properties for sale, making the buying and selling process more efficient. There are many benefits to both homebuyers and sellers utilizing an MLS, for more information on how to get your home available through an MLS, work with a real estate professional when selling.

Read: What Buyers and Sellers Need to Know About Multiple Listing Services

Did you know? Homes.com has some serious MLS partnerships, no joke! When you start your home search on Homes.com, you’ll see accurate property information quickly so you’ll never have to wonder if a home is actually available.

House tourHouse tour

However, not all properties for sale are listed on the MLS. A home may be a for-sale-by-owner (FSBO), if the owner is selling his or her property without an agent and bypassing an MLS listing. In addition, some agents fail to enter their listings in the MLS for days or weeks at a time in hopes of selling to a list of preferred clients.

Read: Advantages of Buying With or Without an Agent

Finally, you may find yourself buying into a homeowners association (HOA) when you purchase a house or condominium apartment. HOAs are legal governing bodies that establish requirements everyone must adhere to in order to keep the community it oversees running smoothly and ensure property values are maintained.


Lew Sichelman

See more posts by this author

Syndicated newspaper columnist, Lew Sichelman has been covering the housing market and all it entails for more than 50 years. He is an award-winning journalist who worked at two major Washington, D.C. newspapers and is a past president of the National Association of Real Estate Editors.

Source: homes.com