It is amazing how communication and processes flow when you understand what is spoken about. Not knowing the terms when buying your first home could feel like being in a foreign country with a language you don’t understand. Continuing the series, this is the big finish to all the terms and definitions you need to know when buying your first home. In particular, David Sidoni dives deep into the words that start with “S.” Along with this conversation, David shares a big bonus right before the end. So tune in to find out!
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First Time Home Buyer Terms And Definitions From A-Z – “S” Part 2
Glossary Of All The Terms You Need As A First Time Home Buyer
Words are wonderful for communicating if you understand what those words mean. Buying your first home could feel like you don’t even speak the language. Maybe you did take two years in high school, and you’ve got some great phrases like, “Combien ça coute or dónde está la biblioteca,” but that is not going to help you discern if you need to ask your servicer to impound your PITI for deferred payments and calculating that into your monthly DTI. It’s like another language. It’s time for S words part two.
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What is happening, my homies? Thank you so much for being here. Knowledge is a basic comprehension, and then we can go from there. That means it’s time to get back to our terms and definitions. This is the letter S, part two. You know that one. It’s the S-word expletive that we all know three times in a row, and it usually progressively gets worse and worse with funnier failed photos. That’s all I can think of.
Speaking of expletives, I know that my show is non-explicit. I always want to be very respectful to everyone out there and all your sensitivities but for those of you who enjoy a little bit more of the salty and graphic descriptors, sometimes, when I get a little over the top because I’m trying to help you understand all the F***ing ridiculous B******* from the G******** real estate industry. We bleep those for you sensitive types but those of you who enjoy things on the edger side pretty much knew what I was saying. I’m telling you that you are going to get a kick out of this first word double entendre style.
Servicer
Our first S-word for part two is Servicer. That’s a real estate term. For you, the buyer of a home, this term usually comes into play in reference to your loan. The Google definition of this is a firm that performs servicing functions. That includes collecting your mortgage payments, paying your taxes and insurance, and generally managing what they call the borrower escrow account. I know they can get confusing, especially if you are in California because you go through escrow to buy a home but for everybody else, your lender will hold what’s called an escrow account when they are working with your impounds.
On very rare occasions, I have clients that insist on using the bank of their credit union to do a loan because they think, “I have a wonderful relationship with them. I want them to help me out with my loan the whole time that I own my house.” This can be a bad idea for several reasons. Number one, most of the time, the bank of their credit unions have salaried employees that have very little creativity and almost zero hustle when it comes to their customer service.
Most importantly, you also need to understand that these people usually have a very limited supply of loan products to offer you. When it comes to servicing your loan, this is what freaks out the 1 or 2 buyers over the years that have insisted that they have to use their credit union or bank because they have such a great relationship with them. More often than not, your loan will get sold, and suddenly, you are going to get a brand new statement from a brand new servicer.
The terms on your loan don’t change but the lender does have the right to sell your loan to a different servicer, and the next servicer has the right to do so too. Over my lifetime, my wife and I have had our loan sold dozens of times, and each time we got a brand new servicer. That’s very important information for you to know.
I know it can sound weird to you but the key is that it doesn’t affect you in the end. You pay the same thing, same time, and same terms but understand that if you are making a decision because you want to work with the bank or the credit union, you love. If you think you are going to be able to call those same people for the rest of your loan, that’s not the way home loans work. It will get passed off to another servicer the minute that you close.
Down the line, the institution that you got your home loan originally with is not likely to be the same people collecting your mortgage payments, administrating your escrow accounts, and keeping track of your principal and interest paid. Not doing all the administration, the delinquency management, and not the people that are going to handle your day-to-day activities on your loan. Feel free to always use a quality mortgage broker. That way, you can get the best rate in terms of the best product for you at the time of purchase. Don’t worry about who’s going to be handling your loan after it closes because it’s going to change.
Settlement
Our next S-word is Settlement, which is another word for closing. Closing on the home, filing with the county, transferring the possession, and assuming the biggest loan of your life. You break it. You bought it. You got it. Settlement is the official owning of the home and getting the keys. If you look it up on Google, it’s going to say this, “It’s the process of completing a loan transaction at which time the mortgage documents are signed and then recorded. Funds are dispersed, and the property of the transfer goes to the buyer.” I like my way better.
Shared Appreciation Mortgage
Next up is the Shared appreciation mortgage. This is something you are not going to hear about too often, and there’s a good reason why. Under a shared appreciation mortgage, you agree to give your lender a share of any increase in the value of your home. It’s usually done in private loan transactions. If you need to get this loan, I recommend that you take a year off, work on your budget and then buy the home with a standard loan instead of sharing your appreciation with somebody else.
[bctt tweet=”Take a year off work on your budget and buy the home with a standard loan instead of sharing your appreciation with somebody else.” via=”no”]
Short Sale
Our next S is a Short sale. This is something you may have heard about before. It hasn’t been talked about in a lot of years because we’ve had the magic of equity but a short sale is something that can happen to help people avoid foreclosure but they are incredibly complicated. Let me explain the basics to you. With a short sale, the property is being sold short or less than the debt secured on the property. That’s why it’s called a short sale. It’s short of the amount owed.
The layman’s term for that means that you are upside down, also what they call underwater. If you are upside down or underwater, and for whatever reason, you sell the home at that time, and your home is worth less than what you owe on your mortgage, then a short sale can be an alternative to foreclosure. This falls under the category of loss mitigation. In this case, because it is a sale, you are going to have to leave your home. Sometimes when it’s not a sale, you don’t have to leave but in this case, you got to go.
If your lender or servicer agrees to a short sale, you may be able to sell your home for less than you owe, and they might forgive you for the extra amount owed. Keep in mind that it will hit your credit pretty badly. Sometimes, you are going to get taxed for the amount that they forgave you just as though it was income that you took in that year. Most people are only going to look at short sales in case of an emergency, as a last resort or if all other mitigation possibilities don’t work out. Most of the time, you want to try to renegotiate your mortgage first but if you can’t, this is often your last step to avoid foreclosure.
Short sales are not easy in many aspects but one of the big ones is that the lenders have to approve the short sale, which means they have to go through all the numbers and figure out if it’s worth it for them to forgive you the money. Ironically enough, short sales take a long time. I had to explain that all in 2008, ‘09, ’10, and ’11. It was crazy.
Short sales are a big deal. You must talk to a tax pro, a real estate pro, and a lender pro. My biggest piece of advice is that the minute you start missing payments, call and do other loss mitigation so you don’t end up having to do a short sale. There are way too many pieces involved with it, and you are trying to stay above water financially, figuratively, and stressed figuratively. That’s what that means.
Single-Family Residence
Our next s is Single-family residents. This can be very confusing to people, and you are wondering why I am explaining it to you. It’s because it is often used as a legal term, a single-family property or single-family residence but it’s also used as a layman’s term and something that you might need to know when you are shopping. The reason I’m explaining single-family residence is that in most places, it’s going to be the difference between a condo, a townhome, and an SFR.
Site Built Housing
It doesn’t necessarily exactly mean this but in most places, your condos and townhomes are going to be attached in some capacity or another but your single-family residences and SFRs are going to be on their foundation and lot. This can change from county to county, so make sure you talk to your local unicorn to get all the definitions in your area. Our next S is Site-built housing. This is housing that’s built on a construction site. Many of these homes might be prefabricated offsite, and then the house is assembled onsite. If you are getting involved in that, make sure you know where your house is, where it’s coming from and where it has been built.
Soft Second Loan
The next S-word is Soft second loan. A second loan could be like a second mortgage or home equity line of credit. A second mortgage as a soft second loan is one whose payment is forgiven or deferred until the resale of the property. They are a cool thing. A lot of times, you can pick up a soft second loan that will be sometimes called a silent second. You can end up using that to help you get into the home, and it doesn’t get paid off until you sell.
Subject To Inspection
The next S-word begins with S but this is a phrase, Subject to inspection. This is a phrase that you and your unicorn realtor should know. Subject to inspection sounds like something you would hear a lot, and you are going to hear it a couple of different ways. It’s written in many contracts in the United States and Canada. Buyers in both those areas have a contracted right to a due diligence inspection period.
Sometimes you might need to use this phrase on subsequent paperwork if you are getting something repaired in the home. It’s going to be subject to inspection. That is normal but do you know the main reason why I’m explaining subject to inspection? It’s because there are people that sell their homes subject to inspection. You can’t get in the house. No open houses.
When you start home shopping, you might see some homes, especially duplexes, triplexes, and fourplexes, that say, “Submit offers subject to inspection.” Those of you out there that are trying to be home hackers look in duplexes, triplex or fabulous fourplexes. Most of the deals that you are going to be out there running and go looking at the house are not like HGTV. You don’t get to take your realtor and walk into the house. You don’t get to go to an open house. No looking inside before you write an offer. That’s because most of those types of homes that are great for house hacking already have tenants, and you have to write your offer subject to inspection.
House hackers, go ahead and put on your big kid panties. You get to know the game and learn the rules, so you can dominate, assuming you know what you are doing. Usually, this is going to happen with subject to inspection because the tenants don’t want to be bothered. The seller sells homes like this all the time, and all the investor buyers know that and understand it. They realize there’s going to be a renegotiation.
[bctt tweet=”You have to know the game and learn the rules, so you can dominate, assuming you know what you’re doing.” via=”no”]
This means that you are going to be up against a lot of those investors, so make sure your offer is tight. You got to make sure you’ve got all your proof of funds, verification of where your income is coming from, and loan all in place. You got to be ready. I understand that the idea of buying a home site unseen or buying blind, as they like to say, could seem super daunting and will freak you out but by deciding you want a house hack, you jumped into the investor pool. That’s the deep end. You best know how to swim.
There are some good things about it. One big good thing is that you are not going to be competing against all those other traditional buyers but on the flip side of that, the people you will be competing with means they are going to be savvy investors. By the way, I said on the flip side. It’s time for another very quick bonus. Why do we say that right in the middle of this definition?
If you don’t know, on the flip side was something that we say back in the day because back in the day, you would buy your favorite single song on vinyl but it was a 45 vinyl, not a 33. That’s the big ones. On the main side was the A-side. That’s where the single off the radio is and where you bought it. The B side had a deep cut. We used to always say, “Catch you on the flip side.” You got the A side but the B side is the cut. That’s also a bonus why we say that. That’s what a song on the B side means from a deep cut. It’s from vinyl. I thought I was going to explain to you what vinyl was but fortunately, all of you, hipsters, are cool again.
If you are going to house hack, make sure you understand the purchase contract. You are going to have an inspection period, so it’s not as terrifying as it sounds. You will always get that inspection period, and you can cancel at any time. The sellers are used to that. Cancel with no penalty because the seller is expecting renegotiation since that home was subject to inspection.
Subordinate Financing
Our next S is Subordinate financing. That is any mortgage or other lien with lower priority than the first mortgage. Your 2nd or 3rd home equity line of credit is all subordinates. Subprime mortgage. This was one that we discussed in detail in one of the other letters. I honestly can’t remember which letter it was because I am so old. We are at the end of the alphabet, and they are all mushing together. You should listen to all the letters anyway because you are not buying a cell phone. This is home. It’s a big deal. Learn those terms and definitions.
Survey
Our next S is Survey. This is a precise measurement of a property done by a licensed surveyor. It’s going to show the legal boundaries of a property, as well as the dimensions and locations of improvements. Most of the time, you are going to see these more in rural areas or places where you are trying to figure out exactly where your property line is.
Sometimes surveys can be important. They are not necessarily super cheap but if you’ve got to figure out all the legal boundaries, easement, encroachments or rights of way and you don’t understand what those terms are, then make sure that you do before you write an offer. If you feel like you don’t understand all those based on the title report and the plot map of the home, then you probably want to get a survey.
[bctt tweet=”Make sure you understand the terms before you write an offer.” via=”no”]
I’ve got one more S to go but before I get to that last S, I want to remind you that though I am in your eye holes and I personalize this show and make it feel like I’m talking to you, I am hoping to be speaking to lots of people because this is information that should be shared. The sole purpose of me putting this out there is so that as many people as possible can know that they can buy a home instead of being stuck renting. I would love it for everyone to know the best way for people to protect themselves. Please, share this show. Rate and review on Apple and Spotify.
Sweat Equity
If you help me out by doing that, getting this information shared will keep me going. Most importantly, that will protect others to help them thrive instead of just surviving. Go to HowToBuyAHome.com for more information and education and if you want to find yourself a unicorn. Let’s wrap it up. The last S is for you, handy, DIY people, and it is Sweat equity.
It’s a term you are going to hear a lot but what it means is that you are using your sweat, labor, and creativity to build or improve your property so that you will increase its value. You bought the home for one price and then put a little work into it. Your home is going to be worth more, which increases your equity. All those hours of dreaming and watching HGTV may pay off. There you go. You are officially twenty minutes smarter now, so go forth and conquer. You can do this.
Important Links
- Apple Podcasts – How to Buy a Home
- Spotify – How to Buy a Home
- HowToBuyAHome.com
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!
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