In another installment of homebuyer terms and definitions, David Sidoni breaks down the letter D’s of real estate. There are so many terms and subjects to address. Make sure you’re in the know by tuning in.
First Time Home Buyer Terms And Definitions from A-Z – “D”
Everything A First-Time Home Buyer Needs To Know, From A-Z
Buying your first home is overwhelming, scary, and downright intimidating, so let’s fix that. If you’re reading to this, it means you’re 3/26th of the way to being unconfused because we’ve defined the terms for A, B, and C. Now, we’re going to go to the Ds. Let’s dominate the definitions. Let’s go.
Days On Market (DOM)
What’s up? It’s learning time. I’m doing it with an alphabetical flair. Let’s get right to it. The people demanded. We’re going the Ds. First up, days on market. This is also known as DOM not to be confused with DM, although you can DM me at @DavidSidoni on Instagram and ask me your question. DOM is a term you’re going to read a lot when you’re getting ready to buy a house. It’s the number of days that a home has been listed for sale on the real estate broker’s Multiple Listing Service. It’s also known as the MLS.
People have been pre-listing their homes. This has changed the days on the market a little bit. They’re going to show the homes as coming soon. This makes sense and it’s good for you buyers because they appear on the internet, but maybe those homes aren’t available to see until a later date. This is important to you because it’s a crazy 2022 market. Bear in mind this fun fact that days on market might say four days, but that home may have never been shown before. Don’t freak out and think that you missed it.
If you’re reading this in the future, you’re going to think I’m nuts. Four days on the market and you missed it? Welcome to 2022. Take a look at those days on market. If they’re short, it might not have had a showing on it, but if you’re seeing them more than 1 or 2 days, contact your realtor immediately, and get out there and see that home as soon as you can.
If we’re doing this at another time, in a regular market, here’s the way it works. A low average DOM, also known as the days on market, indicates that it’s a strong market that favors the sellers. Conversely, a high average DOM signals that it’s a weak market for sellers, which favors new buyers out there. Don’t forget certain seasons and holidays are going to affect the DOMs. Not out here in Southern California because we don’t have snow, but places that have snow will change, especially at the end of the year. Those days on market times can lengthen a lot.
If you’ve got holidays, snow days, or things like that, make sure you take that into account because the numbers can significantly change based on the average market time. The biggest example of days on market is if in 2022 and you see days on market for 30 days, either that home is stupidly overpriced or it’s priced correctly, but it’s haunted, or they decided to use beanbag chairs for toilets. There’s something wrong with the home for 30 days in 2022
Our next D-word is debt. Everyone’s favorite word. Webster says, “Debt is money owed from one person or institution to another person or institution.” We’re going to talk about debt a lot when you’re getting ready to buy your home. You and your lenders are going to be going over that over and over again. You need to know that gross debt is not necessarily a killer to your chances of being able to get approved for a home loan.
[bctt tweet=”Depreciation is the decline of value. Not upkeeping your home can depreciate the value of your home.” via=”no”]
Don’t freak out if you have big giant debts. It’s all about monthly. The example I give to people all the time is that $100,000 student loan. That’s your gross debt, but it might only cost you $500 a month, especially if you’ve got an income-driven repayment plan, which a lot of you folks with student debts do. However, if you decide to spend your money and buy some sweet ride and let’s say you’ve got $5,000 left on your gross debt for your car, you’re thinking, “$100,000 student loan, that’s going to hit me way worse.” What if your monthly payment is $1,000 because you bought an expensive car and didn’t put a lot down and had a big payment?
That payment monthly is twice as much, even though you’ve only got $5,000 left on it, but the monthly payments are twice as much as your $100,000 student loan. That car payment costs you twice as much in your home loan approval as the $100,000 you owe on your student loan. It’s all about monthly. Forget the gross.
Next up is the debt ratio. This is the number one way that lenders measure your ability to manage your monthly payments. Why do they want to know you can manage your monthly payments? It’s because they want to make sure you can repay the loan. This helps the lender determine the affordability that you can get with a loan based on the loan programs that they have available, as well as it allows them to estimate how much you can afford to pay monthly for that mortgage.
Your debt to income ratio is all about your monthly recurring debt payments and that’s divided by your gross monthly income. That’s gross monthly income, as in before taxes. When you’re trying to figure out what your recurring payments are, add everything up. You’ve got your car payments, other installment debts, any alimony or child support if you’ve got that, and then your payments on your open-ended accounts, like your credit cards. You then plug in your new monthly housing expense because that’s going to be the next recurring payment that they need to factor in.
On an FHA loan, make sure you check with your unicorn lender on this, but in general, if you’re trying to get some numbers for FHA, normal accepted monthly payments should be no more than 29% of the monthly gross income. Your mortgage payment combined with that shouldn’t exceed 41% of your income. Although, some FHA programs can go all the way to 46%. Twenty-nine percent with everything else or all your debts, and then you add in your new payment, and that should go up to 41% to 44%, 45$, sometimes even 46%.
Now, if you’re looking at a conventional loan, the numbers are a little bit different. Lenders look for borrowers for their monthly payment on housing to be about 28% of the total monthly income. For the debts, they’re looking at like 36% of the income to go to the debt payments. You’ve got a little bit of a different leeway there when you’re going with a conventional loan.
If your percentage is on the higher side, then maybe you need to reduce some of your monthly debts or you could maybe pay one off that’s getting close to the end and eliminating it completely from your recurring debts. Maybe sell that car and get rid of that monthly payment. You then can buy a used one and have no monthly payment. That won’t affect your debt-to-income ratio because it doesn’t create a new payment that creates debt. A lot of first-timers have used this trick. In fact, I saw some girl on TikTok who sold Mercedes and bought a used Camry or something. She bought a car when she was 27. She was in a used car but in a new house.
What I like to say is, “Remember, if you need a car to attract people to come to your crib and then your crib is a crappy one-bedroom apartment, maybe you need to work on that.” First of all, maybe you need to work on your game if you need a car to get them to come to your apartment, but maybe instead of being so concerned about that sweet whip, how about you get them to see past your beater of a car and then you can close the deal when they find out that you’re a property owner. I’m saying it. Please don’t use this against me someday. I know this is going to come back to haunt me that I’m trying to give dating tips by being a homeowner.
The next one is a deed. That is the document that shows that the owner of a piece of real property, we call it real property, that’s a real estate term, that they have title to the property. That deed is the document that you use when you’re going to transfer ownership or title of the property, and it is the physical evidence that proves that you own the home. I don’t know, maybe you laminate it and wear it on your chain when you go to the club.
Since you listened to me and you sold your car, now you had to take an Uber to get there. You got that big deed around your neck. You look dope. You’ll receive your deed when you close on your loan. A side note, once a deed is filed and recorded by your local government, then that deed becomes a public record. You’re on the record. If you’re a private person, be aware of this when you’re getting ready to buy a home.
The next D is the deed-in-lieu or also sometimes called a deed-in-lieu of foreclosure. It’s not a term you want to know because the deed-in-lieu of foreclosure is an arrangement where you voluntarily turn over your homeownership right back to the lender so you can avoid the entire foreclosure process. It’s also known as a voluntary conveyance.
This is a public service announcement I got coming to you right now. I’ve been around a while. As I’ve told you many times, I’m old. I’ve been through this and I’ve seen it. I was through the worst gross foreclosure time ever. If you ever get in trouble or know anyone getting in trouble, do yourself a favor and call your realtor or your lender the minute you get a month behind, even after one 30 days late.
Deed In Lieu
I can’t tell how many times I’ve seen it backfire when people try to wait it out and figure it out. I’ve seen so many people lose their homes out of sheer embarrassment or shame because they waited too long to talk to their local pros or waited too long to get back in touch with their unicorn. Almost all of them had an opportunity, something that they could have done to avoid the short sale, the foreclosure, or the deed in lieu. It’s not always the only way out, but it will be your only way out if you wait too long to talk to somebody.
If you know anybody in trouble, at the first sign of trouble, call. I’m begging you this. I do this because I care about you guys. You don’t have to do anything when you call. You might find out that you have answers that come up later on. You’re not calling someone to say, “Come over and sell my home now.” You’re calling it answers because if you don’t call and you do nothing and hope it goes away, you might lose your home and pay dearly for that for years.
[bctt tweet=”The best thing you can do is spend your time and energy focusing on your individual budget and savings plan.” via=”no”]
Deed Of Trust
Our next D is the deed of trust. A deed of trust is a document showing that a borrower conveys title to real property to a third party known as a trustee to be held as a security for the lender, with the provision that the trustee will return the title once the debt is paid. That means your home has a note on it and you don’t own it. The bank does. That’s what a deed of trust is. Once you pay it off, then you get it.
In other words, when you buy a house, that trustee’s going to hold your deed of trust and the lender hangs onto that until you pay off the mortgage or if you default on the loan. If you default, then they’re going to sell it because that’s why it’s a deed of trust. It’s because you don’t own it until you pay it off. Default is a failure to fulfill a legal obligation. In housing, most of the time, that means the inability to pay your mortgage payments or to otherwise meet the terms of the mortgage. If the default is not corrected or fixed, the lender comes back and forecloses on the mortgage loan.
Our next D word is delinquency. These D words are depressing. This is ridiculous. How many crappy words can we do in a row? How about don’t do any of the freaking D words? You all know what delinquency is. It’s a failure to make a payment when a payment’s due. If the term for the condition of the loan when a scheduled payment hasn’t been received by that scheduled date, then that means you’re delinquent. Here’s the deal. Generally, you are going to get a grace period. They don’t like to tell you about this, but you get a fifteen-day late period for most loans before they’re going to even tack on a late fee. You get up to 30 days before they report it to the credit bureaus.
The next D-word is depreciation. Depreciation is the decline of value usually due to the changing market, but it also is due because sometimes your home can depreciate in a flat market, or maybe even an appreciating market if you let your home go to crap. Not upkeeping your home can depreciate the value of your home, so cut your dang lawn.
Our next D is called a demand feature. My D about this word is this D-word. Dude, talk to your unicorn lender if you see a demand feature. Dude is my D-word. If you’re reading your closing disclosure and it’s checked where it says, “Your loan has a demand feature,” you best know and understand that this permits the lender to require early repayment of the loan. Need I say more? Nobody wants to repay their loan early. You budget for a monthly payment, not, “We want $200,000.”
Department Of Housing And Urban Development
Our next D-word is the Department of Housing and Urban Development. In fact, they’re known as HUD most of the time. This should be an H-word because when you’re buying a house, everyone talks about HUD, but because it starts with the department, it’s here in the Ds. It’s a government entity and they’re responsible for the implementation and also the administration and watching over a lot of things in the housing and urban development programs. You’re going to hear about these HUD terms and requirements and things like that when you’re applying for a home loan.
The next D is discount points. If you’re going in order, I’m sure you heard all about this because I covered them in the B episode because it’s also very often known as buying down the points. The next D is a very important D-word. Down payment. What is a down payment? It’s simple. It’s a portion of the price of the home. Usually between 3% and 20%, not borrowed, but it’s paid upfront in cash.
Some loans, specifically the VA loans, can be as low as 0% down. As I’ve said before, the VA loans are super rad. If you served or you’re an active military person right now, I highly recommend you use a VA loan, but when it comes to the down payment, you don’t have to put zero down. You can put as much down as you want, but you can do a zero-down payment.
The math is pretty simple on this. Your down payment is also going to be the difference between the sale price of the home and the mortgage amount. Generally, the larger down payment you make, the lower the interest rate you’re going to receive, and the more likely you’re going to be approved for a loan. However, you do not need a 20% down payment to buy a home.
Down Payment Programs
In fact, first-time homebuyers averaged only 7% for their down payment. Since I’ve been doing this all the way back to 2005, many first-time homebuyers have used a 3.5% FHA down payment loan. We’re getting to something that people ask me about all the time. Down payment programs, grants, or assistance programs. Here’s the definition for them. A down payment grant or assistance program typically refers to assistance provided by an outside organization. Some of them are government, some are nonprofit agencies, and they assist the home buyer with a down payment.
Sometimes the funds can be provided as an outright grant. You get the money. Sometimes they’re going to require a different form of repayment at some point, such as when the home is sold or maybe later on in a different time period within your loan. The 2022 truth bomb about what we call DPA, Down Payment Assistance. You’re going to see a lot of this on TikTok, Instagram, and Facebook because people want you to click on them and buy a home from them.
I don’t care if you buy a home from me because you’re reading this and you’re probably in Minnesota, and I’m nowhere near that. I’m telling you this because I want you to learn and understand and know right now, in 2022, unless you’re reading this way in the future and you’re in your anti-gravity apartment, right now, in the present, it’s not a great time to use one of these programs.
They’re not viable. There’s too much competition. If you need one of these down payment assistance programs or grants to get your down payment, I honestly can tell you right now that I wouldn’t count on that. Making you viable to buy a home. You’re going to bump up against a bunch of other competition. You’re going to get dropped to the bottom of the pile.
The best thing you can do is spend your time and energy focusing on working on your individual budget and your savings plan. Don’t think that just because you need one of these to buy a house, you shouldn’t be doing anything. You should be doing lots. You should be planning. Who knows? The market might change and maybe they’ll come back.
[bctt tweet=”The due diligence period is when you do your inspection and appraisal and find out all about it. It’s your time to decide if you will move forward with the sale.” via=”no”]
The due on sale clause. This is mostly for sellers and it is how much you owe them to pay off the loan and you take it out from your profits when you sell your house. Due diligence is going to be used a lot in real estate. Generally, it’s a period of time that is afforded to you in the contract, also known as the purchase agreement. It’s for you to examine the property.
You’re not only going to look at the property. You’re also going to be reviewing all the full disclosures and getting all the facts about everything that you could know about the property. You want to get the conditions and the history of it, what anybody knows. It’s the period where you’re going to do your inspections and your appraisal and find out all of it. The reason you do that in this due diligence period is this is your time to decide if you’re going to move forward with the sale.
In some states, it’s called the conditions period. In other states, it’s the contingency period. We talked about that a lot in the C episode. That due diligence period is very important for you to know about because that’s going to be your time to find out if there are problems with the home and when you might negotiate or renegotiate with the seller to see if you’re going to move forward.
These D words are terribly depressing, but the good news is we’re not going to be having trouble with all these D words because you read this. You got all your information and you’re going to be all prepared. The P word is prepared. It’s way better than all these stupid D words. If you want more non-D word-related information on how to buy a home or figuring out where you start this entire process, which is what more people are asking me these days, you can check out all the other places where the How To Buy A Home stuff is happening.
If you’re on TikTok, follow me for bite-sized tips and drop me a comment. I got a couple of people in the comments that said, “I’m a homie.” That was dope. Keep it up. It’s at @HowToBuyAhome. I’m going to be getting big on TikTok because there are a whole lot of people out there that need the answers to these questions like you.
If you are getting sick and tired of it and you’re ever just laying in bed going through Instagram, jump over to @DavidSidoni on Instagram, and scroll through the videos. I’ve been putting stuff up on Instagram for years. You’ll find some stuff that’ll maybe be some refreshers for you. The big one is we are on YouTube. It’s the How to Buy Home Podcast on YouTube. Check us out on the tube. Watch, share, and send it to friends.
I am now at D, so ABCD. It’s 4/26th, which is what 2/13th of the way done with my letters. I’m grateful, as always, to all you readers out there. I hope you’re getting a lot of value from this crazy little show that is growing into the leading authority to help all of you folks who have questions. I know there are a lot of you. We’re almost up to 500,000 downloads.
It’s exciting and that sounds like a lot, but every year, 2 million first-time homebuyers buy homes. I’m happy to lead the charge and empower you to get your education, but share this with your friends. Let’s shed the light on more people. More people need to understand and not be scared, intimidated, and confused by this. Let’s demystify buying a home. I don’t care if you’re going to do it this month, next month, or next year. The whole point is here you are. You get it all from a to Z, even though what I go through is boring or incredibly depressing.
I feel like I’m talking to my daughter with how depressing the D words were. She’s lovely. She just likes to be dark. It’s a different thing. Share the show with your friends, and pull them out of the darkness. Wouldn’t it be cool if you could be the friend that opened the eyes of one of your friends with all this knowledge because you know this random dude who’s on the show can help you discover this incredible thing that you found out? You can do this.
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!