4 Terms Every Homebuyer Should Know
There’s no need to master every nuance of a real estate transaction, especially if you have a great agent in your corner. But it is a good idea to understand at least four terms that might come into play when buying a home.
2-1 Buydown
A 2-1 Buydown is an incentive or concession from the seller or builder that temporarily reduces the buyer’s mortgage rate. The mortgage rate is reduced by two percent the first year and one percent the second year, returning to the full fixed rate in year three.
Contingencies
These are clauses or safeguards in a purchase contract that protect the buyer in case issues arise with financing, the appraisal, home inspection, the sale of another home, homeowners insurance, or other factors. There are many types of contingencies. Ask your agent for details.
Days on market (DOM)
This metric tracks the number of days a property is on the market, calculated from the day it’s listed until the day the seller has a signed contract. DOM is sometimes expressed as a regional average: Low DOM suggests a seller’s market while high DOM suggests a buyer’s market.
Debt-to-income ratio (DTI)
DTI is a financial ratio that compares a homebuyer’s total monthly expenses to total monthly income, indicating creditworthiness for a loan. According to Investopedia, DTI of 43 percent is typically the highest ratio a borrower can have and still get qualified for a mortgage, but most lenders target DTI ratios no higher than 36 percent.