Podcast

Ep 105 – First Time Home Buyers Terms and Definitions from A-Z – “G & H”

HBH 105 | Home Buyer Terms

HBH 105 | Home Buyer Terms

Deciphering all the terms and vocabulary used in the home buying process can be daunting, so this episode breaks down things you need to know that start with the letter G & H. Are you a first-time home buyer that’s afraid to make tough decisions? Tune in as we dive deep into each of these terms so you can have background information on what you need to consider during the process when making the decision.

First Time Home Buyers Terms and Definitions from A-Z – “G & H”

Defining Everything You Need To Know To Buy Your First Home

“Ugh.” That’s the sound you make when you find out the home you love already has eight offers submitted on it. It’s also the sound of this episode’s letter for the terms and definition series. Let’s keep learning with “Ugh.” It’s a sound but it’s also representing the letters G and H. Let’s go.

What is up with my How to Buy Homies? How are you doing? Welcome to our new readers who either love or despised that I’ve given my new readers that nickname. I’ll return the favor to you. I’m going to tell you my nickname so you can mock me if you like. It’s Sid from Sidoni. That’s what they called me in high school. I was a buck-25 baby-faced and everybody called me Sid like I was an 84-year-old accountant that had one suit that he wore every day and always wore a hat. “I don’t want to hear it,” says the bad guy from Toy Story. You don’t think I’ve already dealt with that my whole life? I love that series.

If you’re new, you’re probably wondering when I’m going to talk about housing. You’ll get used to it. This is the way things work on the show. Tons of information jam-packed with a whole bunch of dumb dad jokes. You’re curious since you’re here and you clicked on such an exciting and provocative title, Real Estate Terms and Definitions. You are either a total glutton for punishment or ready to buy a house so you might as well subscribe.

General Contractor

Hit that subscribes button because this is the seventh installment of our letter fun for first-time home buyers. Know it’s going to be a whole lot more episodes. It’s 2 for 1 special in this episode, which are G and H. Let’s start with G. Number one with G is a General contractor. When you start to do repairs on a home, it’s important that you know the difference between what they call a GC, that’s General Contractor and a specialized vendor.

GC is the person who’s going to oversee overall home improvements or construction projects. They are going to handle various aspects. A lot of times, they’re going to be handling scheduling these specialists and ordering supplies. Sometimes helping you with figuring out exactly what remodel are you going to do. These guys are usually used when you’re doing larger projects.

If you’re moving into a place but you just need something specific fixed and not necessarily remodeling or redoing the entire home, maybe you’re just doing some repairing or replacing in one specific area, then you’re probably not looking for a GC. You’re probably looking for more of a licensed individual vendor like an electrician, a plumber or a roofer. I’d get a roofer if you’re going to do the roof.

Gift Letter

Our next G is a Gift letter. This is going to sound weird but that’s an actual real estate term, which I learned very quickly when I started working with first-time home buyers way back in 2006. If you’re lucky enough to have a family member that’s going to be gifting you some money to help you make your home purchase and you have that situation happening in your life, go back and read the Thanksgiving episode for tips on how to ask/beg your family.

I even give you a whole bunch of terms that you can tell them that their head will explode and you understand what you’re talking about. Here’s the thing about a gift letter. Believe it or not, if you’ve got money that’s deposited into your bank account, everything needs to be sourced if it’s not coming from your income. Lenders are going to scrutinize every deposit that you make, not just when you’re getting into the transaction of buying a house but before that, they asked for the last two years’ bank statements. You can’t just make a giant or unusual deposit that doesn’t line up with your regular salary.

The bank's giving you all this money on the pretense that you can repay the loan based on your income and salary. Click To Tweet

It sounds weird but think about it this way. The bank is giving you all of this money on the pretense that you have the ability to repay the loan based on your income and salary. If you suddenly have a new fatty deposit in your account to help you qualify for the loan, if it’s helping you make your down payment or qualify to show that you can do this, the lender needs to be sure that this was given you free and clear by a family member and not something that you acquired from Johnny Knuckles down the street, the loan shark.

There is a very specific protocol in exactly how this letter has to be written and when in the buying process you have to submit it. You can’t just have your mom or dad or your cool Aunt Carol deposit the money directly in your account. You have to have a copy of the check and the deposit. I’ve had deals get super messy because someone got their parents’ check and deposited it. They asked the buyer for a copy of the check. The first thing they said was, “I’d never seen any check until my parents gave it to me.” Second of all, “I don’t have a copy of it.”

Make sure you talk to your lender before you do anything with depositing any money when you’re getting ready to buy a house. Talk to them about all of it. You’ve got to talk to them about your deposits and purchases. Don’t buy a washer and dryer until you’ve signed the loan documents. It can mess things up. Don’t pay off your debt unless you’ve talked to them about which debt to pay off and how to do it. This is a huge tip all coming from that favorite G-word, Gift letter. It’s true. I’ve seen deals go bad because someone moved some money or they accepted money without checking with their lender first.

I’ve got to go back because I was about to keep going and my video producer stopped me and said, “How does a washer and dryer purchase screw up a deal? et me explain it real quick. What happens is when you’re getting ready to buy a house, the lenders are going to be looking at everything and mainly a lot of times, people are stretching as much as they can because they want to get the right house, the dream house, the most house they can get?

When you’re stretching, a lot of times, the money you have in the bank is an important variable to how much loan they’re going to give you. Sometimes you have to have something called reserves. That’s maybe 3 months reserves or 6 months reserves. Also, they’re going to be looking directly at your debt-to-income ratio. If you go to buy a washer and dryer and open a Sears card or a Home Depot card, that’s new debt and it changes your debt-to-income ratio.

You either reduce your reserves with a purchase or you increase and change your debt-to-income ratio. Suddenly, your loan might not be approved anymore. If you look at the TikTok for realtors, which if you do, please grab yourself a life for God’s sakes. I can look at that but you will see lots of times there’s a realtor and they pick some sad song. It’s saying, “Getting ready to sign loan documents with your buyer.” They pull up in a brand new car. That can destroy deals. It happens.

Good Faith Estimate

Next up is Good Faith Estimate. This is a great form that is very helpful for you. It’s required by what we call RESPA. That is the Real Estate Settlement Procedures Act. This Good Faith Estimate, also known as the GFE, is going to disclose the amount or the range of amount for all your charges and specific settlement services to the borrower, which is what the banks call you. I call you a buyer. They call you a borrower.

HBH 105 | Home Buyer Terms
Home Buyer Terms: Everything needs to be sourced if you’ve got money deposited into your bank account. If it’s not coming from your income, lenders are going to scrutinize every deposit you make, not just when you’re getting into the transaction of buying a house.

It tells you the settlement services that you’re likely to incur in connection with the mortgage transaction. That’s the big fancy Google definition. In other words, it tells the borrower or the buyer the approximate cost that you’re going to have to pay at closing based on common local real estate practices and whatever you have figured out and negotiated in your deal. Under RESPA, your mortgage lender or mortgage broker has to deliver you the GFE, the Good Faith Estimate, within three days after accepting your loan mortgage application.

Before I go on, my wife wanted me to make sure that I clarify something with you. When I use the terms nerd, weird, crazy, spazz, freak or stuff like that, I use those words and terms too lightly. I was supposed to tell you that to me, these are terms of affection and endearment. I’m a self-proclaimed nerd, weirdo, total goofball and somewhat of a freak. I let my freak flag fly. I gave up on being cool a long time ago. Now I live in a confident world of just me. Everybody else just has to deal with it. I love it when I see other people do the same thing. When I use these terms and I call you a spreadsheet nerd, it’s done out of love. That’s out of the way. Everyone feels secure, loved, confident and appreciated.

To all you anal spreadsheet freaks out there, it’s a GFE, E as in Estimate. Why am I making such a big deal about this? It’s because I’ve seen it happen so many times. Get ready for nobody to be able to tell you anything exact throughout the entire transaction when you’re buying a house. Until the very last days when you’re signing the documents, everything is an estimate. Just to make you clench your butt cheeks a little bit more, until you locked your loan and interest rate in with your lender, interest rates change hourly. Everyone feeling comfortable, that’s your GFE.

Government National Mortgage Association

Next up is the Government National Mortgage Association. I’ve talked about Fannie Mae and Freddie Mac. This is another one called Ginnie Mae. Just so you know when you hear that term, that’s another government-owned corporation within the United States Department of Housing and Urban Development, HUD. What they do is they pool FHA-insured and VA-guaranteed loans to back securities for private investment. What does that mean? When you hear Ginnie Mae, know that they’re out there and helping funding that can be lent to eligible borrowers and that’s you, a buyer and a borrower.

Government Recording Changes

Our next G is Government recording charges. They are fees assessed by state and local government agencies for legally recording your deed. It’s one of those things you’re going to see on your GFE, closing statements and all that stuff. It’s a mortgage and all the documents related to the loan. You’re going to have to pay them as part of your closing costs.

Gross Income

Next up is a G-word, Gross income. That’s the income that you earn in a month before your taxes and other deductions. That can include your extra stuff beyond your income which could also include rental income, self-employed income, income from alimony, child support, public assistance, payments and retirement benefits. This gross income total is before any deductions, the regular deductions like 401(k) contributions, Medicare and Social Security contributions, before all those taxes get taken out.

The way that you calculate your gross income if you are a salaried person is to take your salary divided by twelve. If you’re an hourly person, the way that you’re going to calculate your GMI, that’s your Gross Monthly Income, is going to be by taking your hourly wages times 40 hours per week times 52 weeks a year and then dividing by 12.

Deals go bad because someone moved some money or accepted it without checking with their lender. Click To Tweet

Growing Equity Mortgage

Next up is a gem of a definition. It’s GEM, Growing Equity Mortgage. This is a fixed-rate mortgage where the monthly payments increase according to an agreed-upon schedule and the funds are applied to reduce the loan balance in the loan term. Most loans are going to allow you to pay down the principal on your own. If this is something that you’re interested in, check with your lender to see if you need to lock into a GEM or if you had the flexibility to pay your extra when you feel like it.

Hard Money Loans

We’re moving right along. That gives us time for a second letter, a bonus letter, H. It’s Hard money loan. If you listen to other podcasts about buying homes or you watch other YouTube videos from all those entrepreneurs out there and they’re trying to help you build your wealth through real estate, I love it. God bless these hustlers and it’s true but a lot of you out there are trying to figure out how to buy a home and live in it. All the extra equity and financial security that you get is gravy.

You’re going to hear those people talk about hard money loans a lot. Here’s the definition and then I’ll get into how they work. It’s borrowing money from a regular person instead of a bank. That means the fees and rates are much higher. Hard money lenders finance the loans based on the property in question, not necessarily you and your application. It’s not your credit score or credit worthiness. Typically because of that, they’re going to require a larger down payment or sometimes shorter repayment schedule.

One translation of that is they hope that you take their loan and then you can’t pay it back because they get to foreclose and take the property. That’s why they don’t care about your credit score and take the larger down payment upfront. Be careful with these. I’ve seen a lot of home buyers out there and a lot of young people who think they listen to a few podcasts because there aren’t very many like this one out there.

They’re mostly trying to hook people and turn them into what I call wantrepreneurs. People who want to be an entrepreneur but they decide to do it with the biggest investment of their life that they have to live in. I get it. There are videos, YouTube and all kinds of stuff out there but you have to know what you’re doing. Before you start wrapping your primary residence into a plan using a hard money loan, realize that you’re buying with an investor’s financial plan. Investors, the way that they thrive and survive is they can take it or leave it. When it’s bad, they sell it and let it go.

It’s tough to do when you and your family live in that house. Can you use your home as part of an overall investment strategy? Yes, but I recommend that you know what you’re doing before you gamble on your shelter. Think of it as house money. If you do it all correctly, it’s going to build your wealth and it’ll be extra money for you when you get ready to retire.

Lock that in first with the best and cheapest loan you can. Don’t touch a hard money loan unless you are very sophisticated or partially sophisticated. Four YouTube videos and a bottle of wine do not mean you’re financially savvy. I tell people all the time, buy your home first, buy it safe and secure and then build your empire. You can buy a second home and still get a good rate. You can go beyond and buy other investments after that.

HBH 105 | Home Buyer Terms
Home Buyer Terms: When you’re getting ready to buy a house, the lenders will be looking at everything.

 

Hazard Insurance

Our next H is Hazard insurance. This is insurance that compensates for physical damage to a property from mostly natural disasters like fire, wind and things like that. It’s there to cover your property for any loss or damage. Technically, it’s a subsection of homeowners insurance and not separate from homeowners insurance. Lenders will refer to this separately sometimes, which can get very confusing but if you’re buying a house, get used to it. Remember, hazard insurance is part of your homeowner’s insurance policy. It is not your entire homeowner’s insurance policy.

Home Equity Conversion

Our next H is Home Equity Conversion Mortgage. That’s a fancy name for a reverse mortgage. You have no idea what these are because they’re being sold on TV commercials and you don’t watch TV with commercials. You certainly don’t watch the shows that would put a commercial for a reverse mortgage. You’re not the target demographic for this. You probably wouldn’t even recognize the actor that is pitching these because he’s some old dude but people like me and older than me, we all know who it is.

To your knowledge, a Home Equity Conversion Mortgage is a type of mortgage developed and insured by the FHA that enables older homeowners to convert the equity they have in their home into cash. You can have a different variety of payment options to address whatever your financial needs are. They’re being sold by Tom Selleck, who your parents and grandparents know as Magnum PI. You might know how I also got to know him as Monica’s older boyfriend, the dude with a mustache that made Chandler feel like a woozy man. That’s the guy selling reverse mortgages.

Next up is HELOC. I talk about HELOCs all the time. It’s Home Equity Line of Credit. This is a big one and you should know about it. When used correctly, it can be a way to safely tap into your equity. Equity is the extra money that you get when you own a home. If the home goes up in value, you take what you owe on your loan. You take what the home is worth and that number in between there is your equity. This is a way for you to tap into your equity without having to sell your home. It’s a way you can use what is technical if you look at it in one way like a profit on the house. People use them all the time for remodeling and upgrading. In that way, you don’t have to sell your house or move. You can make your house bigger.

Some people use it for college or other large expenses. Some people use it for emergencies. Used correctly, this is a huge advantage to being a homeowner. Why did I emphasize correctly so much is because if used incorrectly like if you’re going to buy vacations or Sea-Doos can cause you to be what we call upside down on your home. Some of you might know about that term because maybe you’ve leased a car and found out you’re upside down, which means that you owe more than that asset is worth.

There is a difference between a home equity loan and a home equity line of credit. A home equity line of credit is a line of credit that allows you to borrow against your home equity. Equity is what your property is currently worth minus the amount of the mortgage you owe on the property. Here’s the thing. A HELOC is a revolving loan. If you’re going to buy a home, you should understand the difference between a revolving loan and an installment loan.

A HELOC enables a homeowner to obtain multiple advances on the home equity of the loan at his or her discretion. It’s going to be up to an amount that represents a specified percentage of your equity in the property. The bank set that percentage. Let me explain to you real quick. I’ll do it on a $100,000 because that’s easy. Your home’s worth $100,000 and you owe $70,000. Let’s say you put 30% down and you just bought it yesterday.

You can buy a second home and still get a really good rate. And then you can go beyond that and buy other investments. Click To Tweet

The lender’s loan percentage that will give you a home equity line of credit is up to 80% of the value of the home. We know the home is worth $100,000. You’ve only got $70,000 of a loan so you’ve got 10%. The way it works is you go out and get an appraisal on the property. If it appraises for the $100,000, you’ve got 10% or $10,000 in this scenario that you can borrow from the bank and pay back monthly.

HELOCs can be fixed or adjustable. Adjustable are the ones that fluctuate based on the key index term. That’s a whole big fat banking thing. It’s going to be adjustable on the terms, the interest rates and the payments. You usually borrow a pre-arranged amount from your lender and then you pay it back in those monthly installments. Unlike a home equity loan, which is different than the HELOC, they will have adjustable rates. You’re going to receive special checks or sometimes a credit card that you can borrow from. You have a specific time from when you open your account. That period is known as the draw period.

During the draw period, you can borrow money and make those minimum payments. When the draw period ends, you’re no longer able to borrow money from that line of credit. Here’s a side note on that. If the market goes down and the economy takes a crap, be prepared for the banks to arbitrarily cancel all the draw periods and the home equity line of credit. You’ve got that line of credit sitting there. That’s the way a line of credit works. When you need it, you get it but they can say, “We’re not doing that anymore,” and cut it off before you go and get the money out.

That’s the way that the home equity line of credit works. It’s a great thing to have. It’s a wonderful piece of investment there but if you don’t want to pay for it every month and you don’t take it out, there’s a chance it could go away. Savvy investors are going to use their HELOC. When they get to the peak of the housing market and the economy when the banks are feeling good, they’re going to ask for the maximum home equity line of credit again and pull it out.

This only makes sense to do that if you were confident that you can cover a payment, the interest on that payment and make a profit with whatever you’re doing with that money even if the economy goes into a downturn. It’s a gamble. It’s investing on spec instead of investing with the actual cash in hand. Getting back to how regular and safe people will use it. After the draw period ends, you might be required to pay off your balance all at once or repay over a certain period.

If you can’t pay back the HELOC, it’s like your first loan on the property. They can take the house from you. HELOCs are just a second loan. That’s often called a second. A lot of times, they’re used in conjunction with a refinance. If mortgage rates get lower and you’ve got some equity in the home, you could refinance. If the math is right, what’s crazy is sometimes you can take money out of your equity to a lower interest rate and keep the same monthly payment because of that reduction in the interest rate.

There’s another thing to keep in mind with HELOCs. In the old days, they let you borrow on a home equity line of credit and mostly what you were using was the collateral on the home. It is not so much anymore. You have to apply like you’re upping your original loan to a higher payment. The way they’re looking at it is, “I’m not using the home as collateral against what we’re doing.” They’re saying, “Every month, you want to pay X amount plus this new minimum monthly payment on that second, that HELOC.” You have to requalify all over again.

HBH 105 | Home Buyer Terms
Home Buyer Terms: Sometimes, people stretch as much as they can because they want to get the right house they can get.

Sometimes it works out. That’s not a problem because maybe you own the home for a little while. Your income has increased and that fixed payment that you have is not so much a problem anymore but they’re not going to give you a loan based on how much a home is worth. The old collateral style of lending and borrowing against your home is gone. They’re in the business of lending you money, not selling your house. They don’t care that they could sell the home for more if you go into the fault. They want to be sure that you can afford the new payment on a home equity line of credit.

A final piece of this H is that other loan I was talking about, the Home equity loan. Not a line of credit, just a straight loan that allows you to borrow money using the equity. They’re not used that often anymore. You’re going to receive that money in a lump sum and it usually has a fixed interest rate, one that won’t change. If you qualify, most of the time when you go in, the lenders or the banks are going to be looking at using a HELOC as opposed to this home equity loan option.

Home Inspection

Next up is our Home inspection. Here’s the technical Google definition. An examination of the structure and mechanical systems to determine a home’s safety and condition. It makes the potential home buyer aware of any repairs that may be needed prior to purchasing the home. It helps you determine the home’s strengths and weaknesses. Here’s my definition. You’re going to freak out when you see your home inspection. Get ready for it.

Most home buyers freak out that’s because it’s the job of the home inspector to go and find everything that’s wrong with it so you don’t sue them later and say, “Why didn’t you tell me what’s wrong with the house?” That’s the big thing you need to know about home inspections. Be sure that you asked your unicorn realtor about what’s not on the inspection because the homeowner inspector’s job is to show you everything that’s wrong with it.

What’s not on the inspection can be just as important. The value of what’s not on there might be worth way more than the negative cosmetic little things that are pointed out there, especially depending on the area that you’re buying a home and the style of the home that you’re buying. It’s those big-ticket items that are in great shape like your roof, foundation and air conditioner. If any of that stuff is in great shape, it might not get notated that big on the report or if it has small little repairs, great. I’ll do a $50 repair on a system that’s worth $10,000. That’s still got twenty years’ worth of life left in it.

The home inspection should include an evaluation of everything in the home. You got the structural and mechanical systems, the heating, cooling, plumbing, wiring, electrical, ventilation, appliances, roof, foundation and structural stability. They will do a little bit of the pest infestation but in areas where there’s lots of wood, you want to have a termite inspection also.

Keep in mind that a home inspection in the general term is just that. General is an operative word. If you want to know exactly what’s going on with things beyond a general inspection like the pool, the roof, the foundation, the plumbing or the sewer lines, you’re going to need to hire multiple different inspectors and specialists to assess those areas for you. That can get very costly and time-consuming, especially if you’re under a time crunch when you’ve got your contingencies, conditions, due diligence and option periods. It’s super easy for me to say.

There is a difference between a home equity loan and a home equity line of credit. A home equity line of credit is a line of credit that allows you to borrow against your home equity. Click To Tweet

Understand that they’re doing a general inspection and most of the time, you’re looking at that general inspection to see if you do indeed need to go and get further inspection by a specialist. I’m going to just do this general. We’re not going to talk about waving or not waving the inspection. That’s a discussion for you and your unicorn. “Go do it anyway.” Even if you just do an inspection and see what’s wrong with the house, at least, you know. Maybe the seller says, “I don’t care if you do the inspection. I’m not going to do any changes.” “I’m still doing the inspection.”

If you get the offer accepted, great. You want to do your inspection before your offer on your contract states that it’s going to be contingent upon the inspection results. Whatever that period is, get it done in that time. It’s up to you and your realtor to go over the inspection report based on the goals and the wants that you have already discussed in detail. You should know way before you look at the inspection what’s a make or break in your deal.

Determine if that home is the one that you want and then take an account all the negative things you found, as well as the positive features from the big-ticket items that weren’t necessarily listed or were listed in great or good working condition on the inspection report. Home inspection reports are all over the map but the one thing that I can bank on is that a home inspection is going to scare the poop out of you. It has for every first-time home buyer since that one cave dude had his buddy come over and look at his new dwelling but here’s the thing to keep in mind. Every year, two million new Homo sapiens buy their first home and most of them live happily ever after.

Home Warranty

Another H is the Home warranty. This is the great thing about going alphabetically. I cannot believe that the home warranty comes right after the home inspection because they go together so well. Here’s what you need to know about your home warranty. Most of the time in the normal market in many states, you as the buyer in a standard transaction usually get a one-year home warranty. It’s usually purchased by the seller. It costs about $500 or $1,000.

What it does is it gives you a warranty. When you need something repaired, there’s a small deductible for any claims. Let’s say you and your inspector discovered that shiny new-looking dishwasher that’s polished up pretty and on its last leg. What if you go and negotiate that during the contract and the owner says, “Too bad. There are 75 offers and I pick you. You should be sending me donuts for picking you to be the person to buy my home?” Welcome to buying a house in 2022.

You try to figure it out. It works but the inspector said it’s pretty broken. Buy the house. Don’t think of it as a new $800 replacement. Think of it as, “I’ve got a year to save up $800 to buy a dishwasher and if it breaks, $75, I get a brand new one from my home warranty.” The warranty coverage extends over a specific period. Most of the time, it’s a year. It’s not going to cover the home structure. That’s what your homeowner’s insurance is for but a warranty offers all that protection for things like dishwashers, lots of mechanical systems and attached appliances.

It’s not necessarily everything in the house. It’s like a car warranty. You got to make sure you know exactly what it covers but it can help you out a lot. Trust me, if you want to know about home warranties, do me a favor and do not Google it. I put this in another episode where someone asked me about home warranties. If you go online and look at home warranties, you’re going to find nothing but typewriter trolls.

HBH 105 | Home Buyer Terms
Home Buyer Terms: Before you start wrapping your primary residence into a plan using a hard money loan, realize that you’re now buying with an investor’s financial plan, and investors, the way that they thrive and survive, can take it or leave it.

Let me tell you things about a home warranty. It’s great. It can help you out. It doesn’t protect you from everything. You’re buying a used home. They’re old and things break. The people online who are complaining about this are the idiots who bought a $600 policy to cover an entire 2,000-square-foot home. They thought that that meant that a month after they move in, they could replace the 50-year-old roof with a $30,000 roof for a $75,000 deductible. That’s not the way it works.

Speaking of internet haters, you’re going to hear lots of web hate spewed at Homeowners Associations, HOA. That’s our next H. I don’t know if the Gen Z and Millennials hear about HOAs but when you get to be my age, people whining about HOAs is like people whining about their taxes. There are a lot of people complaining online. If you ask them online or in person, they love to corner you at a party and talk to you about it. They’re going to have nothing good to say about the HOAs.

Some of that reputation is earned but on the other hand, if you live in an inexpensive area, sometimes financially, you’re going to need to look at homes with an HOA. If you’re interested in buying a condo, a co-op, a home in a planned subdivision or another organized community that has shared services, you’re usually going to have to pay HOA dues. These dues fund that nonprofit corporation or the association that manages the common areas and services that happened also within the common area, planned unit development or a condo project.

The HOA dues can like vary wildly. A lot of people are going to say, “I pay way too much for my HOA dues.” I understand that. They’re usually paid separately from your monthly mortgage amount and that’s what catches people by surprise. You go online and use the mortgage calculator. First of all, most of the time, you’re getting P&I when you use a mortgage calculator online unless you use a good one that does PITI. There’s a more letter to that. If you’re buying a condo and you have an HOA, you have to calculate PITIHOA.

When you calculate that all in, here’s the way it works. You’re going to agree to abide by the HOAs rules and pay that monthly extra fee every month. What does everyone whine about online? Usually, it’s the rules. Let me real quick give you some of the pros of an HOA. You don’t need a big homeowner’s insurance policy. That’s the big one.

Usually, HOA dues are going to cover the big-ticket items that you would pay for separately on a home without HOAs. That’s the second I and PITI. Instead of paying PITIHOA, you are paying PITHOA. It’s your roof, foundation, exterior and any plumbing or electrical attached to another unit. If the walls are connected and it affects both people, all that stuff is covered so you don’t pay the I. It’s no longer PITI. You’re just a PIT.

The dues also cover the upkeep of the common grounds, the neighborhood grounds and all the external lighting. Sometimes it gets cool with holiday decorations that cover your entire area. Most of the time, it’s going to cover at least some section of your trash removal. Although it could be different everywhere, I don’t know. If you’re lucky, you’re going to get a place that’s got playgrounds, a clubhouse, a gym, a pool and a spa. Some of them even have hiking trails, depending on your complex amenities. That could be something that comes with your homeowner’s dues.

Equity is the extra money that you get when you own a home. Click To Tweet

The cons of an HOA. Here’s the big one. Everyone thinks that the big con of an HOA is that you need the community’s permission to do alterations to your home and that’s true. You have your house. You don’t have to ask anyone’s permission but there are a couple of things that I want to make very clear. If you own a home without an HOA, it doesn’t mean that you can do a crazy movie set facade out front because you still have zoning laws. Is it because you paint your house bright purple? Probably if you don’t have an HOA. Will your neighbors egg on you three times a week?

Yeah, that’ll probably happen too but the deal is there are still rules and laws in every city but if you own a home with an HOA, most of the time, there’s going to be three colors you can paint it and they’ll give you a pallet. That’s it. Here’s the real big problem with HOA that people haven’t had to work with one don’t know about.

Most HOAs are nonprofit organizations used to keep the homes in a specific style and upkeep that will benefit the homeowners. There are a lot of times management companies that make a profit that help the HOAs but the HOAs most of the time themselves are made up of a board of homeowners. Who would be on a homeowner association board? I’ll tell you, it’s people with enough free time to meddle in everyone else’s business, people with an innate desire to get all up in your business or people with a strong Napoleon complex seeking any form of power in their sad and pathetic lives. That’s why you hear all the crap about HOAs and HOA boards.

In general, most first-time buyers after they have a good conversation with me or another unicorn, realize that an HOA is simply a function of being able to be a property owner in an area that maybe is out of their price range and an area that they might desire if they can’t afford a single-family home. It’s a necessary evil. You get to take the one I out of PITI.

Here’s what we make sure that everybody knows. All the homies understand this. If you’re comparing a no-HOA property versus an HOA property, you have to look at both monthly totals but you subtract $100 off of the HOA property because on the non-HOA property, you’re going to be paying at least $100 in your homeowner’s insurance.

When you see, “I’ve got a $300 HOA,” it’s okay but when you’re doing the math to decide, “This monthly payment with no HOA. This monthly payment with a $300 HOA,” you either have to add $100 to the one that has no HOA or subtract $100 from the HOA dues on the other one and realize, “That’s $200 more, not $300 more because if I bought that other house, I’d still have to get insurance anyway.” I hope that was clear as mud.

The next H is Homeowners insurance. Here’s the harsh Google definition. Homeowners insurance is an insurance policy that combines protection against damage to a dwelling and its contents with the protection against claims of negligence or inappropriate action that result in someone’s injury or property damage. Lenders require insurance coverage by the borrower or the buyer of at least the amount of the loan. A mellow way to explain what homeowners insurance is it’s a policy that protects you and the lender. Remember, they own the house until you pay it off.

HBH 105 | Home Buyer Terms
Home Buyer Terms: If the home goes up in value, you take what you owe on your loan and what the home is worth. That number in between there is your equity. This is a way for you to tap into your equity without having to sell your home.

It covers events that damage the structure of the house like fire, wind and storm. Sometimes they’ll cover floods or earthquakes. You never know. It depends on what area you’re in. If you live in Southern California, you can get earthquake as part of your homeowner’s insurance but it’s going to cost you a pretty penny.

It also covers the liability if there’s an injury to a visitor to your home or any damage to your property, such as your furniture or appliances. Most of the time that comes in the case of a burglary. When you have a mortgage, the lender wants to make sure that your property is protected by insurance. That’s why lenders generally require proof of homeowner’s insurance. Add it to your monthly expenses when you calculate. Also, at six months of it, prepaid your closing costs. That’s what it’s going to cost you.

Our next H is HUD. We did that in D because it’s the Department of Housing and Urban Development. Go to episode 97 under department. I’m going to do this one again because it’s important. I already defined it once but the HUD-1 one statement is known as the settlement statement. It itemizes all closing costs and has to be given to the borrower before the closing. You need to get a copy of your HUD statement or the settlement statement before you close and have time to review it. It’s going to list all the charges in the credits to the buyer and the seller in any real estate transaction. This is a silly one but I told you that I want to do this from A to Z. HVAC is a term that means Heating, Ventilation and Air-Conditioning.

We’re getting down towards the end here. This is a hybrid loan. That’s an adjustable-rate arm that offers a fixed rate for the initial period. Usually, about 3 to 10 years. How about 3 to 10 years. It’s going to adjust every six months, annually or another specified period for the remainder of the term. That’s a hybrid loan.

Before I get to my very last H-word, which is a very important one, I want to be sure that you know that there are lots more information out there, not just the letters G and H. It’s audio, video and even the written word. I’ve been advocating for first-time home buyers for years what we call evergreen information. I’ve been putting it out for a long time and it’s still valuable to you to date. It’s not just for the current stuff.

No matter when you’re reading this show in the future, if Instagram is still around, check out @DavidSidoni. YouTube I’m sure will still be there. That’s the How to Buy a Home podcast on YouTube. I’ve got episodes and videos back to 2011. There are lots of great stuff on there. Join me on TikTok for more current events. That’s where I do a lot of the current market updates.

Helplessness

I also was standing in a trashcan. That one’s getting lots of views. I can’t understand why. I love my homies out there and this homie revolution. This last H is a big one, Helplessness. This is the age that I want to abolish. I’ve enlisted a unicorn army to defend you and help you obliterate all your helpless feelings because there’s one thing I know from our many years of experience in doing this. You can do this.

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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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I hope you are getting your questions answered about this crazy process. I know there’s not a lot of clear information out there on the internet, so that’s why I started this podcast. To demystify the whole thing and get you first timers the help you deserve!  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, please subscribe.  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. Let’s change the way the real estate industry treats you first time buyers one buyer at a time – 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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