With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL
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During this week’s Real Estate Roundup, Steve spoke with Terry Story, a 31-year veteran at Keller Williams about some important and interesting terms in the real estate industry. These terms are often simplified into acronyms to make them easier to remember. Understanding what these terms mean is important for you if you’re buying or thinking about buying a home. They also briefly discussed some signs to look for to determine if the housing market is rebounding or not.
APR And FRM
APR stands for the annual percentage rate. It’s what you pay annually for borrowing money. This is based on the amount of the loan, the interest rate on the loan, and certain fees that are attached to the loan.
So, for example, if you go to buy a car and take out a loan with a loan rate of 3.5%, the APR might be 3.75%. The APR is different because it takes into account not only the interest rate you pay but also any annual fees that may be attached to the loan.
The same happens with a mortgage. You borrow a certain amount of money and have interest and fees attached to the loan. The APR tells you the amount, as a percentage of the loan, that you’ll actually be paying yearly. This is important to know because it helps you get a better sense of exactly what your expenditure is going to be.
FRM stands for fixed-mortgage rate. This term is pretty simple and is typically sought after by a lot of mortgage seekers because it means the interest rate attached to your loan doesn’t change. From one year or one payment period to the next, the rate stays the same.
DTI – Debt To Income
DTI refers to the debt to income ratio. This is a financial metric that reflects the percentage of your monthly income that goes toward paying your debts. If you’re buying a home, lenders prefer limiting a home loan to no more than about 36% of your income. There are variables when it comes to the true percentage that lenders will recommend that you spend. These variables include things such as other significant debts and your credit rating.
Why wouldn’t lenders want you to spend more? This is pretty simple: they don’t want you to go broke. This is bad for you and bad for them because it means you’re less likely to be able to pay off the entirety of the loan. If it’s a loan that requires collateral, they get something back, meaning they can foreclose on your home, but they may not get back the entirety of the money they lent you, and they have to go through the hassle of trying to then sell your home.
PMI – Private Mortgage Insurance
PMI stands for private mortgage insurance. Principal and interest are portions of your monthly mortgage payment that go toward paying off the money you borrowed in order to buy your home. If you put less than 20% down on a home, that’s really when you should get PMI. The lender needs to know that you have enough money to cover them and insure the loan.
Once you’ve started to pay down the full cost of the loan—when your loan to asset ratio is better—you can stop paying for PMI. But this isn’t a decision you get to make on your own. You have to bring this to the attention of the lender. They’ll more often than not send your information to an appraiser to determine the value of your assets and determine if your rate can be calculated differently.
But you have to be proactive. If you think you’re close to the 20% mark, check with your lender. It may even be worth talking to a realtor first. They can give you a good idea of the value of your home/assets and if the amount you’ve paid will qualify you for a better rate.
Signs Of A Rebounding Housing Market
Part of buying a home is knowing the terms. But part of it is also knowing whether the housing market is rebounding or not. One trend to look for is consecutive months of growth with existing home sales numbers. The market is cyclical and has a lot of ups and downs. You really want to watch for at least three months of home sales numbers increasing.
The next trend to watch for involves pending home sales. These are contracts that are in the works but haven’t been closed yet. What you want to look for there is a growing number of pending home sales in each of the four major regions of the country. Increasing numbers of pending sales means that there is potential for growth in the future, that inventory is growing, and it’s probably a good time to buy or think about buying.
The final thing to watch for is buyer traffic. Pay attention to the number of people realistically shopping for homes versus the same time during the previous year and for the first time in 12 to 13 months. If traffic is up, it’s a good sign that the housing market is rebounding.
All of these statistics can easily be Googled to help you get a good sense of where the housing market is and where it’s going. This is something you can do for yourself before you start shopping for a home.
If you’d like to learn more about buying or selling a home, check out Keller Williams!
Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent, Terry Story. Terry is a 31-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: Let’s have some fun here and let’s talk about acronyms.
Terry Story: Yay, my favorite, acronyms.
Steve Pomeranz: Acronyms.
Terry Story: Home-buying acronyms.
Steve Pomeranz: Okay, so obviously, we don’t have a feature for people to call in with their answers, but let’s see how many of you at home know these. So we’ll give a little bit of space. All right, who knows what APR stands for?
Steve Pomeranz: (Singing).
Terry Story: (Singing).
Terry Story: Should we give the definition?
Steve Pomeranz: Go ahead.
Terry Story: Annual cost of borrowing money based on the loan amount, interest rate, and certain other fees.
Steve Pomeranz: The APR stands for annual percentage rate.
Terry Story: Yay.
Steve Pomeranz: What is the APR? Well, it’s the annual cost of borrowing money based on the loan amount, interest rate, and certain fees. But let’s actually talk about that.
Terry Story: Sure.
Steve Pomeranz: Because when you go and you buy a-
Terry Story: Car.
Steve Pomeranz: A car, yeah. And it says, “The rate is X.” Let’s say it’s three-and-a-half, but the APR is three and three quarters. That’s taking into account not only the interest rate, but other fees.
Terry Story: Correct.
Steve Pomeranz: So that’s your total cost because the fees are going to make the yield higher because they’re subtracting from-
Terry Story: When you’re shopping a mortgage, you can ask to find out what the APR is-
Steve Pomeranz: Always.
Terry Story: So you can calculate one lender versus another.
Steve Pomeranz: That’s right. Good.
Terry Story: To know the real amount.
Steve Pomeranz: So that creates standardization and no fooling around.
Terry Story: That’s right.
Steve Pomeranz: APR. All right. What is the FRM? I did not know this. FRM.
Terry Story: Oh, my gosh. Oh, my gosh. That’s my brother’s initials. I’m not kidding. Wow.
Steve Pomeranz: How unexciting can that be?
Terry Story: That’s my brother, Frank.
Steve Pomeranz: Interest rate that does not change during the entire term of your loan. Of course, it’s a fixed-rate mortgage.
Terry Story: Fixed-rate mortgage. Yay.
Steve Pomeranz: Okay, fine. So what about a VRM? It’s not on here.
Terry Story: It’s got to be a variable.
Steve Pomeranz: Very good. Very good. All right. What is DTI? You know this because you’re-
Terry Story: I’m always wanting to know the DTI. So that is definition percentage of your monthly income that goes towards your monthly debt payments.
Steve Pomeranz: Percentage of your income.
Terry Story: It’s a percentage. So basically-
Steve Pomeranz: So it’s a ratio.
Terry Story: It’s a ratio.
Steve Pomeranz: So it’s debt to income ratio, DTI. Do you guys actually say that?
Terry Story: Yeah.
Steve Pomeranz: Okay.
Terry Story: So, for example, if you’re buying a home, the lenders don’t really like to lend more than … well, the standard answer is 36%. So they take into consideration what debt you have, your car payments, credit card debt, et cetera, and determine this DTI.
Steve Pomeranz: So it’s not the principal balance of the debt, it’s the payment payment.
Terry Story: The payment of the debt versus-
Steve Pomeranz: Relative to your income?
Terry Story: Correct. Your monthly income.
Steve Pomeranz: Right. So they don’t want you to pay more than 36% of your net income.
Terry Story: Right. It’s actually … it’s higher. They can stretch it, but there’s so many variables as to why and when and how they stretch it.
Steve Pomeranz: Because that squeezes you in other areas. So-
Terry Story: Right. And truly, as a consumer buying a home, you really don’t want to spend more than 36% of your income. That leaves you-
Steve Pomeranz: House poor.
Terry Story: House poor, exactly.
Steve Pomeranz: House poor.
Terry Story: And when the market was bad, the debt to income ratios that people … were over 50%.
Steve Pomeranz: Now, I’m a baby boomer. So when I was coming up in the 80s and so on, everybody was buying houses that were way too big for them, for their income and the idea was that they were going to grow into it, right? And some of them did, I suppose, but a lot of them ended up being house poor, which means they had these big houses, I guess McMansions-
Terry Story: Eating ramen noodles.
Steve Pomeranz: And eating ramen noodles. And they couldn’t go on a vacation and all of this. And they had very little furniture.
Terry Story: I know … yeah. I mean, we saw that, we saw a lot of that.
Steve Pomeranz: Terrible way to live. Terrible way to live. All right. PMI.
Terry Story: Okay. Yes. Principle and interest are the portions of your monthly mortgage payment that go towards paying off the money you borrowed to buy that house.
Steve Pomeranz: That’s not something that women go through on a monthly basis. Is that the PMI? No, okay.
Terry Story: Sometimes when you get that payment it could be.
Steve Pomeranz: So it’s private mortgage insurance. When do you need private mortgage insurance?
Terry Story: So basically, if you put less than 20% down is a rule of thumb, that’s when the PMI kicks in.
Steve Pomeranz: Okay. Yeah. And so, if you pay down-
Terry Story: That’s the insurance that I’m referring to.
Steve Pomeranz: That’s right.
Terry Story: Right.
Steve Pomeranz: Right. The lender wants to know that there’s enough money there to cover them, to insure the loan.
Terry Story: Right, so you’re paying for insurance to make sure [crosstalk 00:05:05]-
Steve Pomeranz: Now, once you’ve paid down enough where your loan to asset ratio is better than that-
Terry Story: Below that 20%.
Steve Pomeranz: Then can you stop paying it?
Terry Story: You sure can, but you can’t make that decision on your own. You have to bring it to the attention of the lender. They’ll most likely send an appraiser out to determine that the value is there and it may be calculated in a different way, depending on your lender. It may be …they may be able to trigger through their own resources that you’re at that 20%, but you as the consumer-
Steve Pomeranz: Yeah, but the key-
Terry Story: They’re not going … [crosstalk 00:05:35] I don’t think they’re going to come to you that often and tell you-
Steve Pomeranz: Yeah, probably not.
Terry Story: “Oh, by the way, you’re at that 20%.” You need to be proactive, so if you think you’re near that number, contact a realtor, have them give you an opinion first.
Steve Pomeranz: Well, it’s like buying car insurance. Geico is not going to call you and say, “Liberty Mutual has a better deal.” Okay. You’ve got to actually call Liberty Mutual, Allstate and all these others and then re-negotiate, reconsider.
Terry Story: Or your car is worthless and to carry collision insurance-
Steve Pomeranz: That’s right.
Terry Story: You’re carrying insurance on something that has no value and makes no sense.
Steve Pomeranz: Right, right. Same thing with the PMI.
Terry Story: Correct, same-
Steve Pomeranz: If you’ve been paying for a long time, “Hey take a look at this,” you may be able to sell it. Save a couple hundred dollars a month.
Terry Story: Absolutely. That’s a lot of money.
Steve Pomeranz: That’s very, very cool. That’s very good. All right, so we’ve done our work on acronyms. Let’s talk about three signs for the average person to tell whether the housing market is rebounding or not.
Terry Story: The rebound. Okay. So basically, what we’re looking at … the first number you look at is existing home sales. These are the closed sales. Are the number of closed sales month over month going up, or are they going down?
Steve Pomeranz: You can Google this stuff, by the way.
Terry Story: You can. And you look for trends. So it’s not, “Okay., this month it did this.” I would say it’s three months here. It says two consecutive months of growth.
Steve Pomeranz: Of growth, yeah. But three is better.
Terry Story: Three is better.
Steve Pomeranz: Yeah. So if you see existing home sales, those that have been closed and homes that have been existing going up, the number of closings going up two or three consecutive months, then you’re showing some good signs of growth.
Terry Story: That’s right.
Steve Pomeranz: All right. What about next one?
Terry Story: So the next item is pending home sales. These are contracts signed, these are contracts signed.
Steve Pomeranz: Pending.
Terry Story: They haven’t closed yet.
Steve Pomeranz: They’re pending.
Terry Story: They’re pending. So are they up for each of the four major regions of the country? Again, you can Google that to find that information out.
Steve Pomeranz: And the idea is, so that’s an indication of future-
Terry Story: Future-
Steve Pomeranz: Close sales?
Terry Story: Correct, future close sales. If they’re up, then they should-
Steve Pomeranz: If they’re up something’s going on, you’re seeing a trend?
Terry Story: Right.
Steve Pomeranz: What is the third one?
Terry Story: And then buyer traffic. That’s the number of people shopping for a home compared to the same time last year and for the first time in 13 months. So if the traffic is up, that’s also an indication that we’re in a rebound.
Steve Pomeranz: So are-
Terry Story: Unlike dating rebounds.
Steve Pomeranz: Yeah, that’s completely different.
Terry Story: Okay, just wanted to make sure.
Steve Pomeranz: Yeah, because then you have to wait two years before-
Terry Story: Right, there should be a two-year wait.
Steve Pomeranz: Yeah, before you sign a marriage contract or something. All right. I think we get the idea. So, these are things that you can do by yourself. You want to look at close sales, you want to look at pending sales, and you want to look at buyer traffic, and I guess you can Google all of these things. You can become your own little economist.
Terry Story: That’s right.
Steve Pomeranz: For your own little self. Right? Okay. My guest, as always is Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, and she can be found at terrystory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.
