Are you buying your first condo unit? You might get confused with all the real estate terms you encounter from your agent. That’s not a good sign, especially if you’re making one of the biggest purchases of your life.
Before you respond to those “For Sale” signs, familiarize yourself first with the following terms commonly used when buying your first property.
Annual percentage rate (APR)
The APR is the interest rate that you pay every year. When choosing a lender for your home loan, you need to compare the different APRs to make sure that you’re paying the lowest interest rate every month.
Appreciation and Depreciation
Appreciation means an increase in the value or worth of your condominium unit, while depreciation is the exact opposite—a gradual loss of value.
Real estate properties like condominiums are one of the most stable investments you can have, as you rarely see any depreciation. Your condo’s value is dictated by several factors, such as supply and demand, inflation, and natural wear and tear.
Make sure that you invest in a property that has a high appreciation rate so that you can maximize your money.
Aside from the actual price of the unit, you also must pay for other transaction charges like the lender’s fee, transfer taxes, insurance premiums, appraisal fees, and deed filing fees. These are all called closing costs, as they’re paid at the close of the deal. Other terms used to denote them are settlement or miscellaneous costs.
Most of the time, closing costs are about 2-5% of your condo’s purchase price.
As a unit owner, you have access to your condominium’s common areas, which are facilities and spaces that each tenant shares. These facilities are collectively owned by unit owners and managed by the developer.
Examples of common areas in condominiums include lobbies, hallways, gyms, parking, pools, courtyards, and green spaces.
The contract is a binding document that shows the terms of the sale.
Once you have a contract, it means that you and the condo developer or seller have already agreed on a contract price and other terms of sale.
Debt-to-Income Ratio (DTI) and Loan-to-Value Ratio (LTV)
You’ll often hear these two terms used regarding the repayment of your home loan.
The DTI is the comparison of your monthly debt payments to your monthly income before taxes. It’s often used as a measure of your ability to pay the debt. Most lenders prefer it to be 36% maximum.
The LTV is the total amount of your mortgage compared to the appraised or projected value of your unit. For instance, if your down payment is lower than 20%, your LTV is above 80%, which means that you may have to pay a higher interest rate for your mortgage.
You’ll usually find online quizzes computing your DTI and LTV, as banks put these on their website to estimate how much they can loan to you.
Pre-Qualification and Pre-Approval
Often confused with each other, pre-qualification and pre-approval are two terms used in applying for a mortgage from a bank or lending facility.
Pre-qualification gives you a quick estimate of how much mortgage you’ll probably get approved for. It gives you a rough idea of your total loan amount.
You don’t need a lot of documents to get pre-qualified. All you need to do is give your lender a rough estimate of your income, assets, and debts, and he’ll pre-qualify you right on the spot.
But when it comes to pre-approval, you need to submit a lot of different documents to ensure your capacity to pay your mortgage. It entails a thorough investigation of your assets, debts, credit history, and rental history.
You can actually skip the pre-qualification process and go straight to pre-approval.
Certificate of Title (CT)
Once you fully own your property, you’ll get the Certificate of Title, which is a legal document that shows ownership of your real estate property. You have the rights to use the property as you deem fit.
It is called the Transfer Certificate of Title (TCT) if the property was sold to you by a previous owner.
However, you’ll encounter those terms when you buy a house and lot. If you’re buying a condominium unit, what you’ll get is a Condominium Certificate of Title (CCT), which is the CT/TCT’s counterpart.
Make sure that you have the title under your name once you’ve fully bought the unit.
Deed of Absolute Sale (DOAS)
Your condominium purchase won’t be complete without the DOAS.
The deed is a document that legally transfers the title or real estate property rights from one person to another.
If it’s an absolute sale, then that means there are no conditions attached to the sale except for the buyer’s payment of an agreed-upon amount of money for the property.
Fixed Rate Mortgage (FRM) and Adjustable Rate Mortgage (ARM)
When getting a home loan, you’ll be tasked to choose between FRM and ARM.
In an FRM, you have a set interest rate that doesn’t change for the entire loan duration. It makes budgeting easier because you have a fixed payment every month. It gives you a sense of security in cases of economic downturn, as your interest rate won’t be affected by these crises.
On the other hand, ARMs feature an interest rate that changes throughout the loan. Though cheaper than FRMs, ARMs carry a certain degree of uncertainty since there’s the possibility of an interest rate surge during economic crises. You may end up paying more in the long run.
Take note that many banks offer promo rates that marry the security of a lower rate on a fixed term. After that time lapses, the remaining amount is subject to re-computation based on the current interest rate. The terms can change depending on your bank. They might even extend the promo or offer you a better rate if you’ve been paying your mortgage dues in a timely manner.
When it comes to your home loan, the principal balance is the amount of money that you owe to the bank or lending company minus the interest.
As a buyer, you pay the principal plus interest every month. Most of the time, the payment goes towards the interest first, then towards paying down the principal.
A bank guarantee is an assurance made by a lending institution that all the liabilities of the debtor will be met. If the borrower fails to settle a debt, the bank will cover it.
The guarantee eliminates the risk from the seller, as it ensures that the purchase price will be paid even if the borrower defaults on a loan.
Price Per Square Meter
As it already suggests, the price per square meter determines the cost of your unit. It’s a great way to estimate the total cost of your condo.
The bigger your condominium unit, the higher the total price.
Aside from your mortgage, you also have to pay your condominium association dues every month.
These are monthly payments made by the owner or tenant as contribution to the operational expenses of your entire condominium building.
In most cases, the association dues are computed according to square meters. The bigger your unit is, the higher your dues are.
Similar to a homeowners association, the condominium corporation acts as the overall managers of your condominium building. As a condo owner, you’re part of this corporation.
Aside from holding title to the land, the condominium corporation is also responsible for the upkeep and maintenance of the common areas.
A post-dated check is a check written with a future date. When you buy a property, you’re required to submit post-dated checks to pay for your down payment.
Now that you know these basic condo buying terms, it’s time to take that first step towards buying your unit. Check out our condo buying tips to know how you can start reserving your first Avida property.