Housing Terms to Know
Whether you're a first-time homebuyer or simply looking to expand your knowledge of the real estate market in South Dakota, this blog is for you. In this series of posts, we'll be diving into some of the most important terms and concepts related to buying and owning a home in the state.
From understanding the different types of mortgages available to navigating the ins and outs of property taxes, we'll cover all the information you need to make informed decisions about your housing needs. So, without further ado, let's get started!
HOMEBUYERS
Adjustable Rate Mortgage (ARM) – a type of mortgage loan in which the interest rate on the note is periodically adjusted based on an index. It typically starts with a low fixed rate for a certain period, after which the rate adjusts periodically, leading to changing monthly payments. It is considered a risky option for borrowers and is often used by people who plan to move or refinance within a few years, or those who want to take advantage of low interest rates.
Debt-to-Income Ratio (DTI) – a metric that compares an individual's total monthly debt payments to their gross monthly income, calculated by dividing total monthly debt payments by gross monthly income. It is used by lenders to evaluate a borrower's ability to repay a loan and creditworthiness. A lower DTI ratio is considered more favorable, generally, lenders prefer a DTI ratio below 43% but it can vary depending on the lender.
Amortization - the schedule of your mortgage payments spread out over time. In real estate, a buyer's amortization schedule is usually one monthly payment scheduled over a 15- or 30-year period of time.
Discount points - also known as mortgage points. They are fees homebuyers pay directly to the lender at the time of closing in exchange for reduced interest rates which can lower monthly mortgage payments.
First-Time Homebuyer (FTHB) – an individual who has not owned a home in the past three years. To qualify for SD Housing's first-time homebuyer program, you also must be at or below prescribed South Dakota Housing Income Limits and the purchase price of your home must be $340,000 or less.
Governor’s House Program (GHP) – The Governor's House Program is a program that provides affordably priced, energy-efficient and high-quality model homes for homeownership. Developers have the opportunity to develop the homes for resale, to provide more affordable housing within their community.
Community Home Improvement Program (CHIP) – a program provides low-interest loans for eligible borrowers to improve or repair the borrower's present single-family homes.
SDH’s Mortgage Credit Certificate – a credit which reduces the amount of federal income tax you pay, giving you more disposable income.
Home Equity Line of Credit (HELOC) – A type of loan that allows a homeowner to borrow against the equity in their home. It works like a revolving credit account, providing the borrower with access to a specified amount of credit that they can draw upon as needed. The borrower only pays interest on the amount they actually use and the interest rate is usually adjustable. The loan is secured by the equity in the home, and the homeowner may be required to pay off the loan in full if they sell or transfer ownership of the property.
In conclusion, we hope that this blog has helped to explain some of the homeownership terms and concepts specific to South Dakota. By understanding the ins and outs of these terms, you'll be better equipped to make informed decisions about your housing needs. Remember that investing in your home is an importance decision, so it's important to do your research and be as informed as possible!
