By Bellevue Reporter

The Puget Sound region is in a housing crisis. As the region's economy grows, so does the number of workers and families moving into the area looking for a home. Skyrocketing home prices, spiraling rents, and the shortage of affordable housing create news headlines every day.

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The quality of a new home is largely determined by the skill of the building professional who constructs it. Shop for a builder as carefully as you shop for the features of your home.

Where to Start

Find names of builders who build the type of home you're looking for within your price range. The real estate section of your newspaper is a good place to start. Ask for recommendations from family and friends, then make a list of potential builders.

Look Around

Once you have a list of builders, do some digging and learn about the builders' reputations and quality of their work. The best way to learn about builders is to visit homes they've built and talk with the owners. Reputable builders should be more than willing to provide references for their work. Talk with the owners and ask these questions:

• Are you happy with your home?
• Did the builder do what was promised in a timely manner?
• Would you buy another home from this builder?

Also, be sure to contact your local home builders association or the Department of Labor and Industries to verify that your builder is licensed to build in Washington state.

Shop for Quality and Value

Home shows, model homes, and open houses offer great opportunities to inspect the value of a home. Look at both furnished and unfurnished homes to determine construction quality. Inspect the cabinetry, carpeting, trim work, and paint. Ask a lot of questions and take copious notes.

Always keep value in mind when shopping. Just because one home is less expensive than another does not mean it is a better value. Likewise, a more expensive home does not automatically ensure higher quality. Consider the appreciation potential of any home and the influence housing supply and demand and the home's location will have on the present and future value of your new home.

Determine whether the house will suit your lifestyle. Is there enough living space? Are there enough bedrooms and bathrooms? What about storage space? Will you have room to enjoy your hobbies?

Think about the upkeep required to maintain both the inside and outside. Is the location close to transportation, work, shopping, and schools?

Ask Questions About Service

Many builders back their own one-year warranties on workmanship and materials. Other builders offer warranties backed by an insurance company. Thoroughly read the legal documents provided by your builder to be sure you know what the company's warranty is. Find out what kind of service you can expect after the sale. Typically, a builder makes two service calls during the first year after you move in to repair non-emergency problems covered by your warranty.

Find a Master Builders Association member who can help.

This week, Shannon is at Sun Mountain Lodge at the MBA Membership Trip, speaking with Nancy Grygorowicz-Davis, director of marketing & events at the MBA, about MBA events.

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For many people, the mortgage/financial transaction is the most difficult part of the process, whether they're buying, selling, or both. If you're buying a home, you'll need to:

• Understand the different mortgage types and which one might be the best for you.
• Understand your credit and try to clean up any blemishes on your credit report.
• Have your financial information ready (recent pay stubs and tax returns for the last three years).
• Make a list of your monthly expenses, including everything from your current mortgage or rent payment to your utilities, credit card payment, insurance, student loans, and transportation expenses. Your lender may want to know these as part of your loan application and it will help you determine an affordable mortgage payment.

Pre-approved vs. pre-qualified

These terms have been often confused. It is critical that you understand the difference and your price range before you make an offer on a home.

Pre-approval means an underwriter has reviewed your credit, income, and assets as required by the program you are being approved and agreed to lend the money, provided the property is approved as well.

Pre-qualify means some other entity, perhaps a loan originator, has discussed your information with you and has estimated an amount or range in which you should be able to borrow. You may have even provided information to a loan originator. Originators and underwriters are not the same people.

Down payment

How much do you need? Down payments can vary based on loan type or whether or not you qualify for a specific loan program. Prior to 1934, borrowers were required to have 20 percent of the price of the home as their down payment. In 1934, the government created the Federal Housing Administration (FHA) to provide low down payment, government-insured loans. The federal government also created Fannie Mae (Federal National Mortgage Administration) and Freddie Mac to provide liquidity and allow the expansion of the mortgage market by selling mortgage-backed securities to investors on the open market.

So what does all this mean for you? Current standard down payments are 5 percent or more for conventional loans (loans made under Fannie Mae and Freddie Mac limits), 3.5 percent or more for FHA, and zero down payment for Veterans Administration (VA) loans. VA loans are specifically for veterans. There is also a rural housing zero down payment program that allows for up to 2 percent financed closing costs.

Down payment requirements and specific loan products change periodically. First time buyer? Veteran? Low income? A good, reputable lender should be able to identify a program that may be targeted to help you.

Loan-to-Value

Lenders look at the loan-to-value (LTV) when underwriting loans. Loan-to-value is the percentage of the price of the home which is the loan. For example: the home sales price is $300,000, your down payment is 10 percent (or $30,000), and your loan amount is $270,000. The LTV is 90 percent. The LTV can also affect the interest rate you receive. The greater your down payment, the better risk you are as a borrower. Lenders often charge a higher interest rate for lower down payments. This is called risk-based pricing.

Credit

Your credit is more critical today than ever in the wake of the mortgage market meltdown. Lenders are unwilling to grant credit if there's a very high risk of you defaulting on your mortgage. Credit scores are created by data repositories using risk-based data. Everything on your report can be calculated in risk. The available scores range from 350 to 850. The score tells the lender what the chances are of you defaulting on the loan. The higher the score, the lower the risk.

Currently, lenders of conventional loans are seeking borrowers with 680 or better scores. FHA does not have a minimum credit score requirement, but most lenders will not consider a borrower with a credit score below 580. FHA does not make loans, they insure loans. Your score drives your choice of rates. Currently, lenders charge more for lower credit scores, even starting with scores below 740.

The three major credit reporting agencies (Equifax, Experian, and TransUnion) jointly sponsor a website where you can request a free credit report. Request a credit report and review it for any inaccuracies. The site also has information on how to dispute and correct an item on the report. Use this report as a guideline; your lender will pull a credit report as well. What is on the report they pull (and not a report you give them) will determine your score.

Debt ratios

How does a bank decide how much you can borrow? Your income and debt will be analyzed. Debt ratio is a calculation of how much gross income you receive per month and all your monthly debt, including house payment. You may be asked to provide proof (such as a pay stub) of stable, long-term income. Monthly debt is only those items typically on your credit report. Items like insurance, gas, utilities, day care, and food are not included, except on some special government programs. These calculations are not exact in many cases and other factors determine loan approvals and exceptions.

Underwriting

Underwriting is the process of analyzing the collected data on both the borrower and property and deciding if a loan can be made. Underwriters work for banks and investors of loans and have special training and designations. You are not a number, but a person with special situations. Each borrower is looked upon as their own potential.

Fannie Mae & Freddie Mac

In 1938, Congress created Fannie Mae. Prior to this, lenders were only able to loan locally and their terms were typically five-year balloons (short term loans) with 20 percent or more down payments. When the bank reached a limit on available money for mortgages, the community would have obvious challenges. Fannie Mae became the national resource in which local banks could sell their loans and have new money to loan.

Freddie Mac was created as a second resource for loan sales nationally. To sell a loan to these entities, the bank would need to meet Fannie Mae- or Freddy Mac-established guidelines, which include maximum loan limits. These maximum loan limits are reviewed annually and may change based on national home values. With new, higher conventional loan limits under FHA, Fannie Mae, and Freddie Mac, you can borrow higher amounts at a cheaper rate.

Loans greater in size than saleable to Fannie Mae or Freddie Mac are considered non-conforming or jumbo loans. Yes, there are investors loaning in this pool, but it is much smaller a group of investors and the price of these loans is usually higher.

Loan Types

Loan types have been changing rapidly in the recent years. Since July 2007, many loan types have vanished. Those loan types have been deemed higher risk and subject to potential losses by banks. There are many remaining programs and new opportunities will evolve. Here are some examples of common loan programs:

Fixed-rate loan—Fixed-rate mortgages are mortgages in which the interest rate you pay is fixed for a set amount of time. The most common are 30- and 15-year fixed-rate mortgages, but there are 10-, 20-, even 40- or 50-year fixed-rate mortgages. These loans are structured so that by the end of the loan, the amortized principal is paid in full. The interest rate and the monthly payment do not change during the life of the loan. Fixed-rate loans give you the security of always knowing what your payments will be because they are set for the life of the loan. If you plan to keep your home for 15 or even 30 years, a fixed-rate mortgage is the conservative way to go. You are protected from fluctuating interest rates.

VA Loans—The Veterans Administration guarantees loans to veterans. VA loans do not have mortgage insurance but a VA funding fee that can be financed over the 100 percent loan if meeting the guideline loan limits. Visit homeloans.va.gov for more information.

Federal Housing Administration (FHA)—These loans are government-insured loans that anyone can apply to receive. The FHA currently offers 3.5 percent down payment opportunities and that 3.5 percent can be from gift funds. FHA loans were crafted first to help people with less available down payment money and sometimes lower credit scores or no established credit. FHA currently does not have minimum credit score requirement, however the banks that loan under this program can and do set their own minimum credit score standards.

Reverse Mortgages—Exclusively for seniors age 62 or older. These are no-monthly-payment loans that tap the equity in your home. They provide an income resource for home improvement, medical, general income, or help with lifestyle needs. They're not subject to credit or income requirements and can be used to purchase a home.

Balloon loan—These loans are usually 30-year loans which have a fixed interest rate for a set period. At the end of the period, they must be paid off by cash, refinance, or selling the home, or they may have a built-in, one-time reset for the remainder of the term. For example, a five-year balloon, fixed for five years and reset for 25 remaining years. Your loan will have a disclosure detailing the exact terms.

Adjustable-rate mortgages (ARMs)—These are loans that reset (i.e., the interest rate will change) at specific intervals. They may change monthly, every six months, one year, two years, three years, five years, seven years, or 10 years. Typically, any loan will have a different reset after the initial change, such as five years at the same rate and then adjusting every 12 months thereafter. It is critical that you understand the loan you obtain before you go to closing and it is best to clearly understand it at or before application.

Interest-only ARMs—Loans where, for a pre-determined period of time, you pay only interest and do not pay down the principal on your loan. If you are not planning to stay in the home for a long period of time, this type of mortgage allows you to buy something you ordinarily couldn't afford. In a "hot" market or a "hot" neighborhood, you'll have low payments while your house appreciates in value and you can always pay an additional amount to go toward paying down the principal. But watch out. The day will come when you will need to pay down the principal. If you can't make combined interest and principal payments, you could lose the house. If your plan is to sell your house and the market conditions change so that you can't sell it for what you owe, you'll be in trouble.

How do adjustable loans work and how would I know what to expect?

All adjustable loans have basic components: index, margin, caps, and changes.

Index is the moving component that drives the direction of your interest rate. Indexes are published in the Wall Street Journal. You can also see historical data on the major indices at moneycafe.com. If the index you choose is not at this site, ask for help in getting the data from your lender.

Margin is the amount added to the index to determine your next rate adjustment. This calculation is typically done 45 days prior to your adjustment, giving you time to prepare. The margin will not change during the life of your loan.

Caps are the ceiling or maximum amount your rate can move up or down each adjustment.

Remember when considering any loan, make sure you understand all the conditions of the loan and how those conditions could change over the life of the loan. For most people, a home is their biggest investment and the key to accumulating wealth.

Where should I get a mortgage?

The choices are many: banks, credit unions, mortgage bankers, and mortgage brokers. Do not assume because they are a business with a business license or a large bank that they have all the expertise you need. Shop around and interview your prospective lender. Realize it is not always about the cheapest deal but the quality of service, integrity, knowledge, competency, and most suitable program for you. Is your lender really looking at you as an individual?

To find the right program and product in a sea of choices, find a professional who is familiar with the many programs. Whenever possible, get a personal referral.

Questions to ask when interviewing lender and their representative, the loan originator:

• Are you licensed individually? (Employees of federally-chartered lenders are not required to be licensed. See the "Licensing" section below.)
• What programs do you offer? Do you have government lending, FHA, and VA loans? (The more programs they offer, the better you will be served with the best options for your specific needs.)
• When you quote an interest rate, can that rate be locked in and for what time frame (for example, 15 days, 30 days, etc.)? If a quoted rate is for 15 days and your loan cannot close for 30 days, the quote is of no value.
• When will you provide a good faith estimate of fees? Can you explain all the costs? Good faith estimates by law must be provided within 3 days of application. However, it is more important to get it immediately at application and prior to agreeing to work with a lender.
• Will my loan application be processed locally and if not, what is the processing time? This can impact the timeline to complete your process. If you have timeline requirements, this may be critical to your selection of a lender.
• How long is typical for your process?
• How did you arrive at the interest rate you quoted?
• What are interest rates based on? This answer should be the mortgage bond market. 30-year fixed is the 30-year bond. If the lender says otherwise, they will not be watching the correct indicator.
• If an ARM, explain the details: index, margin, caps, and worst case scenarios.
• Will there be mortgage insurance?
• Do you have references of satisfied clients?

If the loan originator cannot answer these questions, it might be a good idea to consider another lender.

Licensing

A state law was passed in 2006 and implemented in 2007 to license professional loan originators who worked at mortgage companies. This was a great event for consumers and professional mortgage brokers. Check dfi.wa.gov to find out if your professional is so licensed.

Licensed means the individual's background has been investigated for any illegal activity and they passed a state test and take annual classes. Certain entities under current law have not been included in this licensing. If your consultant works for a federally-chartered bank, they are exempt. If they work for under a consumer loan license, they are exempt. You may want to ask more questions if they do not have a license.

Shannon speaks with Andrew Over, the Marketing Vice President at Regence BlueShield, at the MBA annual Golf Tournament about the MBA Health Trust and why it's important for members to participate.

More about the MBA Health Trust

ARM? GPM? PITI? You'd have to be a cryptologist to figure out some of the terms buyers encounter during the homebuying process. Doing research on how to buy a house before beginning the process can greatly improve your experience and prepare you for the exciting course ahead. And with this glossary of homebuying terms at your side, you can rest easy that your new home won't get lost in translation.

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A

Acceleration Clause

A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

Acceptance

A party's consent to enter into a contract and be bound by the terms of the offer.

Adjustable Rate Mortgage (ARM)

A mortgage whose interest rate changes over time based on a pre-determined economic index.

Administrative Fee

A fee charged by a lender to cover the administrative costs of processing your loan request (e.g., a lender fee).

Amenities

Features of real property that enhance its attractiveness and increase the satisfaction of the occupant or user, even though the feature is not essential to the property's use (e.g., a swimming pool).

Amortization

The gradual repayment of a mortgage by installments.

Annual Percentage Rate (APR)

The total yearly cost of a mortgage stated as a percentage of the loan amount, including the base interest rate, primary mortgage insurance, and loan origination fee (points).

Application

A form used by the lender to collect information about a prospective borrower and the property being used as collateral.

Application Deposit

Funds required by a lender in advance of processing a loan request. Generally, a deposit is collected to cover the costs of an appraisal and credit report and may or may not be refundable.

Appraisal

An evaluation of the property to determine its value for purposes of the mortgage loan. An appraisal is concerned chiefly with market value, or what the home would sell for in the marketplace.

Appreciation

An increase in the value of a property.

Assessed Value

The valuation placed on property by a public tax assessor for the purposes of taxation.

Assessment

The process of placing a value on property for the strict purpose of taxation. Assessment may also refer to a levy against a property for a special purpose (e.g., a sewer assessment).

Assumable Mortgage

A mortgage that can be taken over ("assumed" by the buyer) when a home is sold.

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B

Balloon

A loan which has a series of monthly payments (often for five years or less) with the remaining balance due in a large lump sum payment at the end.

Basis Point

1/100th of one percent.

Binder

A preliminary agreement, secured by the payment of earnest money, under which a buyer offers to purchase real estate.

Building Code

Local or state building regulations that govern the design, construction, and materials used in a building.

Buyer's Broker

A broker who represents the buyer in a fiduciary capacity.

Buy Down

A subsidy (usually paid by a builder or developer) to reduce the monthly payments on a mortgage loan.

Buyer's Market

A situation in which the supply of properties available exceeds demand. As a result, sellers are forced to lower their prices to attract buyers.

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C

Cap

A provision of an ARM limiting how much the interest rate or mortgage payments may increase or decrease in any single adjustment or over the life of the loan. See also Lifetime Cap.

Certificate of Occupancy

A document from an official agency stating that the property meets the requirements of local codes, ordinances, and regulations.

Certificate of Title

Like a car title, this is the paper that signifies ownership of a home.

City/County Tax Stamp

A tax that is required in some municipalities if a property changes hands or a new mortgage is obtained. The amount of this tax can vary with each state, city, and county.

Clear Title

A title that is free of clouds, liens, disputed interests, or legal questions with regard to ownership of the property.

Closing

A meeting to sign documents which transfer property from a seller to a buyer. (Also called settlement.)

Closing Costs

Sometimes called settlement costs, these are costs in addition to the price of the home, including mortgage service charges, title search and insurance, and transfer of ownership charges.

Closing Day

The date on which the title for property passes from the seller to the buyer, and/or the date on which the borrower signs the mortgage.

Commitment Letter

A formal offer by a lender stating the terms under which the lender agrees to loan money to a borrower.

Conditions, Covenants, and Restrictions (CC and Rs)

The standards that define how a property may be used and the protections the developer has made for the benefit of all owners in a subdivision.

Condominium

A type of property that includes individual ownership of one unit in a multi-unit dwelling and an undivided interest in the common area and facilities that serve the entire multi-unit project.

Contingency

A condition that must be met before a contract is legally binding.

Conventional Loan

A mortgage loan not insured by a government agency (such as FHA or VA).

Conventional Mortgage

A mortgage in which the interest rate does not change during the entire term of the loan. Also called a Fixed-Rate Mortgage (FRM).

Cosigner

Another person who signs your loan and assumes equal responsibility for it.

Credit Bureau

An agency that gathers and keeps your credit record (e.g., Experian, Equifax, and TransUnion).

Credit Rating

A report ordered by a lender from a credit bureau to determine if the borrower is a good credit risk.

Credit Report

A report of an individual's credit history, prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

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D

Deed

A legal document that transfers ownership of a property from one person to another.

Default

Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage.

Depreciation

A decline in the value of a home as the result of time, changes in the housing market, wear and tear, adverse changes in the neighborhood and its patterns, or any other reason.

Down Payment

An initial payment on a home, usually a specific percentage of the home purchase price that is required of a borrower at the time of loan closing.

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E

Earnest Money

The deposit money given to the seller by the potential buyer to show that they are serious about buying the home. If the deal goes through, the earnest money is usually applied toward the down payment. If the deal does not go through, it may be forfeited.

Easement Rights

A right of way granted to a person or company authorizing access to or over the owner's land. Utility companies often have easement rights across your property.

Equal Credit Opportunity Act (ECOA)

A federal law that prohibits lenders from denying mortgages on the basis of the borrower's race, color, religion, national origin, disability, age, sex, marital status, or receipt of income from public assistance programs.

Equity

The difference between the market value of the home and the amount of money you still owe on it.

Escrow

The holding of documents and money by a neutral third party prior to closing; also an account held by the lender into which a homeowner pays money for taxes and insurance.

Escrow Account

The account in which funds are held by the lender for the payment of real estate taxes and/or homeowners insurance. This can also refer to the account in which that funds are held for the completion of repairs or improvements to a property that cannot be completed prior to closing.

Escrow Funds

Money, or papers representing transactions, that are given to a third party to hold until all conditions in a contract are fulfilled.

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F

Fair Credit Reporting Act

A consumer protection law that sets up a procedure for correcting mistakes on one's credit record.

Fannie Mae

Federal National Mortgage Association. See FNMA.

Federal Housing Administration (FHA)

Federal Housing Administration. A government agency whose primary purpose is to insure residential mortgage loans.

Federal National Mortgage Association (FNMA)

Federal National Mortgage Association. A congressionally chartered corporation (sometimes called a government sponsored enterprise or GSE) that buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. Monthly principal and interest payments are guaranteed by FNMA but not by the U.S. government.

Fixed Rate Mortgage

A mortgage in which the interest rate does not change during the entire term of the loan.

Flood Insurance

Insurance required for properties in federally designated flood areas.

Foreclosure

The process by which a mortgaged property may be sold by the mortgage lender when the homeowner fails to pay the monthly mortgage payment. The mortgage is considered in default.

Freddie Mac

Federal Home Loan Mortgage Corporation (or FHLMC). A quasi-public corporation (sometimes called a government sponsored enterprise or GSE) authorized to make loans and loan guarantees. The FHLMC was created to expand the secondary market for mortgages. Along with other GSEs, Freddie Mac buys qualified mortgage loans from the financial institutions that originate them, securitizes the loans, and sells them as mortgage-backed securities to investors on the open market. The U.S. government does not back the securities.

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H

Hazard Insurance

Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, or other hazards.

Homeowner's Association Fee

A term related to a condominium association's collection of money from the owners of each condominium. In determining whether you can afford the property, the lender will calculate the homeowner's association fee as part of your housing-to-income ratio. The fee pays for common expenses including insurance, maintenance, and trash removal and is used to establish reserves for future major expenditures.

Home Inspection

A complete and detailed inspection that examines and evaluates the mechanical and structural condition of a property. The homebuyer often requires a complete and satisfactory home inspection.

Homeowners Insurance

Home Mortgage Loan

A loan used to buy a home.

HUD

Also known as the U.S. Department of Housing and Urban Development. Among other things, HUD ensures that home mortgage loans made by lenders meet minimum standards.

HUD-1

Statement also referred to as the closing statement or the settlement statement, this document that provides line-by-line information of the financial details related to a specific real estate transaction, such as the fees paid by the seller and the buyer for a purchase transaction.

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I

Interest

The fee charged for borrowing money.

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J

Joint Tenancy

A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

Jumbo Loan

A loan (such as a mortgage) that exceeds the size limit set for purchase or securitization by the appropriate agency, such as Fannie Mae or Freddie Mac.

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L

Late Charge

The penalty a borrower must pay when a payment is made after the due date.

Lender

The bank, mortgage broker, or financial institution providing the loan funds to a borrower.

Liabilities

A person's financial obligations, including both long-term and short-term debt, as well as any other amounts that are owed to others.

Lien

A legal claim against a property that must be paid when the property is sold.

Lifetime Cap

A provision of an ARM that limits the total increase or decrease in the loan interest rate over the life of the loan.

Loan-to-Value Ratio (LTV)

The relationship between the amount of a mortgage and the total value of the property.

Lock-In

A written agreement guaranteeing the homebuyer a specified interest rate, provided the loan is closed within a set period of time.

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M

Margin

The set percentage that the lender adds to the index rate to determine the interest rate of an ARM.

Mortgage Banker

A company that borrows money from a bank, lends it to consumers who want to buy homes, then sells the loans to investors.

Mortgage Commitment

The written notice from the bank or other lender saying that it will advance you the mortgage funds in a specified amount to enable you to buy the home.

Mortgage

The legal document that pledges a property to the lender as security for payment of debt.

Mortgage Loan

A contract in which the borrower's property is pledged as collateral and which can be repaid in installments over a long period. The mortgagor (buyer) promises to repay principal and interest, to keep the home insured, to pay all taxes, and to keep the property in good condition.

Mortgage Origination Fee

A charge by a lender for the work involved in preparing and servicing a mortgage application (usually one percent of the loan amount).

Mortgagee

The bank or lender who loans the money to the mortgagor.

Mortgagor

The homeowner who is obligated to repay a mortgage loan on a purchased property.

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N

Non-Liquid Assets

Any assets that cannot easily be converted into cash (e.g., property).

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O

Offer to Purchase Real Estate

A promise by a buyer to enter into an agreement to purchase real estate, provided certain terms and conditions are met by the property's seller.

Origination Fee

A fee charged for the work involved in preparing and processing a proposed mortgage loan. This is stated as a percentage of the mortgage amount, or points, and is usually paid at closing.

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P

PITI (P)rincipal, (I)nterest, (T)axes and (I)nsurance

A reference to the total monthly payment required to repay a mortgage in accordance with its term, as well as monthly escrow payments for taxes and insurance.

Point

A charge of one percent of the mortgage amount. Points are a one-time charge assessed by the lender at closing to increase the interest yield on a mortgage loan.

Prepaid Expenses

The initial deposit at the time of closing for taxes, hazard insurance and the subsequent monthly deposits made to the lender for that purpose. Expenses may also include an interest amount.

Prepaid Items/Expenses

Obligations paid in advance at a real estate closing.

Pre-Qualification

The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.

Principal

The amount borrowed or remaining unpaid; also, that part of the monthly mortgage payment that reduces the outstanding balance of a mortgage.

Private Mortgage Insurance (PMI)

Insurance provided by non-government insurers that protect lenders against loss if a borrower defaults.

Processing/Administrative Fee

A fee charged by a lender to cover the administrative costs of processing a loan request.

Purchase and Sale Agreement (P&S)

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Property Taxes

Taxes based on the assessed value of the home, paid by the homeowner, for community services such as schools, public works, and other costs of local government. Property taxes are sometimes paid as part of the monthly mortgage payment.

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Q

Qualifying Ratios

Guidelines applied by lenders to determine how large a loan may be granted to a homebuyer.

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R

Radon

A naturally appearing radioactive gas, found in some buildings that in sufficient concentrations may cause health problems.

Rate Lock

An agreement by a lender to guaranty the interest rate offered for a mortgage provided the loan closes within a specified period of time.

Real Estate Agent

A person licensed to negotiate and transact the sale of real estate on behalf of an owner or a seller.

Real Estate Settlement Procedures Act (RESPA)

A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

REALTOR

A real estate agent who is a member of the National Association of Realtors and subscribes to its strict Code of Ethics. Not all real estate agents are Realtors.

Recording Fees

A fee charged by the local government to record mortgage documents into the public record so that any interested party is aware that a lender has an interest in the property.

Refinancing

The process of paying off one loan with the proceeds from a new loan secured by the same property.

Repair and Maintenance

The costs incurred in replacing damaged items or maintaining household systems to prevent damage.

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S

Sales Contract

A contract between a buyer and seller which should explain, in detail, exactly what the purchase includes, what guarantees there are, when the buyer can move in, what the closing costs are, and what recourse the parties have if the contract is not fulfilled or if the buyer cannot get a mortgage commitment at the agreed-upon terms.

Second Mortgage

A mortgage with rights that are subordinate to the rights of the first mortgage holder.

Seller's Market

An economic situation that favors the seller because the demand for property exceeds the supply.

Special Assessment

A tax for a specific purpose, such as providing paved streets or new sewers. People whose properties abut the improved streets or tie into the new sewer system must pay the tax. Condominium owners may also be assessed for major repairs done in common areas of their building.

Survey

A drawing that shows the legal boundaries of a property.

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T

Tenancy by Entirety

A type of joint ownership of property available only to spouses.

Tenancy in Common

A type of joint ownership in a property without the right of survivorship.

Title

The evidence of a person's legal right to possession of property, normally in the form of a deed.

Title Company

A company that specializes in insuring title to property.

Title Insurance

This special insurance protects lenders against a loss of interest in a property due to unforeseen occurrences that have already occurred and might be traced to legal flaws in previous ownerships (e.g., forged deed). An owner can protect his interest by purchasing separate coverage.

Title Search

A check of the title records to ensure that the seller is the legal owner of the property, and that there are no liens or other claims outstanding.

Total Debt Ratio

A standard calculation performed by mortgage lenders to determine if a borrower qualifies for a specific loan type. Total debt ratio is calculated by dividing the monthly housing expense (PITI plus all other monthly debt obligation) by the borrowers monthly gross income. This is also referred to as a "back-end ratio" or "bottom ratio."

Truth-in-Lending

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

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W

Walk-Through

A final inspection of a home before settlement to search for problems that need to be corrected before ownership changes hands.

Warranty

A promise, either written or implied, that the material and workmanship of a product is defect-free or will meet a specified level of performance over a specified period of time. Written warranties on new homes are either backed by insurance companies or by the builders themselves.

A whirlwind tour of Seattle's most efficient house. Ever.

GET YOUR EDUCATION ON THE AVE (OF NW 61ST STREET IN BALLARD)

Everything's looking Emerald at the moment. Sun is shining, address wasn't hard to find, and I now get semi-private access to Seattle's very first Emerald Star-rated home—which, in a city fueled by organic coffee and clean living, is a big deal.

Happily residing in this city of sustainability—Ballard, specifically—this new home fits right in in terms of the green mindset that permeates throughout the neighborhood. When you picture it in your head, you're probably conjuring up thought bubbles containing just the right amount of eccentricity and eco-friendliness all the way. And you'd be correct. This home is basically the housing version of a vegan organic kale smoothie, except it goes down a lot better.

I've heard nothing but great things about this place; the guts of it all and how clean and efficient everything is—2,218 square feet of industrial-strength efficiency, both inside and out. For a luxury-esque home containing four bedrooms and 2.5 bathrooms, that's a feat that shouldn't go unnoticed. And it doesn't. Funnily enough, there's another number that Dwell likes to flaunt alongside the bedroom and bathroom digits, and that's the 8.0kW of solar panels up on the roof. I've been told that number is quite impressive.

HERE

Nestled snugly in between the seemingly endless rows of unique sweet shops, colloquial little bars, and nuevo waffle shacks, I find it. Of course it's in Ballard. It just makes too much sense.

For the moment, I'm looking forward to a nice side chat with the builder, Anthony, and a bit of quiet time. Approaching the property, one notices, whether they want to or not, that the exterior looks a bit rustic. It actually looks pretty cool and fits the landscape well. Turns out that this rustic appeal is a big part of the story; every aspect of the home is made from reclaimed materials.

There are balloons outside the house and various people I don't know shuffling in and out. Apparently I'd missed the open house sign sitting near the sidewalk. There goes my quiet time.

Shoes off and inside, it's a celebratory atmosphere complete with a photo posing backdrop in the open, expansive living area. I stand near this part very awkwardly, desperately searching for a familiar face to engage with so I can stamp my acceptance as one of the in-crowd. Oh, hey, there's the Built Green crew. I know them. Thank goodness. Turns out they're a big part of the celebration.

OK, you ask, what exactly are we celebrating? Milestones. First, this is Dwell's 100th completed home, which is impressive when you think about it. Even more so, and possibly more important, at least to the housing industry and public at large, is that this home is the city of Seattle's first spec home to receive a Built Green Emerald Star certification—which sounds impressive, because it is. Sorry, formalities; a spec home, short for speculative home, is a home which is built with features that the builder thinks will provide maximum appeal for potential buyers. This is opposed to a custom home, where a buyer purchases early and oversees construction, what goes in, out, and around the home—and what doesn't. This one's aim was true, because it was quickly snatched up for $850,000.

THERE

I know what you've been thinking this whole time: What's so cool about this Emerald Star rating? Taking cues from Built Green's stringent checklist, filled with ceiling-level standards on everything from stormwater runoff to material requirements, this house bursts through the roof by being 100 percent electric, boasting net zero energy use via over-our-head features like triple-glazed wood windows, radiant-heated floors, and a heat pump water heater that defies time and space by somehow providing 450 percent efficiency.

Want to know what's more impressive? This home actually provides energy back to the grid. Think about that for a moment. Not only does it use zero energy over a year, it uses its awesomeness to create energy.

Yep. That's why this house is so cool.

Basically, it's a beast in the best sense of the word. Ivan Drago's scientifically modified body and Rocky's nature-produced strength have merged on a quiet street in Ballard. Remember Rocky's final speech from that movie? We can all change. When it comes to sustainable housing, we all will change, eventually. Someday we won't have a choice. It's not today, but experiencing this house makes one want to expedite the consensus to the rest of the industry.

Oh, and you know what may be the most impressive part of this place is? It's really comfortable. I want to hang out in every crevice of every room for a few minutes before moving to the next comfy crevice, which may just be a huge open space, but still feels like home. This place is a show house, you know, like the ones that you see in the backgrounds of ads; the type of place that you just know nobody actually lives there. Except people actually live here.

I finally get to meet the mind behind Dwell for a brief few minutes, who happens to be very upfront and personable. Anthony Maschmedt, cool and charismatic, bounces from one conversation to the next, giddily showing off the tech components built into the reclaimed wood and open floor layout. It is an interesting blend of vibrancy and stark minimalism. The wood stairs come from an old barn somewhere in Oregon. They've been refinished, of course, and placed to be noticed. These aren't simply a means of getting to and from the second and third floors; they're a usable art installation. The tech, by the way, is on par with something you'd expect from a house of this caliber. Lights, sounds, and who knows what else all are controlled via electronic device or smartphone.

Anthony is the type of person you want to sit and converse with, and he's very visibly happy about both the state of his most recent home and reactionary treatment it's getting from the crowd. I want to talk to him some more, but he's a wanted man right now and he's got his hands full of compliments and delicious vegan cookies. The open house was also catered—with a chef demonstrating cooking on the induction stovetop.

It's time for me to say my silent goodbye and get going back to my ordinary life in an ordinary part of town to relax in an ordinary home.

EVERYWHERE

An unassuming side street in Ballard is where blisteringly hot technology, nature, and new age aesthetics come together to play nicely—no supervision needed. I'm walking back to my car and I can feel its late evening heat on my back as I reflect on exactly what just happened. It all seemed so fast. The tour, the conversations, and now the reflections. I'm taking in the neighborhood. What do people do for fun around here? You could spend a day on the side of the Dwell house watching the energy meter run backwards, but you'd be better off in either the open-floor kitchen/living area, back deck, second floor free space overlooking the kitchen/living area, or any one of the comfortable, quiet bedrooms just living the languid life while your home does all the heavy lifting—softly, no grunts or strains to be heard.

The Dwell Emerald Star home on 61st Street isn't just another house. It's the start of something big. You'll see.

This week, new member Nils Christian, METIS Construction Inc., tells us how his company takes advantage of member benefits like GRIP and the MBA Health Trust.

Join the MBA

Today's homebuyer is typically well educated, discriminating, and demanding. For most of us, the home we buy will be our biggest investment and our most important financial asset. Many consumers would not consider buying a new car or even a major appliance without a manufacturer's warranty. In the same way, more and more homeowners choose an extended warranty to provide additional coverage and the added security it provides for some of the higher-ticket items in a home.

While many builders offer some type of warranty, extended-coverage warranties cover unexpected repair and replacement costs for systems and appliances that may malfunction after the standard warranty has expired. The warranty coverage on many systems and appliances, even those originally covered by the builder or the manufacturer, usually expire after one year. For example, the average repair cost for a water heater is $80 to $200 or more. The average replacement cost for a water heater is between $400 and $700, while a heating system can run from $1,300 to $3,500 or more. In other words, repairing or replacing home items can be very, very expensive.

As our homes become increasingly high-tech, repairs on items such as heating and cooling systems, dishwashers, built-in microwaves, and trash compactors, just to name a few, will become increasingly expensive. In addition to saving hundreds of dollars through an extended home warranty, homeowners are often able to take advantage of lower service fees through preapproved service providers in much the same way that health insurance companies offer special rates for preferred providers.

Before buying a home, it is extremely important to ask the right questions and make sure you understand exactly what the builder's warranty covers. Ask about any nonstandard features, which you may have negotiated into your contract with the builder. Obtain a copy of your builder's warranty in advance and make a list of any questions you may have so you know exactly what your warranty covers, including the contact information for any systems or appliances that have their own warranty protection beyond the coverage life of the builder's warranty. By being well informed about the warranties that come with your new home, you will be well-equipped to make the right decisions when considering the option of extended warranties.