UNDERSTANDING REAL ESTATE LANGUAGE
Real Estate transactions are fast tracking from making an offer to closing. There are many terms and conditions that pertain only to Real Estate and for the lay person, it is like another language. Knowing what these terms mean and how they impact you and the contract before you begin your process, can take a lot of the stress, and delay away from the process.
ADJUSTABLE RATE MORTGAGE (ARM)
The interest rate is tied to a financial index making the monthly mortgage payment go up or down over time.
ANNUAL PERCENTAGE RATE (APR)
The percent of interest that will be charged on a home loan.
APPRAISAL
A report highlighting the estimated value of the property completed by a qualified 3rd party. This is typically done for the benefit of the buyer or the buyer’s lender to ensure the property is worth the purchase price.
BALLOON MORTGAGE
A long-term mortgage loan that starts small but has a large payment due at maturity.
CLOSING
When the new title to the property is officially recorded by the County Recorder’s Office and ownership of the property transfers to the new buyer.
CLOSING COSTS
The buyer and seller have expenses associated with the transaction other than that of the actual cost of the home. For example, the buyer has a variety of fees due for obtaining a new loan and the seller must pay commission to both agents.
COMMISSION
A percent of the sale price of the home that is paid to agents. The seller pays commission to both the listing and sales agent.
COMPARABLES
Homes in the area of interest that have recently sold that have similar features.
CONTINGENCIES
Conditions which must be met in order to close. Contingencies are typically tied to a date, referred to as a deadline. If the contingency is not satisfied the contract may be canceled.
COUNTEROFFER
The response from the seller in regard to an offer.
DEBT TO INCOME RATIO
A lender will evaluate whether a borrower’s income is large enough to handle their payments on existing debts plus their new mortgage payments.
DOWN PAYMENT
A percent of the cost of the property that is paid up front as part of the purchase price.
EARNEST MONEY
The deposit made by the buyer tot he seller when submitting an offer. This deposit is typically held in trust by a third party. Upon closing, the money will be applied to the down payment of closing costs.
ESCROW
This term has multiple meanings; earnest money is typically held by a third party until closing in “escrow”. It can also be referred to as the time period from when the contract is written and accepted by the seller to when the home sale actually closes.
EQUITY
The difference in the market value of a home versus what is owed on the home.
FHA
A mortgage that is financed through a private lender and insured by the Federal Housing Administration, often requiring a lower down payment and income to qualify.
FIXED RATE
The interest rate will remain the same for the entire life of the mortgage.
HOA / CONDO FEES
In addition to a mortgage payment, certain housing communities have a monthly or quarterly fee associated with maintaining and managing the common areas and amenities.
HOME EQUITY LINE OF CREDIT (HELOC)
A loan or line of credit that your lender may offer using the equity in your home as collateral.
HOME INSPECTION
The process in which a professional inspects the seller’s home for issues that may not be readily apparent, and then creates a report for the buyer to review.
HOME PROTECTION PLAN
A service that covers the cost of repairs or replacements to items covered in the plan (such as appliances, A/C, etc.)
MORTGAGE INSURANCE
Insurance written in connection with a mortgage loan that protects the lender in the event the borrower cannot repay their loan. This is usually not required if the borrower has 20% or more for the down payment.
MORTGAGE NOTE
A promise to pay a sum of money at a standard interest rate during a specific term that is secured by a mortgage.
MULTIPLE LISTING SERVICE (MLS)
The national list of real estate properties that are available for sale. These are the most reliable sources to receive up-do-date listing information.
PRE-APPROVAL
The process in which a lender makes an inital evaluation of how much money a buyer might be qualified to borrow based on the preliminary financial information provided. This gives the seller more confidence in the buyer’s ability to close escrow, but is not a guarantee that the loan will be approved.
PRINCIPAL
The underlying amount of the loan which is actually borrowed.
PROPERTY TAXES
These are the taxes that are enforced by the city, town county, and state government entities. Sometimes they are included in the total monthly mortgage payment paid to the lender and sometimes they are paid directly by the home owner.
REO
Real estate owned properties or foreclosed properties currently owned by a financial institution such as the bank that made the loan to the previous owner.
REVERSE MORTGAGE
This is specifically for seniors and it allows them to convert the equity in their home to cash.
SHORT SALE
A situation when the seller’s lender is willing to accept an offer and allows the sale to be completed for an amount less than the mortgage amount owed by the seller.
TITLE
A legal document proving current and proper ownership of the property. Also referred to as a Title Deed, this document highlights the history of the property ownership and transfers.
UNDERWRITING
The process in which the potential home buyer is evaluated for their financial ability to obtain and repay a loan. This normally includes a credit check and an appraisal of the property.
VA LOAN
Special no down payment loans that are available to Americans who have served in the Armed Forces. These loans are issued by private lenders and are guaranteed by the Department of Veteran Affairs.