If you're thinking of buying or selling a home, there's no better way to prepare than by getting educated. Knowledge is Power! I put together a list of the most often used real estate terms to help you understand what on earth we are talking about when we start the buying/selling process. I'll quiz you later too!
Adjustable rate mortgage (ARMs) – This type of mortgage usually has a lower initial rate (for a set number of years), then the rate may go up or down, depending on the specified index rate used for determination. Usually preferred for short-term ownership, the repayment period for ARMs are typically 5, 7, or 10 years, but they can be issued for longer time periods.
Amortization – The repayment schedule of a loan, including payments of principal (the original amount borrowed) and interest. An amortization schedule displays, in a table format, the amount of principal and interest included with each payment, along with the remaining loan balance.
Appraisal – The estimated value of a property based on a qualified appraiser’s written analysis. Banks typically require appraisals before issuing loans to ensure the estimated value of the property adequately exceeds the amount borrowed.
ARV: After-Repair Value How much a property is worth after all the repairs.
Assessed value – The value of a property assigned by a governing authority to levy a tax or fee on the property owner.
Attorney Review: An attorney review clause is required in every Contract prepared by a real estate agent in New Jersey. The clause allows the Buyer and Seller to choose an attorney to study the Contract and make modifications to its terms. If an attorney is consulted, the lawyer must complete the Contract review within three days.
Buyer’s agent – A real estate agent who represents the interests of homebuyers. An Accredited Buyer’s Representative (ABR®) is a buyer’s agent who has earned the ABR® designation by successfully completing specialized coursework and demonstrating experience in representing buyers. The ABR® designation is awarded by the Real Estate Buyer’s Agent Council (REBAC).
Closing costs – Incidental fees associated with completing real estate transactions, potentially including attorney’s fees, credit report fees, document preparation fees, deed recording fees, appraisal fees, etc.
Comparative market analysis- Comparative market analysis (CMA) is a report on comparable homes in the area that is used to derive an accurate value for the home in question.
Contingencies – Particular conditions that must be met prior to closing a real estate transaction such as a home inspection (to ensure the home has no serious defects), a financing contingency (which releases a buyer from the sales contract if their loan falls through), or a contingency that a buyer must first sell their current home. In general, the fewer contingencies required of a seller, the stronger a buyer’s negotiating position, in terms of getting the best price.
Deed:Conveys ownership from the old owner (the grantor) to the new owner (the grantee).
Dual Agency: Dual agency is when one agent represents both sides, rather than having both a buyer’s agent and a listing agent.
Earnest money – Also called a “good faith” deposit, these are funds held by a neutral party to demonstrate the buyer has serious interest in purchasing a property.
Easement: The right to use a portion of someone else’s property without possessing it, such as when a driveway crosses a neighbor’s land.
Encroachment: Using a portion of someone else’s property without legal easement rights.
Encumbrance:Something that lowers a property’s value but does not stop its sale.
Escrow:Escrow is an account that the lender sets up that receives monthly payments from the buyer.
Fair Market Value: The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
FHA loan – Loans insured by the Federal Housing Administration (FHA). With attractive financing rates and less stringent lending requirements than conventional mortgages, FHA loans are often appealing options for buyers with lower credit scores and/or smaller down payments. They do, however, require two types of mortgage insurance: an upfront premium and an annual premium, which is wrapped into monthly mortgage payments.
Fixed-rate mortgage – A conventional loan with a pre-determined (or “locked in”) interest rate for the duration of the loan repayment period. They are traditionally 30 years in length but can be issued for 15 years, 10 years, or another duration.
Home inspection – A thorough professional examination (at the buyer’s expense) that evaluates the structural and mechanical condition of a property (plumbing, foundation, roof, electrical, HVAC systems, etc.). This highly recommended step is a common contingency clause in real estate sales contracts. If the inspector identifies issues that may be expensive to remedy, these can be revisited with the seller before proceeding with the sale.
Flood Insurance: Specific insurance coverage against property loss from ground water or overflowing rivers and drains.If a home is in a flood zone this is required by most lenders.
Foreclosure:The process of taking possession of a mortgaged property as a result of someone's failure to make timely mortgage payments.
Home warranty: This warranty protects from future problems to things such as plumbing and heating, which can be extremely expensive to fix.
HUD-1 Settlement Statement:This is used to inform a buyer about their expected total lender and closing costs to purchase or refinance a property.
Interest: This is the cost of borrowing money for a home. Interest is combined with principal to determine monthly mortgage payments. The longer a mortgage is, the more you will pay in interest when you have finally paid off the loan.
Listing – The printed (or digital) description of a property for sale. Listings may include details about the property, the home (number of bedrooms, baths, featured rooms), other structures, the price, and photos.
Listing agent: This is the agent who represents the seller in the home-buying process. On the other side is the buyer’s agent, who represents the buyer.
Loan-to-Value (LTV):The amount borrowed divided by a property’s purchase price or appraised value.
Mortgage broker: The broker is an individual or company that is responsible for taking care of all aspects of the deal between borrowers and lenders, whether that be originating the loan or placing it with a funding source such as a bank.
Offer – A formal request to buy a home. See sales contract.
Personal property:Items owned by an individual or business, which is movable and is not affixed to or associated with the land. In the case of residential real estate, things that are screwed or nailed to the house are real property, while things that are free standing or hanging from a hook are personal property, which can be taken by the seller when they leave.
PITI: The sum of monthly principal, interest, taxes, and insurance.
Points – Prepaid interest on a loan, equal to one percent of the loan amount. The advantage of paying points up front is that a lower interest rate can be secured for the lifetime of the loan. This may be a good deal if a buyer plans to stay in the home for many years (so the long-term interest savings outweigh the initial cost in points).
Pre-approval (loan) – A lender’s written guarantee to grant a loan up to a specified amount (subject to receiving full documentation). Pre-approval for a loan can strengthen a buyer’s negotiating position with a seller.
Pre-qualification – Less “official” than a mortgage pre-approval, banks offer (at no cost or obligation) pre-qualifications to estimate the amount a buyer may be able to borrow. It is often used early in a buyer’s search to help determine a reasonable price range.
Private mortgage insurance (PMI) – A monthly insurance payment that may be required if a buyer’s down payment is less than 20 percent of the home’s purchase price. It protects lenders against loss if a borrower defaults.
Rate lock: The moment during escrow that the buyer accepts the current interest rate.
Recorder: A Recorder is a public official who keeps records of documents concerning real property.
Recording: Recording is the act of entering in a book of public records something that affects the title to real property.
Sales contract – A legal agreement between a buyer and seller to purchase real estate, for a specified price and terms, for a limited time period (also called a purchase agreement or a binder). When initially presented to a seller, this document is often called a purchase offer. Once the seller accepts (or the buyer accepts the seller’s counter offer), it becomes a legally binding sales contract when attorney review is complete.
Sale-Leaseback:After a sale, the old owner leases it back, continuing to use the asset but no longer owning it.
Seller’s agent – The real estate agent who represents the seller of a piece of property. Their job is to act in the best interests of the seller, marketing their home to potential buyers and negotiating on the seller’s behalf.
Settlement Statement:A summary of all fees and charges that both the homebuyer and seller have incurred, provided after close of escrow.
Title: The document that says you own the property
Title Company:These firms research a property during escrow and ensure that all liens are clear before title is transferred to the new owner.
Title insurance – This type of insurance is acquired to protect against any unknown liens or debts that may be placed against the property. Before issuing title insurance, public records are searched to ensure that the current owner has legal rights to the title as well as the legal ability to sell the home and that no liens are held against the property.
Transfer tax:
Various taxes imposed by cities, counties and states that may be applicable when there is a Transfer of Ownership.
Truth-In-Lending
A federal law requiring lenders to fully disclose in writing the terms and conditions of a mortgage, including the annual percentage rate and other charges.
Ready for your quiz? I'm sure I didn't hit all of the terminology but hopefully this helps educate you on the process. Now that you're well versed- are you ready to start house hunting?
Resources: National Association of Realtors