As your Realtors®, we want to make the entire home buying/selling process as smooth as possible for you! Everything from finding the right price to sell your home to staging your home to the closing of your home.
One of the best ways to be prepared before the process begins understanding what exactly we are talking about in Real Estate. Below we have defined some of the most commonly used words and phrases to help guide you through the real estate process!
Appraisal: A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
Appraised Value: An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
Appreciation: The increase in the value of a property due to changes in market conditions, inflation, or other causes.
Assumable Mortgage: A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must “qualify” in order to assume the loan.
Balloon Mortgage: A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.
Bankruptcy: By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seems to be a “Chapter 7 No Asset” bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an “A” paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.
Broker: Broker has several meanings in different situations. Most Realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
Cap: Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as “caps.” Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.
Chain of Title: An analysis of the transfers of title to a piece of property over the years.
Clear Title: A title that is free of liens or legal questions as to ownership of the property.
Closing: This has different meanings in different states. In some states, a real estate transaction is not considered “closed” until the documents record at the local recorder’s office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands.
Closing Costs: Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
Co-Borrower: An additional individual who is both obligated on the loan and is on the title to the property.
Commission: Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.
Contingency: A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
Credit: An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
Debt: An amount owed to another.
Deed: The legal document conveying title to a property.
Delinquency: Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.
Deposit: A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an “earnest money deposit.”
Down Payment: The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
Earnest Money Deposit: A deposit made by the potential home buyer to show that he or she is serious about buying the house.
Equity: A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
Escrow: An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
Estate: The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at the time of death.
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 Mortgage: A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.
Foreclosure: The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Home Inspection: A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
Homeowner’s Association: A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.
Homeowner’s Insurance: An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
Homeowner’s Warranty: A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.
Lease: A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.
Lender: A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as “lenders.”
Liabilities: A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
Loan: A sum of borrowed money (principal) that is generally repaid with interest.
Mortgage: A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.
No-Cost Loan: Many lenders offer loans that you can obtain at “no cost.” You should inquire whether this means there are no “lender” costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs which may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a “no-point” loan, the interest rate will be higher than if you obtain a loan that has costs associated with it.
Pre-Approval: A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance, and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender.
Prime Rate: The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.
Promissory Note: A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Purchase Agreement: A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Realtor®: A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.
Title: A company that specializes in examining and insuring titles to real estate.
Title Company: Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.
Title Insurance: Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.
VA Mortgage: A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
Definitions provided by http://www.realestateabc.com/glossary/