Entering the real estate world can be overwhelming, especially with all the industry jargon. Don’t let confusing terms hold you back or cause you to miss out on important information. Understanding these real estate terms will empower you to navigate the market with confidence and make informed decisions.
Don’t let unfamiliar jargon hold you back from achieving your real estate goals. Take the time to familiarize yourself with these terms and seize control of your real estate journey. Get familiar with these 41 real estate terms to stay in the know and make an informed real estate transaction:
- Adjustable Rate Mortgage (ARM): A type of home loan with an interest rate that fluctuates after a set period. There is usually a cap on how high the interest rate can increase.
- Amortization: A method of equalizing the monthly mortgage payments over the life of the loan, even though the proportion of principal to interest changes over time. In the early part of the loan, the principal repayment is very low, while the interest payment is very high. At the end of the loan, the relationship is reversed.
- Annual Percentage Rate (APR): An APR is an actual finance charge for a loan, including points and fees, in addition to the stated interest rate.
- Appraisal: A real estate appraisal helps to establish a property’s market value – the likely sales price it would bring if offered in an open and competitive real estate market.
- Assessed Value: The value placed on a property by a municipality for purposes of levying taxes. It may differ widely from appraised or market value.
- Balloon Payment: A large principal payment due all at once at the end of some loan terms.
- Closing: When the deed to a property is legally transferred from seller to buyer, and documents are recorded with the county.
- Closing Costs: Costs associated with the closing of a home sale transaction, above and beyond the price of the property itself.
- Commission: A fee (usually a percentage of the total transaction) paid to an agent or broker for services performed.
- Comparative Market Analysis (CMA): A survey of the attributes and selling process of comparable homes on the market or recently sold; used to help determine a correct pricing strategy for a seller’s property.
- Contingency: A condition in a contract that must be met for the contract to be binding.
- Contract: A binding legal agreement between two or more parties that outlines the conditions for the exchange of value (for example: money exchanged for title to property).
- Deed: A legal document that formally conveys ownership of a property from seller to buyer.
- Down Payment: A percentage of the purchase price that the buyer must pay in cash and may not borrow from the lender.
- Earnest Money: An earnest payment (sometimes called earnest money or simply earnest) is a good-faith deposit towards the purchase of real estate.
- Equity: The value of the property actually owned by the homeowner: purchase price, plus appreciation, plus improvements, less mortgages and liens.
- Escrow: A fund or account held by a third-party custodian until conditions of a contract are met.
- Fixed-Rate Mortgage: Interest rates on this type of mortgage remain the same over the life of the loan.
- Fixture: A recognizable entity (such as a kitchen cabinet, drape, or light fixture) that is permanently attached to a property and belongs to the property when it is sold.
- Fannie Mae/Freddie Mac: Government-sponsored enterprises that purchase mortgages from lending institutions to promote stability and affordability in the housing market.
- Flipping: The practice of purchasing a property with the intention of reselling it for a profit, often through price appreciation or renovations.
- Good Faith Estimate: An approximation of the total cost of purchasing a property, provided by lending institutions before securing a mortgage loan.
- Lien: A legal claim on a property to receive payment for debt or services rendered. The property can be sold to recover the owed money.
- Listing Contract: An agreement whereby an owner engages a real estate company for a specified period of time to sell a property, for which, upon the sale, the agent receives a commission.
- Market Price: The actual price at which a property sold.
- Market Value: The price that is established by present economic conditions, location, and general market trends.
- Origination Fee: An application fee(s) for processing a proposed mortgage loan.
- PITI: Principal, interest, taxes, and insurance, forming the basis for monthly payments.
- Points: Upfront charges added by the lender to the mortgage price, with one point equal to 1% of the loan amount.
- Prepayment Penalty: Loans containing prepayment penalty clauses allow a lender to collect extra money from the home owner if the loan is prepaid above a certain percentage.
- Principal: One of the parties to a contract; or the amount of money borrowed, for which interest is charged.
- Prorate: To divide, distribute, or calculate proportionately.
- Pre-Approval: A process where a bank provides an interest rate lock for a specific period after evaluating a potential buyer’s income, debts, and credit report.
- Prequalification: A screening process by a lender or third party to determine the amount a buyer can borrow and the loan terms. It is informational and does not obligate the lender.
- Prime Rate: The interest rate offered by commercial banks to their most creditworthy customers, typically large corporations.
- Purchase and Sale Agreement: A contract between buyer and seller that outlines the details of the property purchase and transfer.
- Settlement: All financial transactions required to make the contract final.
- Title: A formal document that serves as evidence of ownership.
- Title Search: Detailed examination of the entire document history of a property title to make sure there are no legal encumbrances.
- Underwater: When a property’s market value is lower than the mortgage balance, often due to a significant drop in property value.
- Underwriting: The process a lender goes through to assess creditworthiness and make a decision on extending credit, considering factors such as credit scores, income, and property value.
Now armed with these real estate terms, you can confidently navigate the world of buying and selling homes. Stay informed and make informed decisions on your real estate journey. Contact the Brenner | Hill Team if you have any questions.
