Buying or selling real estate can be an exciting step in your life, but also overwhelming when you don’t know where to start. Learning the language of real estate will help you better understand the process and help you make sounder decisions for your move.
Here are 22 commonly used real estate terms to add to your vocabulary:
1. Annual Household Income
The combined gross income from every contributing person in your household before taxes. Other deductions can be taken, including investment income or dividends, Social Security benefits, child support, alimony, and retirement fund withdrawals. The income can be from any source or multiple sources, such as part-time work or self-employment.
2. APR
Annual percentage rate (APR) is the rate charged to a borrower yearly, averaged over the full term of the loan. This includes lender fees in the rate, so it’s usually higher than your mortgage interest rate.
3. Appraisal
An appraisal is a written evaluation, justifying the purchase price of a property. This is primarily based on an analysis of comparable sales of similar homes nearby.
4. Appraised Value
An appraised value is an evaluation 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. This is performed during the mortgage origination process. Appraised value may not correspond with an asset’s or property’s actual market value.
5. Closing Costs
Generally 2 to 5 percent of the purchase price include lender fees, recording fees, transfer taxes, third-party fees such as title insurance, and prepaids and escrows such as homeowner’s insurance, property taxes, and HOA fees.
6. Closing Disclosure
The legal document conveying title to a property.
7. Down Payment
A cash payment of a percentage of the sales price of the home that buyers pay at closing. Different lenders and loan programs require various down payment amounts such as 3 percent, 5 percent, or 20 percent of the purchase price.
8. Earnest Money Deposit
Also known as an escrow deposit, earnest money is a dollar amount buyers put into an escrow account after a seller accepts their offer. Buyers do this to show the seller that they’re entering a real estate transaction in good faith.
9. Encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions
10. 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.
11. Escrow
Putting something of value, like a deed or money, in the custody of a neutral third party until certain conditions are met.
12. Homeowners Association Fee (HOA)
A fee required when you buy a home located within a community with an HOA that typically pays for maintenance and improvements of common areas and may include the use of amenities.
13. Homeowner’s Insurance
Insurance that provides you with property and liability protection for your property and family from damages from a natural disaster or accident. Lenders usually require borrowers to buy homeowner’s insurance.
14. Home Warranty
A contract between a homeowner and a home warranty company that provides for discounted repair and replacement service on a home’s major components, such as the furnace, air conditioning, plumbing, and electrical systems.
15. Lender Fees
Part of the closing costs of a home purchase and may include an application fee, attorney fees, and recording fees. The lender’s underwriting or origination fee is usually 1 percent of the loan amount.
16. Loan Types
Mortgages have different terms ranging from 10 to 30 years and are available with fixed or adjustable interest rates. Your lender can discuss down payment, insurance, credit requirements, and other specifics of various loan types.
17. Monthly Debt
The minimum payment on credit card debt; auto, student, and personal loan payments; and alimony or child support. This can include the monthly rent or mortgage paid after your home purchase.
18. Mortgage
A loan from a bank, credit union, or other financial institution that relies on real estate for collateral. Banks provide money to buy the property, and the borrower agrees to monthly payments until the loan is fully repaid.
19. Mortgage Insurance
Mortgage insurance protects the lender if the borrower can’t repay the loan in full. Typically this results in a foreclosure sale of the home. Usually required on loans with less than a 20 percent down payment.
20. Mortgage Origination
Origination is the process a borrower goes through to apply for a home loan. This process requires several steps including the preapproval process, loan application, underwriting, and finally, completing all closing paperwork and fees.
21. Property Taxes
Typically imposed by local governments, property taxes help cover community costs, such as public schools, emergency services, the police department and road maintenance. The tax rate change annually, and the assessed value of your property is recalculated annually. This usually is the second-largest expense after the mortgage for homeowners.
22. Prepaid
Expenses paid at the time of closing for bills. This includes property taxes, homeowner’s insurance, mortgage insurance, and HOA fees.
23. Third-Party Fees
This can include any closing costs charged by someone other than your lender, such as fees for an appraisal, a property survey, a title search, owner’s and lender’s title insurance, and sometimes an attorney.
Still feeling lost? Working with a knowledgeable, license Realtor® can be a game changer in your home search. A great agent can guide you through real estate forms or disclosures, provide insight on what’s required in your market, and answer any questions about local amenities, zoning rules, contractors and more.
Published on 2021-08-17 17:07:50
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