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50 Real Estate Terms You Should Know

November 24, 2021

11 MINUTE READ

Many industries are full of their own unique jargon, and real estate is no exception. This can add a significant amount of stress and confusion to an already stressful process. Whether you are buying a home, selling one, or doing both, understanding the vernacular will help make your transaction less stressful and more successful.

To help in this process, we’ve compiled a list of 50 real estate terms that you should know.

Real Estate Terms You Should Know

Adjustable-rate mortgage. An adjustable-rate mortgage, or ARM, is a type of mortgage in which the interest rate applied to the outstanding balance varies throughout the life of the loan. At the end of the initial fixed-rate period, ARM interest rates will become variable which could either increase or decrease the borrower’s monthly mortgage payment.

Amortization. Amortization is simply an accounting technique that is used to periodically lower the book value of a loan over a certain period of time. Amortization schedules are used by lenders to present a loan repayment schedule, based on a specific maturity date.

Annual percentage rate (APR). The APR, or annual percentage rate, refers to the yearly rate charged for a loan. Used on everything from mortgages and car loans to credit cards, APR is a simple numerical term to express the amount paid by an individual each year for the privilege of borrowing money.

Appraisal. During a home sale, the lender sends out an appraiser to give their professional opinion on the property value. Since the home serves as collateral for the mortgage, the home appraisal helps the lender decide if the property is worth the amount of the loan the potential buyer is seeking.

Appreciation. In real estate, the term appreciation refers to the increase in the value of a property over time. The simplest way to calculate home appreciation is to divide the change in the home’s value by the initial cost and multiply it by 100.

Assessed value. The assessed value is a property’s determined valuation used to calculate the appropriate tax rates. Depending on where you live, a municipal or county tax assessor will determine your home’s value, and local tax officials will calculate the property taxes based on the assessed value.

As-is (sold). Sellers list their homes for sale as-is when they don’t want to make any repairs or renovations before closing. In other words, there are no guarantees from the seller on anything in the house — if you buy an “as-is” property and then find a problem, the responsibility falls on you.

Backup offer. A backup offer is made in acknowledgment of an already existing offer and ensures a contract with the seller if the first offer happens to fall through. It is a legally binding contract that, if accepted by the seller, makes you next in line to purchase the home.

Broker. A real estate broker is a real estate agent who continues their education and successfully receives a state real estate broker license. Unlike real estate agents, brokers can work independently and start their own brokerage, hiring other real estate agents.

Contingency. Contingent simply means “depending on certain circumstances.” In real estate, when a house is listed as contingent, it means that an offer has been made and accepted; however, before the deal is complete, some additional criteria must be met.

Conventional mortgage. A conventional mortgage is a loan that’s not backed by a government agency. Instead, conventional mortgages are available through private lenders, such as banks, credit unions, and mortgage companies. Conventional loans are broken down into conforming and non-conforming loans.

Covenants, conditions, and restrictions (CC&Rs). Covenants, conditions, and restrictions, or CC&Rs, are simply rules and property limitations of a planned community neighborhood.

Closing. The closing is the final step in executing a real estate transaction. On the day of the closing, a deed is recorded and ownership of the property is transferred from the seller to the buyer.

Closing costs. Closing costs are fees paid when you close on a mortgage loan. Typically, closing costs equal 3% to 5% of your total home loan balance. Appraisal fees, attorney’s fees, and inspection fees are examples of common closing costs.

Co-borrower. A co-borrower is any additional borrower whose name appears on loan documents and whose income and credit history are used to qualify for the loan. Under this arrangement, all parties involved have an obligation to repay the loan.

Commission. Most real estate agents make money through commissions, or payments made directly to real estate brokers for services rendered in the sale or purchase of a property. A commission is usually a percentage of the property’s selling price, although it can also be a flat fee.

Comparable sales. Comparable sales, also known as comparables or comps, is a real estate appraisal term referring to properties with characteristics that are similar to a subject property whose value is being sought.

Days on market. Days on market is a measurement of the time that a particular listing has been on the market, defined as the total number of days the listing is on the active market before either an offer is accepted or the agreement between real estate broker and seller ends.

Debt-to-income ratio. The debt-to-income ratio, or DTI ratio, is the percentage of the borrower’s gross monthly income allocated to monthly debt payments. Is used by lenders to determine borrowing risk.

Deed. A deed, or property deed, is a legal document that transfers property ownership from a seller/grantor to a buyer/grantee. A deed contains a description of the property and property lines. Both parties must sign the document to make it official.

Discount points. Discount points, or points, lower your interest rate in exchange for paying an upfront fee at closing.

Down payment. A down payment on a house is a sum of money that the buyer pays upfront in a real estate transaction.

Due diligence. Real estate due diligence is the complete survey of a property or real estate asset. It combines all the knowledge and information that could be useful for the buyer to know before moving forward with the purchase.

Earnest money deposit. Earnest money deposit, also known as a good faith deposit, is a sum of money put down by the borrower to demonstrate seriousness about buying a home. Earnest money serves as a deposit on the property the borrower is looking to purchase.

Escrow. Escrow is a legal arrangement in which a third party temporarily holds a sum of money or property until a particular condition has been met, such as the fulfillment of a purchase agreement. It is designed to protect both the buyer and the seller in a real estate transaction.

Equity. Home equity is the value of a homeowner’s interest in their home. To calculate equity, subtract how much you owe on your mortgage from the fair market value of your home.

Fixed-rate mortgage. A fixed-rate mortgage is a loan where the interest rate remains the same throughout the entire term of the loan.

For sale by owner (FSBO). For sale by owner, or FSBO, is a term that refers to a method of listing a property for sale. In a FSBO listing, the seller does not work with a real estate agent; rather, they sell the home themself.

Home equity line of credit. A home equity line of credit, or HELOC, is a line of credit secured by a home. Many use it as a revolving credit line for large expenses or debt consolidation.

Homeowner’s Association (HOA). A homeowner’s association, or HOA, is an organization within a subdivision, planned community, or condo building that makes and enforces specific rules for the properties and residents.

Homeowner’s insurance. Homeowner’s insurance is a type of property insurance that covers losses and damages to a house, as well as assets within the home.

Inspection. A home inspection is a limited, non-invasive examination or inspection of the condition of a home, usually in connection with a sale. Home inspections are conducted by a licensed, qualified inspector.

Jumbo mortgage. A jumbo mortgage, or jumbo loan, is a home loan for an amount that exceeds the conforming loan limit set on mortgages eligible for purchase by Fannie Mae and Freddie Mac, the government-sponsored enterprises that ultimately buy and administer most single family-home mortgages in the United States.

Lien. A property lien is a legal claim on assets that allows the holder to obtain access to the property if debts are not paid. These can be granted for repossessing property, including a home, if the owner has defaulted on mortgage payments.

Loan officer. While real estate agents focus on the buying and selling of a certain property, loan officers deal with the financial side of obtaining a mortgage. A loan officer will help you make sound financial decisions and obtain the right mortgage loan for you.

Loan-to-value ratio (LTV). The loan-to-value ratio, or LTV ratio, is calculated by dividing the amount borrowed by the appraised value of the property, and is expressed as a percentage.

Mortgage. A mortgage is a loan used to purchase real estate. The borrower must repay the loan within a certain amount of time through a series of predetermined payments.

Mortgage insurance. Mortgage insurance is a type of insurance policy that protects a mortgage lender if the borrower defaults on their payments, or is otherwise unable to fulfill the contractual obligations of the mortgage.

Multiple listing service (MLS). The MLS is an organization with a suite of services that real estate brokers will use to provide data about properties for sale.

PITI. PITI is an acronym that stands for principal, interest, taxes and insurance. Many lenders will estimate PITI as they are deciding whether a borrower qualifies for a mortgage.

Pre-approval. Both pre-qualification and pre-approval provide borrowers with an estimation of how much home they can afford. However, a mortgage pre-approval is a more official step that requires the lender to verify the borrower’s specific financial information and credit history.

Pre-qualification. Pre-qualification is an early step in the home buying journey. When you pre-qualify for a home loan, you’re getting an estimate of what you might be able to borrow, based on the information you provide about your finances, as well as a credit check.

Principal. A loan’s actual balance, excluding the interest owed for borrowing. This is the original amount borrowed from the lender that needs to be repaid, in addition to all the other costs of borrowing that amount (interest, insurance, and taxes). The principal is paid monthly over the term of the mortgage.

Proof of funds. Proof of funds, or POF, is a document that demonstrates how much money a person has available. When purchasing a home, you may need a POF to show the seller that you can cover the cost of the home. The POF gives you more credibility as a buyer.

Rate lock. A mortgage rate lock is an agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage for a specified time period at the prevailing market interest rate.

Realtor. A Realtor is a real estate agent or professional who is a member of the National Association of Realtors, or NAR, a professional real estate organization.

Refinance. Refinancing a mortgage means paying off an existing loan and replacing it with a new one. Refinancing can allow you to lower your monthly payment, save money on interest over the life of your loan, pay your mortgage off sooner and draw from your home’s equity if you need cash for any purpose.

Rent-back. A rent-back agreement allows a seller to stay in the home until a specified date past closing. After settlement, the seller pays rent to the buyer, who now owns the home. The sellers are now renters and tenants of the home, with a security deposit being held in case of any damages.

Seller concession. Seller concessions are closing costs that the seller has agreed to pay. Sometimes, buyers ask the seller to contribute to specific closing costs; other times, it is simply a flat percentage of the total closing costs.

Seller disclosure. A seller’s disclosure is a document that requires the sellers to reveal details about the property’s current condition and any defects or faults.

Title. A title is a document that shows legal ownership of a property or asset, such as a home.

Title search. A property title search examines public records on the property to confirm the property’s rightful legal owner. This search also reveals if there are any claims or liens on the property that could otherwise affect the purchase.

Transfer tax. A transfer tax is a tax charged by a state or local government to complete a sale of property from one owner (seller) to another (buyer).

Under contract. Under contract simply means that a seller has accepted an offer on the property, but the sale is not final until all contingencies are met.

Whatever your homeownership goals, Reali has a smart solution to help you get there without breaking a sweat. Want to learn more? Contact us today.

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