The Top Real Estate Terms Any Homeowner Should Know
Like any industry, the real estate business revolves around a slew of terms that are often misunderstood. If you've ever found yourself Googling amortization, right of refusal, or transfer tax, you're not alone. There are certain words and phrases associated with the process of applying for a mortgage, searching for a property, and buying a home that aren't common knowledge to some people.
But if you have a basic understanding of real estate terms like these, you can proudly showcase how much you know when communicating with industry professionals, including agents, and bonding with friends who are also homeowners.
Ready to advance your real estate expertise? Take a look below at some of the top real estate terms that are helpful to know, especially if you're a first-time buyer. Feel free to bookmark this page to use a refresher whenever you need to brush up on your skills.
Addendum
A document that is added to a real estate contract or purchase agreement.Amortization
Repaying a debt over a set period of time.
Annual percentage rate (APR)
The interest rate along with other fees that you can expect to pay when securing a mortgage loan.
Appraisal
An approximation of a home's current value based on a range of factors such as the price of similar properties in the area.
Appreciation
The increase in a property's value over time.
Assessed Value
When a county, village, city, or town hires an assessor to determine the value of a property for tax purposes.
Broker
A real estate broker is qualified to represent a seller or buyer. He or she can choose to work independently of a firm, real estate agents must work with licensed brokers.
Closing
The final step of a real estate transaction when a property is finally transferred from the seller to the buyer.
Closing Costs
The costs and fees that come along with the purchase of a property.
Commission
This refers to 5 - 6% that a real estate agent makes at closing.
Construction loan
This is a short-term loan that covers the cost of building a property.
Conventional mortgage
Ideal for borrowers with strong credit, this type of loan is not backed by a government agency like the Federal Housing Administration (FHA).
Deed
The deed refers to the legal document that transfers ownership of a property from a seller to a buyer.
Default
Default refers to when a homeowner fails to make several mortgage payments on time, according to the terms of the loan contract.
Delinquency
Delinquency means a homeowner has failed to make a mortgage payment on time.
Down payment
The down payment is the amount of money a buyer has saved in order to purchase a property. This can typically range from 5 - 20% of the home's cost.
Equity
This is calculated by taking the difference between the amount owed to a lender and the market value of a property.
Escrow
During the home buying process, your money will be placed "in escrow" and is protected by a third party until the real estate transaction is closed.
Exclusive listing
An exclusive listing is when a seller commits to working with one specific broker and a designated agent on the sale of a property.
Fair Credit Reporting Act
This federal law determines how a consumer's credit information can be used.
Fair market value
The amount a property would sell for in a competitive market, or when a seller and buyer can agree on the price of a property.
FHA mortgage
A Federal Housing Administration mortgage loan is backed by the government and is typically reserved for buyers with a low credit score or significant amount of debt.
Fixed-rate mortgage
This mortgage has the same interest rate for the term of the loan.
For sale by owner
This refers to a homeowner putting their property up for sale without assistance from a real estate agent or broker.
Foreclosure
A property goes into foreclosure when the homeowner misses mortgage payments and the lender tries to recover the balance of a loan.
Home equity line of credit
Also referred to as a HELOC, this is a second mortgage that allows a homeowner to borrow money against their home's value.
Home inspection
A home inspection involves the evaluation of a property's condition, including electrical work, sewage, and plumbing before the closing.
Homeowner's association
When a group of homeowners in a community, such as a condo, join in paying fees that cover the maintenance of the entire property.
Homeowner's insurance
Financial protection that helps with covering costs associated with repairs of a property or even replacement if necessary.
Lender
A lender is a financial institution or person that loans money to another party for the purpose of purchasing real estate.
Lien
A mortgage lender can place a lien on a property if the homeowner is not up-to-date on payments.
Mortgage
A mortgage is a loan that is used to purchase a home or other form of real estate.
Mortgage banker
A mortgage banker provides mortgage loans.
Mortgage broker
A mortgage broker acts as the middleman between mortgage borrowers and potential lenders.
Mortgage insurance
This form of insurance can protect a lender in the event that a homeowner defaults on their mortgage.
Negative amortization
When interest on a mortgage loan has not been paid to the lender, it's added to the loan balance.
Original principal balance
This is the balance of the mortgage loan before interest is taken into account.
Pre-approval
The pre-approval process involves a potential lender or bank reviewing an individual's finances, including their income, assets, and credit history, to determine how much money can likely be borrowed.
Prime interest rate
Banks offer customers who have proven to be creditworthy their best, or prime, interest rate.
Principal
The principal is the amount of money you borrowed from a lender, excluding the interest.
Real estate agent
A licensed professional who helps sellers or buyers complete real estate transactions.
Right of Refusal
A lease or contract might include "right of first refusal" to note that an individual has the right to put an offer on a property before it is listed on the market by a seller.
Second mortgage
Also known as a junior lien, a second mortgage is an additional loan taken on the same property. It typically has a higher interest rate than the primary mortgage and can be used for repairs, among other reasons.
Servicer
A servicer is a company that monitors and manages mortgage loans.
Title
This legal document states who has owned a property in the past and notes any liens associated with it.
Transfer of ownership
This means that a property has a new owner who purchased it and assumed its mortgage debt.
Transfer tax
A tax that is charged by a state, county, or city when ownership of a property is transferred.
Under contract
This refers to a prospective buyer and seller reaching an agreement on a property. At this early stage, both parties are in alignment with the terms of the deal, including the property's price and closing date.
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