Knowing these terms make you smart in dealing with real estate property, whether you are a buyer or selling your property. I collected these terms for my references and I want these to share with you.
PERSON INVOLVING TERMS:
Real estate agent
A real estate agent is a professional with a real estate license who works under a broker and assists both buyers and sellers in the home-buying process.
Real estate broker
A real estate broker is a real estate agent who has passed a state broker’s exam and met a minimum number of transactions. These brokers are able to work on their own or hire their own agents.
In real estate, the lender refers to the individual, financial institution, or private group lending money to a buyer to purchase property with the expectation the loan will be repaid with interest, in agreed upon increments, by a certain date.
If a buyer is having trouble getting approved for a loan, they can elicit the help of a co-borrower. This person is usually a family member or friend who’s added to the mortgage and guarantees the loan. They’re listed on the title, have ownership interest, sign loan documents, and are obligated to pay monthly mortgage payments if the buyer is unable to.
STATUS OR PROCESSING TERMS:
This is the process of combining both interest and principal in payments, rather than simply paying off interest at the start. This allows you to build more equity in the home early on.
In order to get a loan from a bank to buy a home, you first need to get the home appraised so the bank can be sure they are lending the correct amount of money. The appraiser will determine the value of the home based on an examination of the property itself, as well as the sale price of comparable homes in the area.
Appreciation is the amount a home increases in value over time. To calculate a home’s likely appreciation rate, add one to the annual appreciation rate, raise this to a power equal to the number of years you’d like to estimate, then multiply that by the current value of the property.
Equity is ownership. In homeownership, equity refers to how much of your home you actually own—meaning how much of the principal you’ve paid off. The more equity you have, the more financial flexibility you have, as you can refinance against whatever equity you’ve built. Put another way, equity is the difference between the fair market value of the home and the unpaid balance of the mortgage.
This is the cost of borrowing money for a home. Interest is combined with principal to determine monthly mortgage payments. The longer a mortgage is, the more you will pay in interest when you have finally paid off the loan.
The principal is the amount of money borrowed to purchase a home. Paying off the principal allows a buyer to build equity in a home. Principal is combined with interest to determine the monthly mortgage payment.
Refinancing is when you restructure your home loan, replacing your old loan with an entirely new loan that has different rates and payment structures. The main reason people refinance their home loans is to get a lower interest rate on their mortgage, and therefore lower not only the monthly payment but also the overall debt owed.
An assessment is used to determine how much in taxes the owner of a property will pay. An assessor calculates the assessment of a home’s value by looking at comparable homes in your area and reviewing an inspection of the home in question.
Assumption is when a seller transfers all terms and conditions of a mortgage to a buyer. The buyer takes on the seller’s remaining debt instead of taking out a new mortgage of their own.
Instead of a traditional fixed-rate mortgage in which the owner pays on the loan in installments, a balloon mortgage is paid in one lump sum (e.g., the balloon payment). It’s usually associated with investment or construction projects that are issued for the short term and don’t require collateral.
Also known as a “just title,” “good title,” or a “free and clear title” — a clear title doesn’t have any kind of lien or levy from creditors. It means there’s no question of legal ownership of the property such as building code violations or bad surveys.
Real estate commission is generally 5-6% of the home’s sale price. That commission is usually split between the buyer’s and seller’s agents and is paid by the seller at the time of closing.
If a homeowner defaults on their loan, it means they have not paid the sum they agreed to. Typically, a mortgage default means the homeowner hasn’t made a home loan payment in 90 days or more.
A mortgage is considered delinquent when a scheduled payment is not made. If a payment is more than 30 days late, a lender might begin collection or foreclosure proceedings.
The down payment is the amount of cash a homebuyer pays at the time of closing. Typical home loans require a 20% down payment. Some conforming loans will accept a 5% down payment, and FHA loans will accept a 3.5% down payment.
For sale by owner
Homes listed as for sales by owner (FSBO) are being sold without the help of a real estate agent. The biggest benefit to the seller is they avoid paying commission fees — but there are few benefits to the buyer.
If a homeowner doesn’t make a mortgage payment (usually, for more than 90 days), foreclosure is a legal process during which the owner forfeits all property rights.
The period of time in which a borrower cannot repay their loan in full without incurring a penalty fine by the lender.
Before submitting an offer on a home (or even engaging with a real estate agent) you’ll likely be required to get pre-approved. This means a lender has checked your credit, verified your information, and approved you for up to a specific loan amount for a period of up to 90 days.
Unlike pre-approval, pre-qualification is more of an estimate of how much you can afford to spend on a home.
LEGAL DOCUMENT TERMS:
A mortgage is the agreement between a borrower and a lender giving the lender the right to the borrower’s property if the borrower is unable to make loan payments (with interest) within an agreed upon timeline.
A purchase agreement demonstrates a buyer’s intent to purchase a piece of property and a seller’s intent to sell that property. The document outlines the terms and conditions of a sale and holds each party legally accountable to meeting their agreement.
A home’s title represents the rights to the property. Those rights are transferred from the seller to the buyer during a real estate transaction and give the buyer legal rights to the property upon closing.
Transfer of ownership
In real estate, transfer of ownership refers to transfer of a property’s deed and title from the seller to the buyer at closing.
Transfer tax is a transaction fee charged upon the transfer of a property’s title. It is imposed by the state, county, and municipal authority where the transaction is taking place and is based on the property’s value and classification.
A housing deed is the legal document transferring a title from the seller to the buyer. It must be a written document and is sometimes referred to as the vehicle of the property interest transfer.
Deed-in-lieu of foreclosure
A deed-in-lieu of foreclosure is a document transferring the title of a property from a homeowner to the bank that holds the mortgage. A homeowner might submit a deed-in-lieu of foreclosure if the bank has denied them a loan modification or short sale. However, the bank can deny the request for a deed-in-lieu (and often do).
Before buying a home, a buyer can obtain a pre-approval letter from a bank, which provides an estimate on how much the bank will lend that person. This letter will help determine what the buyer can afford.