Real Estate Jargon Explained for First-Time Homebuyers

Buying your first home or property can be a little intimidating. It is a long-term commitment that often involves a complex web of financial transactions. However, learning real estate jargon can make this process a lot easier. Here are some basic terms to help you get started.
Activity List:
A detailed list of properties a real estate agent has sold over a specified period.
Ad hoc Partnership:
A formal arrangement a buyer makes with an investor to share the buying costs and profits of a property.
Adjustable Rate Mortgage:
A mortgage option whose interest rates change throughout the life of the loan.
Affordability:
A buyer’s ability to pay for expenses without having to supplement income through credit lines.
Appraisal:
The process through which a property’s value is assessed by a lender before a buyer can be approved for a loan.
Appreciation:
This is when the value of property increases.
Balloon Mortgage:
A mortgage option that takes the form of a hybrid loan for a set number of years. When this period lapses, borrowers are required to pay the loan amount in full.
Buyer’s Market:
When the real estate market swings in favor of buyers because the demand for housing is low but the supply of property is high.
Cap:
The highest or lowest interest rates can go within a certain period. Caps can be imposed over a 6-month, 12-month or lifetime period.
Capital Gain:
Profit made when selling a home.
Closing Costs:
Fees paid to the lender and other parties to conclude the sale of a property.
Commission:
Fees paid to real estate agents and brokers for their services. It is expressed as a percentage of a property’s purchase price.
Comparable or comps:
A list of similar properties to the one on sale compiled for the purpose of determining a property’s fair market value.
Condominium:
A housing unit whose interior space can be purchased and owned by an individual buyer, but whose exterior space is owned communally.
Consumer Debt:
High interest expenses that do not appreciate or increase in value.
Contingencies:
Clauses or conditions included in purchase contract which must be met for the sale of a property to continue.
Comparative or co-op apartment:
A housing unit whose ownership is expressed as shares granted to a buyer after successful purchase.
Credit Report:
Document detailing the financial and credit history of a loan applicant for the purpose of assessing creditworthiness.
Distressed Sale:
A type of real estate transaction where the owner of a property is forced to sell it by financial or personal circumstances.
Down Payment:
A percentage of a property’s purchase price a buyer needs to contribute in order to obtain a mortgage loan.
Dual Agency:
When a buyer is represented by a real estate agent who works for the same agency that listed a property he or she wants to purchase.
Escrow:
The act of employing a neutral third party to mediate a real estate transaction.
Fair Market Value:
What a property is worth compared to similar properties in the same location and what a buyer is willing to pay when there are no external pressurizing circumstances.
Fixed Rate Mortgage:
A mortgage option with interest rates and monthly payments that never change throughout the life of a loan.
Flippers:
Individuals or companies that purchase cheap, damaged properties with the intent of making repairs and selling them for a higher price for profit.
Foreclosure:
A process through which a lender repossesses property from an owner as a result of defaulting on mortgage payments.
Fully Indexed Rate:
The interest rate determined when a lender combines the index and margin.
Home Equity:
The amount or positive balance that a borrower has already paid on a mortgage loan.
Homeowners Insurance:
An insurance option that covers the costs of repairing or rebuilding property in the event of damage.
Hybrid Mortgage:
A mortgage option that starts off as a fixed rate loan and changes into an adjustable loan after a set number of years.
Index:
A reference used to determine the market-related interest rate on loans.
Income:
Amount of money you earn over any period from any source.
Interest:
The fee lenders charge borrowers for using their funds.
Interest-Only Mortgage:
A mortgage option that allows a borrower to pay only the interest rate for a specified period before increments are added to monthly payments to cover the principal amount.
Latent Defects:
Hidden flaws or damage to property that can only be discovered through thorough inspection.
Listing Agreement:
When a seller of property comes into agreement with a real estate agent to work exclusively with him or her on the condition that the agent will attract creditworthy buyers.
Loan Points:
A fee a lender charges a borrower that amounts to 1% of the loan amount.
Margin:
One part of the interest rate that expresses the amount of profit the lender wants to make from a loan.
Mortgage Broker:
An individual whose job is to help buyers find affordable mortgage loans, complete loan applications forms and negotiate with lenders.
Patent Defect:
Obvious, visible flaws or damage to a property.
Prepayment Penalty:
A penalty that discourages borrowers from making mortgage payments in advance.
Principal Amount:
The amount a lender loans a client which needs to be paid back on a monthly basis.
Property Taxes:
Taxes charged for owning property.
Ratified Sales Contract:
An offer to purchase property between buyer and seller that has been approved and signed by both parties.
Real Estate Agent:
An individual charged with the responsibility of finding property, drafting agreements, negotiating and closing the sale on behalf of a buyer or seller.
Real Estate Broker:
An individual who supervises real estate agents. He or she may also act as a sales agent and office manager for the agency.
Real Estate Investment Trust:
A group of individuals who pool money together to invest in residential and commercial income properties managed by a company.
Realtor:
A real estate agent or broker who is a member of the National Association of Realtors and conducts business based on the organization’s principles, practices and code of ethics.
Resale Potential or Value:
What property that has already been purchased could sell for in future.
Reverse Mortgage:
A loan given against home equity to adults 62 years and older where recipients receive a monthly check from the lender to spend however they see fit.
Second Mortgage:
Also known as a Home Equity Line of Credit, it is a loan a person applies for using home equity as collateral. Repayments go towards paying off the first mortgage before the second. It is possible to take out a third, fourth and even fifth mortgage.
Seller’s Market:
When the real estate market swings in favor of property sellers because the demand for housing is high but the supply is limited.
Shared Equity Partnership:
A business agreement in which a buyer and private investor share costs of purchasing and maintaining property and distribute profits accordingly after the property is sold.
Short Sale:
A real estate transaction where a property is sold to prevent it from going into foreclosure.
Single Agency:
When a real estate agent represents the buyer exclusively and does not use property listings made by the agency he or she works for.
Staging:
The technique of decorating the interior and exterior of a property for the purpose of making it more appealing to buyers.
Tax-Deductible:
Payment items you can deduct to reduce your taxable income.
Title Insurance:
A type of insurance that lenders require borrowers to purchase to provide protection should claims be made against the property’s ownership after a sale.
Armed with a new knowledge of real estate jargon, you will be in a better position to find, negotiate and purchase the home or property of your dreams. Explore your options with a certified real estate agent or broker to find a solution that works best for you.