Real Estate Jargon Explained for First-Time Homebuyers

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.

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