When it comes time for the average person to buy or sell a home, it is not uncommon that he or she is met with a barrage of industry-specific words that sometimes leave the buyer or seller confused—or pulling out their smartphones to look up the meaning of a term.
Especially for the first-time home buyer or seller, the process can seem overwhelming if you are unfamiliar with certain key words that would benefit you to understand.
That’s why we’ve compiled a list of commonly-used real estate terms and their definitions for you to brush up on.
Check out our list below!
Adjustable rate mortgage (ARM)
A mortgage loan with an interest rate that fluctuates in accordance with a designated market indicator — such as the weekly average of one-year U.S. Treasury Bills — over the life of the loan. To avoid constant and drastic fluctuations, ARMs typically limit how often and by how much the interest rate can vary.
Annual percentage rate (APR)
A yearly interest rate that includes upfront fees and costs paid to acquire the loan, calculated by taking the average compound interest rate over the term of the loan. Mortgage lenders are required to disclose the APR so that borrowers can more accurately compare the actual cost of different loans with different fees.
Appraisal
A determination of the value of something, such as jewelry, stock, or, in this case, the house you plan to buy. A professional appraiser — who should be a qualified, disinterested specialist in real estate appraisals, with expertise in the local geographic area — makes an estimate by examining the property, looking at the initial purchase price, and comparing it with recent sales of similar property.
Amortization
The periodic payment of principal and interest on a liability, including a mortgage.
Balloon mortgage
A balloon mortgage is a short-term mortgage with fixed installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at the end of the term.
Closing costs
Closing costs are the expenses incurred in the purchase and sale of real property paid at the time of settlement or closing. Some examples of closing costs are title insurance, attorney fees, appraisal fees, recording fees and taxes.
Commission
The commission is the payment to the broker for his or her efforts on marketing and selling the property, and is usually a percentage of the total purchase price.
Debt service
Debt Service is the cost of carrying a loan, usually through monthly payments, including the payment of interest and principal.
Down payment
The down payment is the amount of money a buyer pays up front in order to purchase a property. It is usually paid at the signing of the contract in the form of a certified check. The amount is typically 10% of the sales price.
Earnest money deposit
Earnest money deposit is the deposit a buyer makes at the time of submitting an offer to demonstrate the true intent to purchase.
Escrow
The holding of funds or documents by a neutral third party prior to closing your home sale.
Fixed-rate mortgage
A loan secured by real estate that has a fixed interest rate and payment amount for the term of the loan (typically 15 or 30 years).
Interest rate
The interest rate is the cost of borrowing money from a lender. Rates will vary and will change over time.
Loan-to-Value Ratio
The loan-to-value ratio is the mortgage amount divided by the lower of the purchase price or the appraised value of the property. This ratio is expressed as a percentage. A lender will use this ratio in determining the maximum mortgage loan that it will make on the property.
Market Value
The market value of a property is an estimation of the price for a property in relation to the current real estate market.
PITI
Abbreviation for the major expenses that make up a mortgage payment: principal (the amount borrowed), interest, (property) taxes, and (homeowners’) insurance.
Pre-approval
A pre-approval is a process in which a conditional commitment is issued after a loan profile is underwritten with all standard documentation except a property appraisal and a title search.
Pre-qualification
A pre-qualification is a process in which a loan officer calculates the housing-to-income ratio and the total debt-to-income ratio to determine an approximate maximum mortgage loan amount.
Real estate broker
A real estate professional licensed to negotiate the purchase and sale of real estate for a commission or fee.
Title
Ownership of real estate or personal property.
Underwriting
In mortgage lending, underwriting is the decision-making process used to determine whether the loan risk is acceptable to the lender.
Have questions? Want to know more about real estate in the Auburn-Opelika area? All you have to do is give Realtor Ryan Roberts a call at 334-750-9872!
Sources: realestateabc.com, worklife.columbia.edu
