Real Estate Terms to Know

Whether it’s your first time dealing with real estate or it’s just been a while, there may be a lot of terms that you’ll hear and won’t be familiar with. This can leave buyers frustrated and confused. Below are definitions to some commonly used terms to get you educated and ahead of the game.

To search for a particular term, use your “ctrl” key and “F” key together to bring up the word finder.

Terms to Know

Addenda
These are supplemental documents that are part of a purchase agreement.

Adjustable Rate Mortgage, ARM
A loan where the interest rate adjusts to current rates during the duration of the loan.

Annual Percentage Rate, APR
The cost of the loan, including the interest rate, points, origination fee and other charges.

Appraisal
An estimate of the value of a property, made by a state licensed professional appraiser.

Assessments
When a city makes improvements to city property, homeowners must pay for these improvements through their city taxes.

Association Dues
Payments condominium and townhouse owners make for upkeep and management of shared property.

Assumable
A loan where a buyer arranges to take over the seller’s original loan.

Buyer’s Broker
An agent who works on behalf of the buyer.

Closing
The meeting between the buyer, seller, and lender (or their agents) where the property and funds legally change hands. Also called settlement.

Closing Costs (Settlement Costs)
The costs and fees associated with the official change in ownership of the property and with obtaining your mortgage that are assessed at the closing or settlement. Closing costs include required certifications, insurance, taxes, and other fees, and typically total between 3 and 6 percent of the mortgage amount.

Commitment Letter
A letter from your lender showing qualification of a loan and listing the terms.

Contingency
An addition to a purchase agreement stating that certain terms be met within a time frame for the agreement to remain valid.

Contract for Deed
An owner offering the buyer financing, and the buyer makes monthly installments to the owner.

Conventional Loan
Loans without government involvement.

Credit Report
A report that documents a borrower’s credit history and current status. Borrowers can examine their own credit reports, although most credit reporting companies charge a fee to provide a report.

Credit Score
A rating based on your credit history.

Default
Failure of loan payment.

Down Payment
An up-front payment made on a home.

Earnest Money
Money paid to the agent when an offer is made on a property. If the offer is approved, the money is counted toward payment of the property. If the offer is denied, the money is returned to the buyer.

Equity
The portion of the property that you own that is clear of any mortgage.

Escrow
Money paid in addition to the monthly mortgage payment that goes into a special account set up by the lender and is held to pay for taxes and insurance. “Escrow” can also refer to a third party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement.

FHA Loans
Loans that are backed by the Federal Housing Administration.

Fixed Rate Loan
A loan that has a constant rate for the duration of the terms.

Good Faith Estimate
Document provided by lender which estimates the various fees and closing costs associated with the home purchase.

Gross Income
Your income before taxes.

HUD-1 Form
A settlement statement of all of the closing costs – law requires that parties are furnished with this prior to closing.

Homeowner’s Insurance
Insurance which homeowners purchase to protect their investment.

Homestead Taxes
Property taxes paid by owners who actually live in the home.

Interest
Lender’s charge for a loan, which pays the lender’s costs of doing business. This is paid in addition to your monthly principal payment.

Loan Origination Fees
Fees you pay your lender for handling and processing your loan application.

Loan Processing
An analysis by a lender to determine your qualification for a loan.

Lock-In Agreement
An agreement you make with your lender to lock in at the rate you qualified at.

Long-Term Debt
Debt you will owe on for more than six months.

Mortgage Discount Points
Prepaid interest on a loan.

Mortgage Insurance Premium, MIP
Insurance that a lender is required to charge for on an FHA loan.

PITI–The Monthly Loan Payment
Principal, Interest, Taxes, and Insurance – All factors involved in a monthly loan payment.

Points (Loans Discount Points)
Points are prepaid interest on your mortgage, charged by the lender at the time of the closing. Each point is one percent of the loan amount that is, 2 points on a $100,000 mortgage would be $2,000.

Pre-Approval Letter
A letter from an FDIC institutional lender that states the borrower’s credit, bank references and employment has been verified. It informs a buyer of the loan amount they can obtain.

Pre-Paids
The expenses that are put into escrow at closing, usually including real estate taxes, insurance, and interest.

Prepayment Penalty
A penalty fee assigned for early payoff on a loan.

Prime Mortgage
Highest grade of mortgage that you qualify for.

Principal
The amount of debt, not including interest, left on a loan; also the face amount of the mortgage.

Private Mortgage Insurance, PMI
If you make less than a 20% down payment on a conventional loan, you will be required to pay for this insurance.

Property Tax Adjustment
Reimbursement to the seller for taxes already paid for the year.

Purchase Agreement
A legally binding agreement between the buyer and seller that lists the terms and conditions of the sale of the property.

Re-Issue Credit
Savings on the cost of homeowner’s insurance for using the same company the previous owner used.

Sub-Prime Mortgage
Has a higher interest rate than prime mortgage.

Subagent
A seller’s agent that owes their duties to the seller. A subagent may bring a potential buyer to a property.

Title Insurance
Insurance that you pay to protect the lender from claims on the property title.

Truth-In-Housing Inspection Report
An inspection that the seller pays for that states the condition of the house.

Truth-In-Lending Disclosure Statement
A statement from your lender stating all fees and costs of a loan using the annual percentage rate.

Underwriting
Risk analysis conducted by a lender to decide whether to approve you for the loan.

VA Loan
Low-interest, no down payment loans offered to people who served in the U.S. Military and issued from the Veterans Administration.

Think I’m missing one?  Tell me in the comments.

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