A-Z real estate vocabulary for home buyers and sellers

Posted December 2, 2008 by Bernz

Nothing is more fundamental to buying or selling your home than understanding the language that realtors, lenders and others in the industry use. Here’s a list of common home buying and selling terms.

palm-beach-real-estateAdjustable Rate Mortgage (ARM) – A mortgage loan or deed of trust which allows the lender to adjust the interest rate at specific intervals as stated by the note. The payment is subject to change throughout the term of the loan.

Amortization – A periodic reduction of a mortgage by making specific payments over a stated period of time.

Appraisal – An expert or official valuation of a home. The lender will hire a qualified professional who makes an independent judgment of the home’s value based on its condition, prevailing prices in the neighborhood, resale values, age and other factors. An appraisal is different from a home inspection.

Annual Percentage Rate (APR) – The cost of credit expressed as a yearly rate.

Bridge Loan – A temporary mortgage loan to help a borrower obtain the necessary funds to purchase another home prior to the sale of the one they currently own.

Buy down – Money advanced by an individual to reduce the monthly payments for a home mortgage either during the entire term or for an initial period of years.

Closing – The act of finalizing the sale; the buyer signs the mortgage, and closing costs are paid.

Closing Costs – Costs associated with obtaining your loan, including title transfer, origination fee, hazard and mortgage insurance, credit report and appraisal fee.

Debt-to-Income Ratio – Also known as debt-to-earnings ratio. Compares how much you make to how much you owe. In other words, it compares your total income (salary and other revenues) to your total debt (credit cards, current loans, etc.). Note: Mortgage lenders use your debt-to-income ratio to help determine your credit worthiness. In fact, your debt-to-income ratio and your credit score are normally the top two criteria considered by mortgage lenders.

Earnest Money - A deposit paid by a buyer to a seller to demonstrate intention to complete the purchase.

Escrow or Escrow Account – Funds held before closing by a third party, usually including the earnest money deposit. Future taxes and homeowners insurance, held by the mortgage company after closing, are also considered escrow. Funds which are set aside and held in trust by a third party, usually to pay taxes and insurance on real estate.

Equity – The value a property owner has in real estate once the obligations and costs of selling are deducted.

Fixed-Rate Mortgage – A mortgage which the interest rate and payments remain the same for the life of the loan.

FSBO, For Sale By Owner – This term refers to property that is being sold without a real estate agent. FSBO is also used to refer to the home owner who is selling the property.

Gross Margin - The lenders profit margin on adjustable rate mortgages. This profit margin is usually in the 2-3% range and when added to the index rate, the sum equals the full note rate. For example, if the gross margin is 2% and the index rate is 10%, the note rate would be 12%.

Home Equity Loan - A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax-deductible. Often used for home improvement or freeing of equity investment in other real estate or investment.

Homeowners Insurance (also called Hazard Insurance) – A real estate insurance policy required of the buyer protecting the property against loss caused by fire, some natural causes, vandalism, etc. The homeowner’s insurance policy may also include added coverage such as personal liability and theft away from the home.

Income Ratio – An allowable percentage of monthly gross income which the proposed mortgage payment cannot exceed.

Jumbo Loan – A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Market Value – The value of a property determined by comparable sales, or the actual sale price.

Mortgage – A type of debt in which the borrower gives the lender a lien against the property until the funds are paid back.

Mortgage Broker – A firm or individual who for a commission matches borrowers and lenders. The lender or borrower may pay the fee. A mortgage broker takes applications and sometimes processes loans, but generally does not use its own funds for closing. A mortgage broker does not retain servicing.

Net Income: Your take-home pay, the amount of money that you receive in your paycheck after taxes and deductions.

Note – The signed obligation to repay a debt such as a mortgage note.

Origination Fee – The fee charged by a lender for processing a loan application. It usually amounts to 1% of the loan applied for.

Points – A charge equal to 1% of the loan amount which increases or equalizes the lenders yield or rate of return. Each discount point is worth approximately one fifth of a percent in interest on a 30 year fixed loan.

Refinance – Obtaining a new mortgage loan on property already owned and replacing the existing loan with a new one. This is often done when the existing loan interest rate is high and a new loan can be obtained at a much better interest rate.

Title – A document that gives evidence of an individual’s ownership of property.

Title Insurance – Insurance issued to the owner of real estate to protect them against claims arising by reason of defects in the title to the property.

Security interest – An interest that a lender takes in the borrower’s property to assure repayment of a debt.

Underwriting – The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

VA Loan – A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

Walk Through – The final inspection of a property being sold by the buyer to confirm that any contingencies specified in the purchase agreement such as repairs have been completed, fixture and non-fixture property is in place and confirm the electrical, mechanical, and plumbing systems are in working order.

Yield – A return on an investment which includes the interest rate charged, discount points paid and any other charges collected.

Zoning – The act of city or county authorities specifying the type of use to which property may be put in specific areas.

Popularity: 28% [?]

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Read more on Home Buyer's Manual at Wikinvest

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This entry was posted on Tuesday, December 2, 2008 at 2:05 pm and is filed under Investing in Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “A-Z real estate vocabulary for home buyers and sellers”

  1. Barb Says:
    June 22nd, 2009 at 4:04 pm

    good and useful list of terms – thanks!

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