We are here again with our new blog that will help you to understand real estate vocabulary. These terms are one of the most comprehensive and are used by both professionals & amateurs in the residential real estate market.
Buying or selling a home can be a complicated and a confusing process, especially for the first-timers. Throughout the process, you would encounter unfamiliar terms. Having a basic knowledge of such concepts will surely give you peace of mind and may also help you save considerably in the end.
Since the vocabulary of terms is rather long one, we will cover some of the essential residential real estate terms (A-D) in this post and the remaining terms will be shared in our upcoming posts. We hope these posts will be informative and worthwhile reading for you. We would love to hear about your feedback, doubts and suggestions.
Here are a few important real estate terms for residential properties:
Amenities: Amenities are the enhancements that a property offers to its owners. These usually include a doorman, health club, swimming pool, garage, children’s playroom, common lounge, etc.
Amortization: Amortization is the periodic payment of a liability (both principal and interest), or writing-off of a non-depreciable asset.
Amortization Schedule: An amortization schedule is the designation of periodic payments of principal and interest to eventually pay off the liability.
Annual Percentage Rate (APR): APR is the actual effective cost of a loan, expressed on a yearly basis. It includes all costs associated with getting a mortgage such as interest, mortgage insurance, and other related fees and charges for the loan.
Application: Application is the first step in the official loan approval process. It is to record the information of a potential borrower necessary to the underwriting process.
Appraisal: The evaluation of a property on its price by a licensed appraiser based on recent comparable property sales. The appraised value is used by a bank to determine the lending limit for the property.
Appraiser: An individual with a valid license and experience to evaluate a property on its price based on recent comparable property sales.
ARM: Adjustable Rate Mortgage is a mortgage loan with provision of changes in the interest rates. Whenever there is a change in the interest rate, the lender recalculates the monthly payment amounts. However, the change in monthly payment amount is usually subject to a Cap.
Assessor: A government official who is responsible for determining the value of a property for the purpose of taxation.
Assumable Mortgage: A mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer, the responsibility to repay it also shifts from seller to the buyer. There generally is some fee and/or a credit package involved in the transfer of an assumable mortgage.
Balloon Mortgage: A balloon mortgage is a short-term mortgage that does not fully amortize the loan. There are some fixed number of installments for principal and interest. The balance mortgage amount becomes due for payment in a lump sum after that.
Bankruptcy: Bankruptcy is a state where a person or business is unable to repay its outstanding debts. The process starts with a petition to be filed by the debtor.
Borrower: Borrower is a person or a business that uses funds or services on credit from a lender and then repays the debt with interest to the lender as per agreed terms.
Budget: A detailed record of all sources of funds and its spending during a specific period of time.
Cap: Cap is a limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.
Cash Reserves: It is a mortgage commitment that the lender puts on borrower. This amount is generally equal to the cost of principal, interest, taxes, insurance, etc for a pre-decided number of months. The borrower is required to keep this amount in the bank account at the time of the closing.
Certificate of Title: A legal document or certificate duly qualified by legal source or title Company that shows property legally belongs to the current owner and it should be clear and free of all encumbrances or other claims.
Closing: Also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.
Closing Costs: Customary costs are over and above the sale price of the property that must be paid to cover the transfer of ownership at the time of closing. These costs generally vary by geographic location and are typically detailed to the borrower after submission of the loan application.
Commission: An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the deal.
Condominium: It is a building or a complex of buildings containing a number of individually owned apartments or houses.
Conventional Loan: A private sector loan, one that is not guaranteed or insured by the US Government.
Cooperative (Co-op): A cooperative is a building owned by a corporation and residents purchase stock in the corporation. Each stockholder is then entitled to live in a specific unit of the structure equal to the stock holding.
Credit History: Credit history is a record of an individual’s debt repayments. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.
Credit Report: Credit report is a record that lists all the assets and liabilities of an individual.
Credit Bureau Score: A number representing the possibility a borrower may default. It is based upon credit history and is used to determine ability to qualify for a mortgage loan.
Debt-to-Income Ratio: It is relation of borrower’s monthly payment obligation on long-term debts divided by gross monthly income, expressed as a percentage. As per the Federal Housing Administration, the-monthly mortgage payment should not be more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of monthly gross income.
Deed: It is a written document that transfers ownership of a property to a person.
Deed-in-Lieu of Foreclosure: It is the conveyance of title to the mortgagee by a mortgagor in default. This process doesn’t allow the mortgagee to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.
Default: The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.
Delinquency: Failure of a borrower to make timely loan payments under a loan agreement.
Discount Point: Normally paid at the time of closing and generally calculated to be equivalent to 1% of the total loan amount. Discount points are paid to reduce the interest rate on a loan.
Down Payment: It is the amount of money that a buyer pays upfront while signing the sale contract and is generally 10% of the purchase price.