Real estate may seem like a confusing business full of changing numbers, market values and lots of strange terminology. While there are lots of strange things which do change on a day to day basis within the business the lingo is a constant and you really only need to know a handful of terms to get by. These are the twenty most common real estate terms so you can better understand trends you read about as well as be able to talk with an agent without feeling like they’re speaking a foreign language.
Adjustable Rate Loan - A loan in which the interest rate can increase or decrease over the term of the loan based on the market and economics. There is no certain interest rate at any time.
Amortization - The process of paying off debt in periodic payments where you pay down the principal and interest on a loan at equal and specific time intervals. This is typically described and shown in an amortization table.
Appraisal - An estimated value determined by a professional who surveys the property and compares it to current market values.
APR (Annual Percentage Rate) - An annual interest rate on a loan that factors in all fees and points thus summing it up into one rate.
Assessed Value - The value a property appraises for by a public accessor which is then used to determine the property taxes for that given tax year.
Closing - The final day a deal is reached when the title on a property is transferred from one person to another either through sale or other means.
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Cloud on Title - A lien or claim which prevents a title from being transferred free and clear. This is something that was unpaid or not taken care of previous to the sale or transfer.
Contingency - A section of a contract which states that something specific must be done before the rest of the contract can be acted upon and completed. This is done often with wills and trust deeds where the transfer cannot occur until the beneficiary completes the stated terms.
Deed - A document which assigns and names title on a property or interest in a property. A deed is used as a tool in real estate.
Down Payment - The money a buyer pay upfront for a property to secure the loan and title. For residential the minimum is usually around 5% while commercial property tends to require more money upfront.
Equity - The value of a property over the debt of the mortgage. Any increased amount of value after subtracting the amount paid for the loan.
Escrow Account - A bank account set up to make ensure the buyer has enough funds in place for make the mortgage payments as well as pay for taxes and property insurance. Often these are set up as automatic withdrawal accounts where the funds are taken out on a monthly basis without the owner having to do anything.
FHA Loan - A loan created by a lender and insured by the Federal Housing Administration.
Lien - A right of creditors to have any debts a person owes them paid against the property of the defaulting individual. Thus when a property is sold or goes into foreclosure and the bank assumes the mortgage the debts are paid against the value back to the creditors. Liens are recorded with the county clerk and are public information which can be looked up.
Market Value - The value of a property at a specific time if it were to be sold at that time.
PITI - A term that stands for Principal, Interest, Taxes and Insurance. A lender uses this information to determine how much of a loan you can qualify for based on your income. Most lenders will only allow you to use 30% of your monthly income to cover all these factors or 40% when combined with other debts such as car payments or credit card debts.
Pre-Qualification - The process by which a lender determines how much a person can qualify for with a loan based on their income and debts.
Principal - The money owed on a loan at any given time.
Title - A document that proves ownership of a property.
Title Insurance - Insurance of a return on the investment should something go wrong with the title after possession of the property occurs.
While there are tons of other
real estate terms you might come across during your
real estate adventures these ones should at least get you by in the beginning as they are the foundation of all real estate transactions and start of all talks and negotiations.