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Real Estate Terms You Need to Know

Real Estate TermsWhen buying a home there lots of terms that will be thrown around by your real estate agent, title company and mortgage company. While your real estate agent should be happy to explain the process and terms during your transaction, it is always a good to have an idea of these terms before you go to buy or sell a home. Here are a few terms that will help you in your real estate transaction. (If you have a specific question feel free to email Terri or Kristen.)

 

  • Adjustable Rate Mortgage (ARM)– A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
  • Annual Percentage Rate (APR)– This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. You can use this as a guideline to get close to the APR: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. Because you are using the same payment on a smaller amount, the APR is always higher than the actual note rate on your loan
  • Appraisal An individual who is qualified and licensed by education, training, and experience will estimate the value of real property and personal property. The value is then sent to the mortgage company and will define the amount the borrower can finance for their home.
  • Assessed Value– The valuation placed on property by a public tax assessor for purposes of taxation. This is not equivalent to the market value. Owners will “fight” to lower this amount so their taxes are lower.
  • Broker Broker has several meanings in different situations. For your real estate agent, a broker is who they work under. Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
  • Certificate of Title– A document demonstrating legal proof of ownership.
  • Chain of Title– An analysis of the transfers of title to a piece of property over the years. The title company will be running the title check in order to make sure you are receiving a clear certificate of title.
  • Chattels– Chattel is personal property, of which there are two types.  The first type are real chattels, which are fixtures and buildings.  The other type are personal chattels, which are furniture, clothes, and other similar items. Real chattel will be included with the sale of a home, while personal chattel does not convey with the sale unless stated in the contract.
  • Closing Costs– Closing costs are separated into two categories. These two categories are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender should make an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate so the buyer will know how much money to bring to closing.
  • Commissions- Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including real estate agents, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction.
  • Contract of Sale– A written agreement that establishes the terms and conditions associated with the sell of property. Your real estate agent will help you in writing up the contract and negotiating terms of the contract.
  • Covenant– The conditions that affect the use of property or land that is written into the title.
  • Earnest Money– Deposit money that a potential buyer gives to the seller when signing the contract.  The money is intended to demonstrate that the buyer is serious about making the purchase.  If the sale goes through, the money is applied to the down payment.  If not, the money is forfeited by the buyer unless there was an agreement for the money to be refundable.
  • Encroachment- A situation that occurs when a building overhangs onto someone else’s property or when a fence is built beyond the dividing line that is located between two properties. If there are any encroachments they will come up in the survey.
  • Exclusive Listing– A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time. This contract is between you and your real estate agent.
  • Home Inspection– A thorough inspection by a professional who is licensed that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. A home inspection is always a must! If you are buying a foreclosure a home inspection is recommended still, the bank will not make any improvements but you will know what you are buying.
  • Home Owner’s Insurance– An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents. Home owner’s insurance will have to be purchased at the time of purchasing a home loan.
  • Mortgage Insurance- Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value higher than eighty percent. If the loan to value is higher than 80% it is considered a no Mortgage Insurance loan, yet sometimes this causes a slightly higher interest rate. Also, FHA loans and certain first-time home buyer programs require mortgage insurance regardless of the loan-to-value.
  • Origination Fee- A fee that the buyer has to pay to the lender in order to initiate a new loan. There are programs and lenders who do not have this charge. Talk to many lenders to see what is the best deal for you in advance.
  • Owner Financing– A property purchase transaction in which the property seller provides all or part of the financing. These loans are typically used when a buyer is looking for a second option to borrowing from a bank. A seller usually wants a larger down payment and slightly higher interest rate due to the risk the seller is taking on.
  • PITI- An abbreviation that stands for Principal, Interest, Taxes, and Insurance.  All of these payments are included in your monthly mortgage payment amount.
  • Pre-approval– A loosely used term which is generally taken to mean that a borrower has completed a loan application and been approved up to a certain loan amount. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. This step should be taken before you take a look at any homes.
  • Right of First Refusal- A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others. This usually occurs when a buyer’s offer has been accepted but they must sell their home first.
  • Survey– A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features. In each transaction a survey must be provided with no improvements or a new survey will be purchased.
  • Title Company- A company that specializes in examining and insuring titles to real estate. They will also prepare all closing documents.
  • Title Insurance- Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.

 

 

 

Some definitions from Real Estate Glossary and Real Estate Terms.

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