Frequently Used Real Estate Terminology You Should Know
Adjustable Rate Mortgage (ARM) — The interest rate is tied to a financial index making the monthly mortgage payment go up or down over time.
Annual Percentage Rate (APR) — The percent of interest that will be charged on a home loan.
Appraisal — A report highlighting the estimated value of the property completed by a qualified 3rd party. This is typically done for the benefit of the buyer to ensure the property is worth what they are paying. Read: What is an appraisal when buying a house?
Appraisal contingency — An appraisal contingency is a clause that allows a buyer to cancel a purchase agreement if a home’s appraised value is less than the sale price.
Association Fee/HOA Fee — In addition to a mortgage, certain housing communities such as townhomes have a monthly fee associated with maintaining the common areas and amenities.
Backup offer — When a buyer is interested in purchasing a property that is already under contract with someone else, that buyer has an opportunity to submit a “backup offer”, in case the first transaction falls apart. A backup offer must still be negotiated and any monies, such as earnest money, submitted, to confirm it is the next offer in line.
Buyer’s closing cost- Buyer’s closing cost are fees – charged by lenders and third parties – related to the purchase the home on top of down payment and principal and interest. Read: What is Buyer’s Closing Cost when buying a home in Phoenix AZ?
Closing — This is the final meeting where the buyer and seller sign the necessary paperwork, complete the transaction, and release/take possession of the property. Read: The Closing Process When Buying a House in Arizona
Closing Costs — The buyer and seller have expenses associated with the transaction other than that of the actual cost of the home. For example, the buyer has a variety of fees due for obtaining a new loan and the seller must pay commission to both agents.
Closing Disclosure — A form that provides the final details about the mortgage loan. It includes loan terms, projected monthly payments, and how much the extra fees will be.
Collateral — Something of value (in this case your home) that is held to ensure repayment of a mortgage or loan.
Commission — A percent of the sale price of the home that is paid to agents. The seller pays commission to both the buyer and listing agent. Read: Who pay real estate commission?
Comparable — Homes in the area of interest that have recently sold that have similar features. Read: What is comparative market analysis (cma)?
Contingencies — Conditions which must be met in order to close. Contingencies are typically tied to a date, referred to as a deadline. If the contingency is not satisfied the contract may be canceled. Read: What is contingency when buying a home?
Counteroffer — The response from the seller in regard to an offer.
Covenants, conditions & restrictions (CC&Rs)— Usually, these are the rules and regulations placed on real property by a homeowner’s association (HOA), a neighborhood association, a developer, or a builder that sets forth any requirements and limitations of what a homeowner is allowed to do with the property.
Days on market (DOM)— DOM is defined as the number of days from the date on which the property is listed for sale on the local real estate brokers’ multiple listing service (MLS) to the date when the seller has signed a contract for the sale of the property with the buyer. Read: What is days on market?
Debt to Income Ratio — A lender will look at a borrowers debt versus income to determine the amount of loan they are eligible for and if they can repay their debt plus the home loan. Read: What is debt to income ratio (DTI)?
Down payment — A percent of the cost of the property that is paid up front as a part of the mortgage. Read: How Important Is Your Down Payment When Buying a Home?
Due diligence— A due diligence period of time might be available in the purchase agreement, which is a time frame provided to a buyer to fully examine a property, often by hiring experts to inspect the property, perform tests, etc., so that a buyer may decide on how to proceed. Read: What is due diligence when buying a home?
Earnest Money — The deposit made from the buyer to the seller when submitting an offer. This deposit is typically held in trust by a third party. Upon closing the money will generally be applied to the down payment or closing cost. Read: What is earnest money when buying home?
Escrow — This term has multiple meanings; earnest money is typical held by a third party until closing in “escrow”. It can also be referred to as the time period from when the contract is written and accepted by the seller to when the home sale actually closes. Read: What you need to know about escrow?
Equity — The difference in the market value of a home versus what is owed on the home.
FHA — A mortgage that is financed through a private lender and insured by the Federal Housing Administration, often requiring a lower down payment and income to qualify. Read: Buying a house with FHA loan
Fixed Rate — The interest rate will remain the same for the entire life of the mortgage.
Home Equity Line of Credit — A loan or line of credit that is determined based on the equity or homes value after subtracting the loans owed.
Home Inspection — The process in which a professional inspects the seller’s home for issues that are not openly apparent, then creates a report for the buyer to review. Read: Why you should get an inspection when buying a home?
Home Warranty — An annual service that covers the cost of repairs or replacements to items covered in the plan; items like stoves, washer/dryers, etc. Read: What you need to know about home warranty?
Hybrid — A loan that starts with a fixed rate period, then converts to an adjustable rate.
iBuyer — An iBuyer is a company that uses technology to make an offer on your home quickly or “instantly” as the term implies.
Loan contingency — A loan contingency is a clause or addendum (also known as a mortgage contingency) in an offer contract that allows a buyer to back out of a deal and keep their deposit if they are unable to secure a mortgage with specified terms during a fixed period of time.
Mortgage Insurance — Insurance written in connection with a mortgage loan that protects the lender in the event the borrower cannot repay their loan. This is usually not required if the borrower has 20% or more for the down payment. Read: What is private mortgage insurance (PMI)?
Mortgage Note — A promise to pay a sum of money at a standard interest rate during a specific term that is secured by a mortgage.
Multiple Listing Service (MLS) — The national list of real estate properties that are available for sale. These are the most reliable sources to receive up-to-date listing information. Read: What is MLS in Real Estate?
Pre-Approval — The process in which a buyer must provide a mortgage professional the appropriate information on income, debts, and assets that will be used to make the initial credit only loan decision. Read: What is Mortgage Preapproval?
Pre-Qualification — Once approved for a loan, this is the process in which the maximum sale price, loan amount, and monthly payments are calculated for the borrower. This is not a loan approval however, it is useful to know prior to searching for a home. Read: What is mortgage prequalification when buying a house?
Preliminary report — A preliminary report reveals any issues with a title that need to be dealt with by the seller in order to deliver a clear title. It gives details such as ownership history, liens, and easements. The title company gathers this report by searching existing property records at the county recorder’s office.
Principal — The underlying amount of the loan which is actually borrowed.
Proof of funds— When you make an offer, sellers will require you to submit proof of funds. If you’re buying a house with a mortgage, it shows them that you have the cash available for your down payment and closing costs. If you’re paying all cash, your proof of funds shows you actually have the money.
Property Taxes — These are the taxes that are enforced by the city, town, county, and state government entities. These taxes are included in the total monthly mortgage payment and are held in escrow by the lender. Read: Understanding property tax in Arizona
REO — Real estate owned properties or foreclosed properties currently owned by a financial institution such as the bank that made the loan to the previous owner
Reverse Mortgage — This is specifically for seniors and it allows them to convert the equity in their home to cash.
Seller concession — Sellers may offer concessions as incentive buyers to purchase the home, or sweeten the deal. Read: What is seller paid closing cost?
Seller’s closing cost- Seller’s closing cost are fees seller will pay when selling a home. Read: What is seller closing cost when selling a home?
Seller disclosure — A seller’s disclosure is a disclosure by the seller of information about the property, or which could affect a buyer’s decision to purchase the property, all of which to the best of the seller’s knowledge. Read: What is seller property disclosure statement (SPDS)?
Short Sale — A situation when the seller’s lender is willing to accept an offer and allows the sale to be completed for an amount less than the mortgage amount owed by the seller.
Title — A legal document proving current and proper ownership of the property. Also referred to as a Title Deed, this document highlights the history of property ownership and transfers.
Title search — A title search examines public records for the history of the home, including sales, purchases, and tax and other types of liens.
Underwriting — The process in which the potential home buyer is evaluated for their financial ability to obtain and repay a loan. This normally consist of a credit check and appraisal of the property.
VA Loan — Loans that are given to Americans who have served in the armed forces. They are administered by the Department of Veteran Affairs. Read: What is VA loan?
