The real estate business revolves around a slew of terms that are often misunderstood. If you've ever found yourself Googling amortization, right of refusal, or transfer tax, you're not alone. There are certain words and phrases associated with the process of applying for a mortgage, searching for a property, and buying a home that aren't common knowledge to some people.
But if you have a basic understanding of real estate terms like these, you can proudly showcase how much you know when communicating with industry professionals, including agents, and bonding with friends who are also homeowners and investors.
Ready to advance your real estate expertise? Take a look below at some of the top real estate terms that are helpful to know, especially if you're a first-time buyer. Feel free to reach out to us whenever you need help to brush up on your real estate skills.
Addendum
A document that is added to a real estate contract or purchase agreement.
Amortization Repaying a debt over a set period of time. Amortization schedules are used by lenders, such as financial institutions, to present a loan repayment schedule based on a specific maturity date.
Annual percentage rate (APR) The annual rate of interest charged to borrowers that you can expect to pay when securing a mortgage loan. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan.
Appraisal An approximation of a home's current value based on a range of factors such as the price of similar properties in the area.
Appreciation The increase in a property's value over time.
Assessed Value When a county, city, or town hires an assessor to determine the value of a property for tax purposes.
Broker A real estate broker, is a person who represents sellers or buyers of real estate. They can work independently and hire other real estate agents to work for them.
Closing The final step of a real estate transaction when a property is finally transferred from the seller to the buyer.
Closing Costs The costs and fees that come along with the purchase of a property.
Construction loan
This is a short-term loan that covers the cost of building a property.
Conventional mortgage A type of mortgage loan that is not insured or guaranteed by the government. Instead, the loan is backed by private lenders, and its insurance is usually paid by the borrower. This type of loan is ideal for borrowers with strong credit.
Deed The deed refers to the legal document that transfers ownership of a property from a seller to a buyer.
Default Default refers to when a homeowner fails to make several mortgage payments on time, according to the terms of the loan contract.
Delinquency Delinquency means a homeowner has failed to make a mortgage payment on time.
Down payment The down payment is the amount of money a buyer has saved in order to purchase a property. This can typically range from 5 - 20% of the home's cost.
Equity This is calculated by taking the difference between the amount owed to a lender and the market value of a property.
Escrow During the home buying process, your money will be placed "in escrow" and is protected by a third party until the real estate transaction is closed.
Exclusive listing An exclusive listing is when a seller commits to working with one specific broker and a designated agent on the sale of a property.
Fair Credit Reporting Act This federal law determines how a consumer's credit information can be used.
Fair market value The amount a property would sell for in a competitive market, or when a seller and buyer can agree on the price of a property.
FHA mortgage A Federal Housing Administration mortgage loan is backed by the government and is typically reserved for buyers with a low credit score or significant amount of debt.
Fixed-rate mortgage This mortgage has the same interest rate for the term of the loan.
Foreclosure A property goes into foreclosure when the homeowner misses mortgage payments and the lender tries to recover the balance of a loan.
Home equity line of credit This is a second mortgage that allows a homeowner to borrow money against their home's value. HELOC is a revolving source of funds, much like a credit card, that you can access as you choose.
Home inspection A home inspection involves the evaluation of a property's condition, including electrical work, sewage, and plumbing before the closing.
Homeowner's association An organization in a subdivision, planned community, or condominium building that makes and enforces rules for the properties and its residents. Those who purchase property within an HOA's jurisdiction are required to pay dues, known as HOA fees.
Homeowner's insurance Financial protection that helps with covering costs associated with repairs of a property or even replacement if necessary.
Lender A lender is a financial institution or person that loans money to another party for the purpose of purchasing real estate.
Lien A lien gives an individual or mortgage lender a claim to a property until a debt is paid off. If the debt goes unpaid, they have the right to take it back.
Mortgage A mortgage is a loan that is used to purchase a home or other form of real estate.
Mortgage broker A mortgage broker acts as the middleman between mortgage borrowers and potential lenders.
Mortgage insurance This form of insurance can protect a lender in the event that a homeowner defaults on their mortgage.
Negative amortization When interest on a mortgage loan has not been paid to the lender, it's added to the loan balance.
Original principal balance This is the balance of the mortgage loan before interest is taken into account.
Pre-approval The pre-approval process involves a potential lender or bank reviewing an individual's finances, including their income, assets, and credit history, to determine how much money can likely be borrowed.
Prime interest rate Banks offer customers who have proven to be creditworthy their best, or prime, interest rate.
Principal The principal is the amount of money you borrowed from a lender, excluding the interest.
Real estate agent A person who sells or rents out buildings and land for clients. They also helps sellers or buyers complete real estate transactions.
REALTOR® A licensed real estate professional who is member of the NATIONAL ASSOCIATION OF REALTORS® and subscribes to its strict Code of Ethics.
Right of Refusal A lease or contract might include "right of first refusal" to note that an individual has the right to put an offer on a property before it is listed on the market by a seller.
Second mortgage Also known as a junior lien, a second mortgage is an additional loan taken on the same property. It typically has a higher interest rate than the primary mortgage and can be used for repairs, among other reasons.
Servicer A servicer is a company that monitors and manages mortgage loans.
Title This legal document states who has owned a property in the past and notes any liens associated with it.
Transfer of ownership This means that a property has a new owner who purchased it and assumed its mortgage debt.
Transfer tax A tax that is charged by a state, county, or city when ownership of a property is transferred.
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