Liens, Leases, and Land: A Guide to Common Real Estate Terms
In the U.S., real estate plays many important roles. Not only is it crucial in terms of housing, but the acquisition of land is also one of the oldest and most reliable means of building wealth. Whether you're buying property to build on or live in, it can be confusing, particularly for those who have never purchased a home. Even before seeking a real estate agent, one should get educated about the various aspects and laws associated with the buying and selling of property. It's equally important that people understand real estate terminology so that they know what they're doing throughout the process.
Adjustable-Rate Mortgage: An adjustable-rate mortgage is a mortgage in which the interest rate, after a period of being fixed, changes annually based on the status of the market.
Appraisal: An appraisal, which is performed by a licensed appraiser, is meant to establish the value of a property.
Buyer's Agent: A real estate agent who acts on behalf of the buyer, the party interested in purchasing a property, is a buyer's agent.
Closing: Closing is the final step in the sale and purchase of real estate property. It involves the signing of required papers such as the note and mortgage by all involved parties. "Settlement" is a term used in place of "closing" in some areas.
Closing Costs: The closing costs are the amount of money that one pays beyond the price of the property. This includes expenses such as taxes, loan origination fees, and appraisal fees.
Contingency Clause: A contingency clause is a condition that must be met before a real estate contract becomes binding.
Due Diligence: Due diligence is a phrase that means that potential homebuyers thoroughly research a property for potential problems before signing paperwork. A person should perform due diligence once their offer has been accepted.
Earnest Money: This is money that the buyer puts down to represent their intention to purchase a property. This is seen as a sign of good faith. It may be submitted with the offer or with the signing of the purchase agreement or sales contract.
Equity: The market value of a home minus the amount the homeowner owes the lender is called equity.
Escrow: The delivering of something of value, such as a deed or money, to an impartial third party until all conditions are met or resolved is called escrow. The person serving as the third party is typically called an escrow officer.
Fair Housing Act: This is a housing-related law that protects individuals from being discriminated against when buying or renting a home, seeking a loan, or getting other housing-related assistance.
Home Inspection: A home inspection is the inspection of a home or property during the selling process that assesses its condition. This typically includes the examination of the roof, foundation, and electrical work for defects that affect the property's value. The inspection, which is performed by a professional for a fee, also looks for evidence of damage caused by insects, fire, or water.
Homeowners' Association: An organization that is established by communities to enforce property rules is a homeowners' association. Membership is required when buying a home that is located in an area with an HOA.
Jumbo Mortgage: Also referred to as a jumbo loan, a jumbo mortgage is a mortgage that is meant for buying luxury properties. For this type of loan, which exceeds conforming loan limits for Fannie Mae and Freddie Mac, borrowers should have good credit and a low loan-to-debt ratio.
Junior Mortgage: Also known as a second mortgage, a junior mortgage uses the home as collateral and is obtained after a first mortgage is approved.
Lien: A lien is a legal claim on a property by an entity that may foreclose if the debt or loan is not paid.
Loan-to-Value Ratio (LTV): The loan-to-value ratio is the ratio of the borrowed amount of money to the value of the home being borrowed against.
Negative Amortization: Negative amortization is an increase in how much one owes on their loan as a result of not paying enough to cover the interest due.
Private Mortgage Insurance: PMI, or private mortgage insurance, is a type of insurance that one may need to pay for if they get a conventional loan and put less than 20 percent down. It is meant to protect the lender in the event that a borrower defaults on the loan.
Real Estate Purchase Agreement: A real estate purchase agreement is a contract signed by both the seller and the buyer agreeing to certain terms and conditions, such as a purchase price.
Seller Concessions: Seller concessions, which are also known as seller contributions, is an agreement between the buyer and seller in which the seller agrees to pay some of the financing costs at closing.
Seller Financing: Seller financing is when a seller finances the purchase of a home instead of a financial institution. This is also called owner financing.
Sweat Equity: Sweat equity is additional value added onto a home due to labor-based improvements that have been made to the property.
Title Insurance: Title insurance is a fee the buyer pays at closing that protects both them and the lender from title problems or disputes.
Title Search: Research done on a title by searching public real estate records to confirm that there are no claims on a property and that the seller is the legal owner is called a title search.
Zoning Laws: Zoning laws regulate real property in an area and how it may and may not be used.
By Jim Olenbush