As a real estate agent, it’s important to have a good understanding of common real estate terms and definitions. Here, we provide the common key terms you should be familiar with. Empower yourself with the language of real estate!
Common Real Estate Terms
The schedule mortgage payments spread out over time. In real estate, a buyer typically schedules one monthly payment over a 15- or 30-year period of time, known as their amortization schedule.
An assessment of the value of a property conducted by a licensed appraiser.
The amount a property increases in value over time.
The final stage of a real estate transaction where ownership of the property is transferred from the seller to the buyer, and all necessary documents are signed.
Recently sold properties in the same area and similar characteristics used to determine the market value of a property.
A condition or requirement that must be met for a real estate contract to be binding. Common contingencies include financing, inspections, and the sale of another property.
The difference between the market value of a property and the outstanding balance of any liens or mortgages on the property.
A property that is available for sale or rent. A listing can refer to the property itself or the agreement between the property owner and the real estate agent.
A loan obtained from a bank or lender to finance the purchase of a property, typically repaid over a specified period with interest.
The process of obtaining a preliminary loan approval from a lender based on a buyer’s creditworthiness, income, and financial information.
A legal document that proves ownership of a property. It is typically reviewed by a title company to ensure there are no liens or encumbrances on the property.
A deposit made by the buyer to demonstrate their seriousness and commitment to the purchase. It is typically held in escrow until closing.
A market condition in which there are more buyers than available properties, resulting in higher prices and fewer concessions from sellers.
A market condition in which there are more properties for sale than buyers, resulting in lower prices and more favorable terms for buyers.
Multiple Listing Service (MLS):
A database used by real estate agents to share property information with other agents. It is commonly used for marketing and finding properties for clients.
Comparative Market Analysis (CMA):
A report prepared by a real estate agent that analyzes recent sales and listings of similar properties to help determine a property’s market value.
A neutral third-party account where funds and documents related to a real estate transaction are held until all conditions are met and the transaction is completed.
Different Types of Mortgages
There are several different types of mortgages available to borrowers. Here are some common types and their definitions:
Fixed-Rate Mortgage (FRM):
In a fixed-rate mortgage, the interest rate remains constant for the entire loan term, typically 15 or 30 years. This allows borrowers to have a predictable monthly payment throughout the life of the loan.
Adjustable-Rate Mortgage (ARM):
An adjustable-rate mortgage has an interest rate that can fluctuate over time. The rate is typically fixed for an initial period (e.g., 3, 5, 7, or 10 years) and then adjusts periodically based on an index and margin.
A conventional mortgage is not insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). Conventional mortgages often require higher credit scores and down payments compared to government-backed loans.
A jumbo mortgage is a loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac, which are the government-sponsored enterprises that buy and sell mortgages. These loans are typically used for higher-priced homes and may have stricter qualification requirements.
With an interest-only mortgage, borrowers only make payments toward the interest for a specified period, often the first few years of the loan term. After that, the loan typically converts to a traditional amortizing loan, where payments include both principal and interest.
Reverse mortgages are available to homeowners aged 62 or older and allow them to convert a portion of their home’s equity into loan proceeds. The loan is repaid when the homeowner moves out, sells the property, or passes away.
Different Types of Loans
Government entities insure or guarantee these mortgage programs. The most common types are:
These loans require a lower down payment and have more flexible qualification criteria. They are designed for low-to-moderate-income borrowers and insured by the FHA.
The Department of Veteran Affairs guarantees VA loans that offer favorable mortgage terms, including no down payment requirements, and are available to eligible veterans, active-duty service members, and surviving spouses.
The U.S. Department of Agriculture offers USDA loans for rural and suburban homebuyers who meet income and location eligibility criteria.
Contractual Real Estate Definitions and Terms
Here are contractual real estate mortgage agreement clauses to know:
A clause that allows the lender to demand the full repayment of the loan if the borrower defaults on their payments.
A clause that allows the lender to demand full repayment of the loan if the borrower sells or transfers the property to another party.
Prepayment Penalty Clause:
A clause that requires the borrower to pay a fee if they pay off the loan before the end of the term.
Balloon Payment Clause:
A clause that requires the borrower to make a large payment at the end of the loan term to pay off the remaining balance.
A clause that requires the borrower to make monthly payments into an escrow account to cover expenses such as property taxes and insurance.
Late Payment Clause:
A clause that outlines the penalties or fees that the borrower will incur if they make a late payment.
A clause that outlines the consequences of defaulting on the loan, such as foreclosure or legal action.
A clause that requires the borrower to maintain adequate insurance coverage on the property to protect the lender’s investment.
A clause that establishes the priority of the mortgage in relation to other liens or claims against the property.
A clause that allows the lender to transfer the mortgage to another party, such as a loan servicer or investor.
Understanding Current Real Estate Terminology in Your Local Market
In the dynamic world of real estate, understanding the terminology and definitions associated with the industry is crucial for success. Throughout this comprehensive guide, we have explored various real estate terms and their meanings, providing you with a solid foundation of knowledge. However, it is important to acknowledge that the real estate landscape is constantly evolving, with new terms and concepts emerging regularly.
To stay ahead of the game, it is imperative to continue expanding your knowledge and staying updated on current terminology. By doing so, you will not only enhance your understanding of the industry but also increase your confidence in navigating real estate transactions and discussions. Whether you are a seasoned investor, a first-time homebuyer, or a curious enthusiast, ongoing education is key to thriving in the ever-changing world of real estate.
What are you waiting for? Embrace the opportunity to learn, grow, and stay ahead of the curve. Remember, knowledge is power, and by continuously expanding your understanding of real estate terms, you position yourself for success in this dynamic industry. Further your real estate education today with Colibri Real Estate School and explore the vast array of resources, including articles, guides, and expert insights, to help you stay informed and make well-informed decisions in the realm of real estate.
The post The Ultimate Guide to Real Estate Terms and Definitions appeared first on Colibri Real Estate School.