12 Real Estate Terms You Should Know If You Expect to Buy or Sell Your Home
When entering the home buying or selling process you might find that you are encountering a lot of a new terminology. Given that purchasing/selling a home is probably one of the largest financial transactions you will make during your lifetime, it is important that you understand some of the key terms. In order to help you do that, we’ve created a little real estate dictionary of sorts with some of the more common real estate terms that you should know:
This breaks down the borrower’s payments so that they are able to see how much of their payment is principal and how much of it is interest. This schedule gives a month-to-month breakdown of your payments from the start of the loan all the way till it is paid off at the end. If you look at an amortization schedule you will notice that in the beginning, most of your payment will be interest and as time passes it will start to be more principle.
In reference to real estate, an appraisal is an estimation on the market value of a property conducted by a licensed appraiser. Some factors that might affect the properties value include location, structural conditions, or the town surrounding it. See contingency to see how an appraisal can make or break the sale of a home.
Provisions are part of the offer of a home the must be completed before the sale can be finalized. The primary purpose is to protect the buyer from losing their deposit if something goes wrong. Once the seller accepts these provisions the home will enter into “contingent offer” status. When the seller can discuss the property with other interested parties, no official action can be taken until the original buyer signs or backs out of the deal. Here are some of the different types of popular contingency clauses:
- Sale Contingency – This provision gives the buyer time to sell his current home before the sale is finalized. This ensures that the buyer actually has the capital to pay for their new home.
- Home Inspection Contingency – Once the buyer has the home inspected they then have the option to request that something be fixed or they may decide that there is just too much to repair on the house. Either way the buyer is allowed to back out of the deal if they’re unsatisfied after the home inspection or if the seller refuses to fix problems on the house.
- Title Contingency – This allows the buyer to review the property title to ensure that there are not any liens on it.
- Home Appraisal – This gives the buyer the option to either back out or renegotiate the price of the home if they find out that it is listed higher than what the property is appraised for. They are also given the opportunity to back out of the deal if they so choose.
The down payment is the amount of money you initially put down on a home. For the most part, home buyers are expected to pay at least a 20% down payment. This means that if you get a $100,000 mortgage you will pay $20,000 for the down payment. If you obtain an FHA loan your down payment can be as low as 3.5%. The purpose of the down payment is to give added motivation for the buyers to make their mortgage payments because if they do not make them then they might lose it in a foreclosure.
Earnest Money Deposit:
An earnest money deposit is a portion of the buyer’s down payment that is given to the seller after the purchase contract is signed. The money is held in an escrow account until the deal is finalized. The actual amount of the deposit is determined by market conditions and local customs. In the state of California, deposits are frequently 3% of the purchase price.
Equity is determined by subtracting the amount of money you still owe on your mortgage from the the home’s fair market value. For example, if your home’s market value is $400,000 and you have still have $340,000 left in your mortgage than would have $60,000 in equity. Sometimes people tap into their equity via a cash-out refinance in order to make home repairs or pay off debts. For more information on cashing-out to pay off debts click here.
Escrow Good Faith Estimate:
Once the buyer and the seller sign the purchase contract the buyer then gathers the earnest money deposit and it is placed in “escrow”. This means that it is being held by a third party until the buyer and seller finalize the deal. While in escrow neither the buyer or the seller is allowed to touch the money. This system protects both parties; the seller cannot walk away with the money and has some financial security and the buyer shows they are serious about the purchase but still does not not lose their money if the deal falls through.
Good Faith Estimate:
A document given to the borrower by the lender that breaks down the estimated costs for a mortgage loan. Your lender must give you your GFE within three business days of obtaining your application. Prior to the GFE, you can only be charged with a credit report fee. All other fees must be charged after you choose that you want to continue further with the mortgage.
This is a note on your property title from your creditor/the government which alleges that you owe them money. In order for you to sell your property you must have a clear title. Liens are an inexpensive yet effective way to ensure that the homeowners pay off their debts. While some liens are placed on homes by creditors without the owner’s consents, sometimes the owner will put a voluntary lien on their property; an example of this would be a mortgage lien. Unfortunately, most liens placed on properties are involuntary. One example of this would be a tax lien; which is placed on a title by the government on individuals who do not pay their federal, income, or state taxes. If the homeowner does not pay off the debt the creditor can get their money via a foreclosure sale.
This is just another word for a home that is for sale. A home “listing” will provide information like the price, number of bedrooms, square footage, and other facts about the home. If you want to check out listings in the San Diego area click here!
This stands for Multiple Listings Service and is a database full of property listings. This system is helpful for real estate agents because they have instant access to many different listings for their home buyers and they can quickly make their seller’s listings accessible for other realtors to see.
A legal document that shows the official history of the home ownership as well as current homeowner. In order to sell your home, the seller must prove that that have the home title and it is clean of any liens.
Hopefully this clears up the lingo a bit and if there are any other mortgage terms that are making scratch your help then tweet us @ROMconsultants with the hashtag #simplifyingrealestate