31 Real Estate Terms You Should Know

 

Are you starting your real estate journey? Whether you are a first-time buyer, seller, or just looking to refresh your real estate vocabulary, understanding the terminology used in the industry is key. From common mortgage terms to different investment options, there are plenty of important words related to real estate that you should be aware of. To help break down some major topics and concepts in the field, here’s a list of 31 essential real estate terms that everyone involved in the industry should know.

 

Adjustable-Rate Mortgage (ARM)

A home loan option with fixed rates for a specific period, followed by rate adjustments, offering the flexibility to lower monthly payments and suitable for those planning to sell their home within five years.

 

Amortization

The schedule used to determine monthly loan payments, typically for mortgages, providing a breakdown of principal and interest portions, helping borrowers decide on the loan term and allowing early repayment if no penalty applies.

 

Appraisal

A process that determines the market value of a property by considering factors such as location, comparable sales, and changes in the area, with the resulting written report being used for tax purposes or mortgage calculations.

 

Appreciation

The increase in value of a property over time, influenced by factors such as location, neighborhood condition, schools, town size, and property upkeep.

 

Buyers Market

A real estate situation where there are more houses available than buyers, giving buyers an advantage in negotiations and potentially leading sellers to lower their asking prices. This can occur when many people are moving out of an area, resulting in fewer buyers and more properties to choose from. 

 

Closing 

The final step for home buyers, involving signing various documents and paying the required amount, while for sellers it’s a payday with fewer documents to sign, and they may receive a check or request funds to be wired or deposited into their bank account.

 

Commitment

A written promise from a lender to a buyer, outlining specific loan terms and granting a specified amount of time for the buyer to accept or seek alternative financing.

 

Comparative Market Analysis

A Comparative Market Analysis (CMA) is a research process where individuals or agents analyze the sale prices of similar homes in a specific area to determine a price range for a property. It helps sellers, buyers, and agents estimate the value of a home compared to others in the market, although it does not provide an exact, scientific starting point for real estate transactions.

 

Compound interest

Compound interest is the accumulated interest on the initial loan amount and the unpaid interest, which adds up over time. In the context of a mortgage, borrowers pay interest not only on the original principal but also on the accumulated interest, resulting in a higher overall cost known as compound interest.

 

Credit

Credit is the amount of money a lender loans to a buyer for purchasing a home, based on the buyer’s credit history, and lenders often check credit reports from major bureaus before making an offer, so it’s advisable for buyers to review their own credit history prior to applying for credit to ensure accuracy and avoid loan setbacks.

 

Deposit

When purchasing real estate, buyers give a deposit (or earnest money) to the seller as a sign of seriousness and willingness to negotiate; if the seller backs out, the buyer usually keeps the deposit, which can vary in amount but is typically 1% to 3% of the purchase price, and is applied to the buyer’s closing costs once the contract is agreed upon.

 

Down Payment

The down payment in real estate is the cash amount paid by the buyer at closing, typically ranging from 3% to 25% of the purchase price. A larger down payment can result in better financing terms, and it can come from savings, gifts, mortgages, or home sales, representing the buyer’s personal equity investment.

 

Equity

Real estate equity is the disparity between the worth and the debt on a property, determined by the buyer’s willingness to pay and the seller’s acceptance. Appraisers settle differences between buyer and seller perceptions, determining the true market value.

 

Firm Commitment

A firm commitment occurs when a lender approves and agrees to finance a property purchase, following a thorough verification process of the borrower’s financial information. This commitment provides reassurance for the borrower to proceed with finding a suitable property.

 

Fixed-Rate Mortgage

A fixed-rate mortgage is a popular home loan with a consistent interest rate for the entire loan term, offering stability and predictable monthly payments.

 

Foreclosure

Foreclosure is a legal process where the lender terminates the owner’s right to a property due to missed loan payments, resulting in the bank selling the property to repay the mortgage.

 

Fully Amortized Adjustable-Rate Mortgage

A fully amortized adjustable-rate mortgage is structured to ensure that both the principal and interest are fully paid off within a set time frame, with monthly payments adjusting to accommodate changing interest rates. Unlike variable-rate mortgages, the length of amortization remains constant while the monthly payment may change.

 

Interest Rate

An interest rate is an additional amount added to the loan amount, allowing lenders to make a profit and compensate for the risk involved. Most mortgages have interest rates starting at 4 percent, and borrowers with higher default risks may be charged a higher rate. Improving your credit profile increases the likelihood of securing a loan at a lower interest rate.

 

Listing

To sell your home, it is necessary to create a listing. Enlisting the assistance of a real estate agent can be beneficial in promoting your property through newspapers and online platforms.

 

Mortgage

Mortgages are secured loans that enable borrowers to finance their homes with various types available,including options like fixed-rate, variable-rate, interest-only mortgages, and government-backed FHA loans for those facing qualification challenges, which don’t require upfront down payments or closing costs.

 

Mortgage Broker

Mortgage brokers connect homebuyers with lenders who meet their financing requirements, helping diverse clients including those with poor credit or limited income, and operating both independently and within established mortgage brokerage firms.

 

Multiple Listing Service 

The Multiple Listing Service (MLS) is a comprehensive database of real estate listings in a specific area, excluding properties sold by owners, enabling agents and buyers to access and search for properties that match specific criteria.

 

Offer to Purchase 

An offer to purchase in real estate signifies a buyer’s commitment to enter into a sales contract for a property, often accompanied by a significant deposit, indicating serious interest and intent to secure the property, while also including details on financing, down payment, and closing costs, and serving as the initial step towards securing a sales contract.

 

Prequalification

Prequalification is a preliminary assessment where a lender evaluates a borrower’s ability to repay a mortgage, requesting necessary documents, and providing a prequalification letter that helps real estate agents find homes within the borrower’s budget.

 

Property Tax

Real estate is taxed by the local government where the property is located, with assessments conducted at purchase and periodically to ensure accurate valuation by the taxing authority.

 

Sellers Market

A seller’s market occurs when there is high demand and limited supply, giving sellers the advantage with multiple interested buyers, potential bidding wars, and higher sale prices, contrasting with a buyer’s market where there are fewer buyers and more available properties for sale. When months of inventory are (4 months or lower), the market is generally in sellers’ territory.

 

Term Length

The term length of a loan determines the duration in which borrowers make monthly payments to repay the principal and interest, with options like 15-year or 30-year terms available, offering different advantages such as paying less interest over time or having lower monthly payments.

 

Title

A title is a document that proves legal ownership of real property, with buyers initially given equitable title and the seller retaining legal title until all contract terms are met, ultimately transferring legal ownership to the buyer in the closing

 

Underwriting

Underwriting is the process of reviewing a borrower’s application and accompanying information to assess their creditworthiness and ability to fulfill loan responsibilities, with consideration given to the property in question, applying to various industries such as mortgage financing, insurance, and investing.

 

Variable Interest Rate

Mortgage interest rates can be fixed or variable, with fixed rates remaining constant throughout the loan term and variable rates fluctuating based on external factors such as changes in bank payment rates for certificates of deposits, Treasury bills, and worldwide economic conditions.

 

Variable Rate Mortgage

A variable rate mortgage is an adjustable interest rate loan tied to external indicators such as Treasury bills or bank rates, causing the mortgage rate to fluctuate accordingly, making it a financial gamble and challenging for homeowners to budget or plan for the future.

 

With knowledge of these real estate terms and an understanding of what they mean when used in conversation or written communication, you can be confident in your ability to navigate the real estate market. For a more comprehensive list visit the Century 21 Website.