Real Estate Terms
Adjustable-Rate Mortgage: A homeowner has an adjustable-rate mortgage if their interest rate fluctuates at predetermined intervals throughout the course of their loan.
Fixed-Rate Mortgage: Contrary to an adjustable-rate mortgage, the interest rate of a fixed-rate mortgage remains the same throughout a loan term.
- Amortization: Mortgage payments are amortized when they include both interest and principal payments, allowing the borrower to start building equity from the very first payment.
Assessed Value: The value of a property determined by a public assessor for tax purposes.
Buyers Agent: A real estate agent who represents the interests of the buyer in the homebuying process is called the buyer’s agent. On the other hand, a listing agent represents the seller.
Cash Reserves: Required by some lenders, cash reserves are funds leftover after the down payment and closing costs are paid, to be set aside for emergencies.
Escrow: A financial account that is funded by a homeowner’s mortgage payments, used to pay for homeowners insurance and property taxes.
Interest: Interest is the cost of borrowing money over time, and is ultimately the responsibility of the lender to set. A monthly mortgage is typically composed of interest and principal payments on a loan.
Mortgage Broker: This is the individual or entity who acts as an intermediary between borrowers and lenders, such as originating a mortgage or placing the loan with a funding source.
Pre-Approval Letter: Homebuyers can get financially vetted and receive a loan approval estimate from their lender in the form of a letter, helping to add credibility to any offers they make.
Private Mortgage Insurance: When a buyer makes a down payment of less than twenty percent on a home, they are typically required to pay a private mortgage insurance (PMI) fee. PMI is typically assessed as a percentage of the mortgage loan, and can be satisfied once the homeowner reaches twenty percent equity.
Double Close: Also referred to as a back-to-back closing, a double closing will witness a wholesaler purchase a property and immediately resell it to an end buyer. A double close is different from an assignment of contract because the wholesaler takes legal possession of the property for a short amount of time.
After Repair Value: The after repair value describes an estimate of a property’s value, after repairs and renovations have been made. As a part of deal analysis, real estate investors utilize this calculation to determine the profit potential of a renovation property.
Distressed Property: A property becomes distressed when a homeowner defaults on their mortgage payments, is delinquent on paying property taxes, or is condemned due to disrepair.
Refinancing: Homeowners often restructure their home loan with a new one, typically to obtain a lower interest rate.
Title Insurance: Typically required as a part of the closing process, title insurance protects buyers in case there are any outstanding liens on a property.
Contingencies: Conditions that must be met, either by the seller or the buyer, before the purchase of a property can close. Contingencies are intended to protect buyers and sellers, and often include items such as inspections, mortgage approvals and appraisals
- Proof Of Funds: A statement from a financial institution verifying that the buyer has enough funds available to proceed with a purchase offer.
Closing: A meeting at which a buyer and seller finalize a real estate transaction. Both the buyer and seller are required to fill out legal paperwork to officially transfer ownership of the property in question at the time of closing.
Closing Costs: At the time of closing, a buyer should expect to pay 2-5% of the property’s purchase price to cover various fees, such as excise tax, processing fees, title insurance and the appraisal.
Comparables: Investors, agents and lenders alike find it useful to identify comparables, or similar homes in close proximity, to derive a precise value for the property in question. The act of conducting this research is referred to as a comparative market analysis (CMA).
LTV: Loan-to-value (LTV) is a ratio utilized by lenders to measure the amount of the loan relative to the value of a property. Lenders often show preference to properties with lower LTVs ratios by offering lower interest rates. Buyers can lower the ratio by making a larger down payment.
Offer: An offer is the initial purchase price point submitted by a buyer to a seller. The seller then has the choice to accept, reject, or make a counter to the offer.
Motivated Sellers: Investors are attracted to homeowners who are motivated to sell, as it presents the opportunity for negotiating a favorable purchase price. Homeowners might become motivated to sell if they are pressed for time, are nearing foreclosure, or own property out of state
Contract Assignment: A wholesaler operates by negotiating below-market-value deals with motivated sellers. They then sell the property contract to an end buyer, such as a rehabber, by using a legal document called a contract assignment
Short Sale: When a homeowner’s outstanding mortgage exceeds the home’s current value, they can obtain approval from their lender to list the property at a lower price. This type of sale is referred to as a short sale.
Foreclosure: When a bank repossesses a property due to the owner’s inability to make mortgage payments.
Bankruptcy - the financial inability to pay one's debts when due causes the debtor to seek relief through court action.