The Pocket Guide to Real Estate Terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Adjustable-rate mortgage (ARM): Also known as a variable-rate mortgage, this loan has an interest rate that is adjusted throughout the life of your loan.

Adjustment Period: This refers to the time when your interest rates in an ARM actually change. A 5/1 ARM, for example, means your interest rate stays the same for five years but can change every year after that. A loan with an adjustment period of one year is called a one-year ARM, meaning the interest rate can change once a year.

Amortization: Do you want your payments for your house to start high and get lower? Or do you want them to be consistent? Amortization lets you create a payment plan that simply lays out how much you will pay every month until the house is completely paid off. Most of these plans are designed to help you pay off the principal balance as soon as is feasible, so you can accumulate equity in the house and pay less interest overall on the loan.

Appraisal: It’s important that you and the seller agree on how much the home is truly worth. To determine the value of a home, an objective third-party inspector comes and appraises it—meaning they follow a list of rules and regulations to determine what shape the home is in. Other factors like location can also contribute to the home’s value.

APR (Annual Percentage Rate): This percentage is the interest rate on your mortgage for a given year.

Buydown: Looking for ways to lower your monthly mortgage payment? Consider buying down the rate—i.e. Paying your lender in fees so that you can pay less in interest. Typically, one point (which equals one percent of the loan) can reduce the interest rate by .25%. On a $300,000 loan, that might save you about $40 a month—or almost $500/year. You can opt for a a permanent buydown, you pay an amount that brings interest rate down for the life of the loan. In a temporary buydown, you’d pay to lower the interest rate on the loan temporarily.

Certificate of title: A title that gives you legal rights to do what you would like with your newly purchased property, this piece of paper shows that you own it—fair and square.

CMA (Comparative Market Analysis): A CMA is a report that helps you understand the housing market as a whole. It includes active, sold, canceled and pending listings which can be a great tool when trying to understand if the house you’re interested in fairly priced or a good investment. Your agent should be able to provide this information to you.

“Comps” or Comparable sales: This term refers to homes that are very similar to a home that you’re looking to buy. Do the houses around the one you’re eying have the same price per square foot break down? Comps will help you figure that out.

Contingencies: If contingencies are involved, you’ve nearly crossed the finish line. Both buyers and sellers have the option to add contingencies or conditions into the real estate contract that essentially say I agree to complete the purchase as long as X happens or as long as X is true. If contingencies are not met (often, within a specified time frame), either party has the option to back out. Contingencies include things like mortgage approval, so just hang tight until it all gets finalized.

Deed: This part of the process dates back to feudal England, where a physical piece of land (some dirt or a twig) would trade hands to signify the transfer of ownership. These days, we pass off a piece of paper called a deed, but the sentiment is the same. Unlike a certificate of title, a deed is used only for transfering property, and both parties are involved in the transaction.

Earnest money: An earnest money payment proves to the seller that you are serious about purchasing their home. This money (about 1% or 2% of the purchase price) gets placed in the hands of a third party, putting it in escrow, until after closing when it gets delivered to the seller. Also known as “good faith money” or “hand money,” think of this payment as a deposit—you’ll submit the remainder of the down payment later.

Effective age: A home can be listed as “built in the 1920s,” but you want to make sure that the effective age is lower than that. This is the age of a home that an appraiser claims based on the physical shape that the property is in—ideally not nearly 100 years old.

Escrow: An escrow is a third party holder (usually a title company) of your earnest deposit. They will only release the funds at closing.

Equity: This is the figure you get when you subtract the amount you owe on your home from the amount it is worth. So, if you owe very little on your home (which obviously happens as you make payments over time), you have a lot of equity—nice!

FHA Loan: For many aspiring homeowners, a 20 percent down payment and a credit score in the high 600s can be a major barrier to getting into the housing market. To help, consider a loan insured by the the Federal Housing Administration (of the Department of Housing and Urban Development)—these FHA loans require less money down and a lower credit score to qualify.

Fixed-rate mortgage: Once you’ve secured a mortgage, you can decide on a fixed-rate or variable-rate mortgage. If you choose a fixed rate, the interest rate won’t change—until about 30 years from now, then it won’t exist!

Loan officer: After you narrow your search for a home, the mortgage company will pair you with a loan officer. This person will work for the institution or bank that is supplying the money for your loan. They are responsible for gathering all the relevant information associated with your loan application, and they then give all of this information to the underwriter.

Mortgage broker: While this is an optional step in your home-buying process, you can hire a mortgage broker to manage loan offers from various lenders. In the end, ideally, you’ll have choices and can pick who is giving you your ideal loan.

Option: Purchasing an option means you’ve purchased the exclusive right to buy a particular property at a fixed price, within a given period of time.

Option period: Once think you’re ready to buy a house, you might want some extra time to make a final decision—a.k.a. An option period. Buyers can pay a small, non-refundable fee (often $500 or less depending on the house’s worth) to the seller to take the house of the market for ~7-14 days. The buyer can terminate the contract for any reason during this period without forfeiting their earnest deposit. Since the final inspection usually happens during the option period, it’s a low-risk investment for peace of mind as you enter the closing process.

PMI (private mortgage insurance): If your down payment is less than 20% of the total cost of the home, PMI will come into play. Essentially, you pay it in order to protect the lender from losing money in case you aren’t able to make your payments. Often, this additional fee can make it easier to obtain a loan, too.

Pocket listing: Rather than list their home publicly, some buyers will entrust their home to one real estate agent. This agent keeps the listing in their “pocket,” showing the home to only a select group of buyers in their network.

Pre-approved: If you anticipate needing loan (read: mortgage) to buy your home, you’ll want to confirm the bank will grant you that loan. You submit financial paperwork, and a loan officer will review it to confirm how much the bank will lend you before you need to take out the actual loan.

Pre-qualified: This is similar to pre-approval, but the figure the bank gives you is just an estimate based on an unverified account of your financial state—i.e. you don’t need to submit any paperwork. To ensure a seller will accept your offer, make sure to get pre-approved.

Real estate agent: An agent, unlike a broker, works for an agency (usually owned and operated by a broker). An agent hasn’t gone through as much schooling as a broker. This doesn’t mean one is superior to the other, but worth knowing a broker’s done more schooling and can sign off on more things.

Real estate broker: This person is similar to an agent (he can do everything an agent can), but he’s passed a few more tests and has his broker’s license. This mean he can own his own and manage his own brokerage where other agents can work.

Realtor: A realtor is an agent or broker that is a member of the National Association of Realtors—meaning they are bound to the standards and practices of that organization (but they do they same thing as an agent).

Seller’s disclosure: The seller’s disclosure requires a seller to provide a detailed report of everything that could be wrong with a home (no flooded basements or leaky roofs!). You should receive this disclosure before the inspection takes place.

Term sheet: Before things get legally binding, a term sheet comes into play. A term sheet is a document that will give you a general idea for what to expect if you are going to move forward with the transaction.

Underwriter: The person who actually determines if you qualify for a loan. Basically, they look over all of your information to see if you have the means to pay the money back

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.