Understanding real estate can be a tricky business. So if you are buying or selling a house and are hearing a bunch of terminology and lingo you don’t understand, you are not alone. You probably don’t deal with real estate regularly, so it makes sense there are certain terms you have never heard or perhaps have heard but don’t know what they mean. And that’s OK, that’s what we are here for. Today we are going to go over some of the most frequently misused and misunderstood real estate terms and lingo.
Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage is one with an interest rate that can go up or down throughout the life of the loan depending on the movement of current interest rates. In other words, an adjustable-rate mortgage is one where the interest rate is not fixed throughout the life of the loan.
Amortization is the term used for the process of continually reducing mortgage loan debt over time. This is done by establishing scheduled monthly payments on a mortgage. The loan will start out with the interest amount of the payment being higher than the amount of the principal. But over time, the interest amount of the payment will decrease and the amount of the principal payment of the loan will increase.
A balloon mortgage is different from an installment mortgage. A balloon mortgage is paid in one lump sum called the balloon payment. These are typically used for short-term investment or construction loans and don’t usually require any collateral.
A bridge loan is one that a homeowner obtains by taking out a loan on their existing property to finance the purchase of another property. These are short-term loans usually between a few weeks and up to three years. A bridge loan is generally used so a buyer can proceed with buying a house while waiting for their current house to sell or close.
A broker is a person who has passed a broker’s license exam and received additional education beyond what the state requires real estate agents to have. All real estate agents are required to work under the supervision of a broker.
A closing in real estate is the final step in a real estate transaction. On the closing date, both the buyer and seller will sign all required documents for the sale and purchase of a home. The closing is when the property is legally transferred from the seller to the buyer.
A contingency is a condition set by a buyer or seller that must be met before a real estate transaction can be finalized. If any agreed-upon contingency is not met, the contract can be canceled.
A dual agency is illegal in the state of Florida and seven other states as well. A dual agency is when a single real estate agent represents both the buyer and seller in any given real estate transaction. It can also be when a single real estate agency represents both parties in a purchase, sale, or rental transaction. A dual agency real estate transaction is best avoided because it could intentionally or unintentionally sway the deal in one direction or another.
In the state of Florida, a transaction broker in real estate can provide a limited form of representation to a buyer, a seller, or both but doesn’t represent either party in a fiduciary capacity or as they would if they were a single agent. A transaction broker is legally required to be neutral whereas a single agent works and negotiates on your behalf to help you secure the best deal. A transaction broker presents offers and assists with contracts throughout the process without being an advocate for either party. Transaction Broker is very different from Dual Agency.
A down payment in real estate is in addition to the earnest money deposit. The home’s down payment is usually a percentage of the total cost of the house. So basically, earnest deposits are a good-faith gesture from the buyer to the seller that they will progress with the housing deal. And the down payment helps finalize the real estate deal by ensuring the property is in the hands of the buyer. Both the earnest money and the down payment will ultimately be put towards the purchase of the house unless the buyer cancels. If the buyer cancels, the earnest money goes to the seller for their inconvenience.
Earnest Money Deposit
An earnest money deposit also called a good faith deposit, is the amount of money a buyer puts down on a house to show they are serious about purchasing it. This is different from the down payment.
Escrow is when a neutral third party holds the funds or other things of value associated with a real estate transaction. Once the real estate transaction has been completed, which is generally at closing, the third party will release said funds, etc. back to the buyer.
Fair Market Value
The fair market value of a property is the accurate valuation of a property based on the current market conditions and the value of other homes in the area.
Fee simple refers to a type of property ownership. Fee simple means the homeowner has the rights to their property indefinitely and those rights can be freely transferred or inherited anytime the owner chooses.
A fixed-rate mortgage is a home loan that has an interest rate that doesn’t change throughout the life of the loan, unlike an adjustable-rate mortgage that has an interest rate that could potentially change throughout the life of the loan.
A home appraisal is performed by a licensed appraiser who evaluates specific aspects of a property to come up with that home’s fair market value. A home appraisal is usually requested by a mortgage lender.
A leaseback, sometimes called rentback, is when a seller closes on a home and then leases it back from the buyer for a designated period of time. A leaseback is frequently used when a seller needs additional time to move. So basically, the buyer becomes the landlord and is paid for every day the seller remains in that home after the closing.
A property lien is a legal claim on assets granted by a court to a creditor against a property due to unpaid debt. A lien can attach to a property if there are unpaid property taxes, a court judgment, or any other unpaid bills. If the debt is not paid, the creditor can obtain access to the property. All liens must be paid in full before a clear title can be provided to the home buyer.
Loan origination occurs when a buyer submits a loan application to a lender and that lender processes the application. Most lenders charge an origination fee for this process.
The loan-to-value is the balance of a mortgage loan divided by the home’s value. This shows how much a buyer is borrowing from a lender as a percentage of the home’s appraised value. The higher the loan-to-value ratio is, the riskier a lender will view the loan.
Multiple Listing Service (MLS)
The MLS is a database that gives real estate agents and broker members access to add new properties for sale in any given area. When a real estate agent lists a home for sale, he or she will then enter it into the local MLS. Additionally, a buyer’s agent will generally check the MLS records to look at similar homes on the market and what they have sold to help them determine a home’s fair market value. And a seller’s agent will do the same to help come up with a fair market value sales price for a home.
Mortgage Pre-Approval Letter
A lender will provide a pre-approval letter to a buyer after confirming a buyer’s debt-to-income ratio, credit history, and how much cash they have on hand. A mortgage pre-approval letter tells the buyer how much they can afford, the terms of the loan, and the loan amount. A pre-approval letter also gives the buyer an advantage. This is because if there are several offers on a home, sellers will usually choose an offer that is accompanied by a pre-approval letter versus one that is not.
A pocket listing is a property that is for sale but is yet to be made publicly available to other real estate agents or buyers.
A pre-qualification is a lender’s estimate of the amount a home buyer might be approved for once they get to the loan process. A lender will perform a quick assessment of a buyer’s financial situation based solely on the verbal information the buyer provided without any proof of their claims. A pre-qualification does not mean a buyer will ultimately qualify for a home. A pre-qualification is generally performed prior to beginning the pre-approval process.
A pre-qualification is different from a pre-approval. A pre-approval requires a home buyer to fill out an application and prove their creditworthiness. After the buyer has been pre-approved, the lender will give the buyer a letter confirming the exact amount they are pre-approved to borrow.
The principal balance of a mortgage is the exact amount of money owed to a lender before the interest is added. A buyer’s mortgage payment each month will consist of a principal amount, interest, and possibly other fees such as PMI, taxes, insurance, etc.
Private Mortgage Insurance (PMI)
PMI is a type of mortgage insurance you might have to pay for in addition to your homeowner’s insurance. PMI protects the lender (not you) if you stop making payments on your loan. For most buyers, PMI is required if you put less than 20% of the sale price as a down payment on that home.
A rate lock lets a buyer lock into the current interest rate before the real estate transaction closes. Locking into an interest rate helps protect the buyer from market fluctuations between the time the contract has been signed and the deal closes.
The term REALTOR® should be written in all caps and include the circled “R” (registered trademark symbol) next to it because it is a registered trademark. But what is the difference between a REALTOR® and a real estate agent? The terms REALTOR® and real estate agent are the two most commonly misused and misunderstood words when it comes to real estate.
A REALTOR® is a licensed real estate agent who is also a member of the National Association of REALTORS® and must pass the NAR Code of Ethics course. Real estate agents are also licensed to sell real estate; however, they are not subject to additional requirements required under the National Association of REALTORS® code of ethics. That means a REALTOR® has taken their real estate license one step further by becoming a NAR member and is willing to abide by a rigorous set of required real estate ethics.
A seller’s disclosure is the information about a house that is provided by the seller. A seller’s disclosure is designed to disclose any home defects to a potential buyer to help that buyer make an informed purchasing decision.
A single agent, when it comes to a real estate transaction, is a broker who represents either the buyer or the seller but can’t represent both in the same transaction.
Staging is the process of decorating a home to highlight its features and use of space. Staging is designed to make a home more attractive to prospective buyers. In most cases, staged homes increase a home’s selling price and help them sell more quickly because it helps prospective buyers visualize how the space can be used.
Title insurance is what protects a buyer and a lender in the event a seller doesn’t have 100 percent lawful ownership of a property.
A title search is performed by a title examiner to uncover any title defects. A title search looks through the public records of a home’s history including sales, purchases, taxes, and any liens or encumbrances recorded against it. A title company or attorney will generally perform the title search.
If you are thinking about buying or selling a home, or if you just have some questions first, please Contact Lakeland Real Estate Group today. We are a highly respected team of professionals who passionately serve the Lakeland, FL area. Lakeland Real Estate Group – A Real Estate Firm Representing Your Side, as a 4.9-Star Google rating. We’ve been helping buyers and sellers with all their real estate needs for more than 20 years. We look forward to helping you too!
About the author: The above real estate article “Real Estate Terminology and Lingo Explained!” was written by Petra Norris of Lakeland Real Estate Group, Inc. With over 20 years of combined experience in selling or buying, we would love to share our knowledge and expertise. Petra can be reached via email at email@example.com or by phone at 863-712-4207.