Wheatland Realty Agent Nicole Tudisco cracks the code to basic Real Estate terminology.
You don’t need Ralphies’ decoder to have an understanding of real estate terms. Below are definitions of the most used words you will hear when buying or selling any property.
Adjustable Rate Mortgage (ARM) – A mortgage that allows the lender to adjust the mortgage’s interest rate based on changes to a pre-selected index. When rates change, the mortgage’s monthly payments will increase or decrease, but are usually subject to a cap.
Agency – A relationship in which a real estate broker or associated licensee represents a client in a real property transaction. The relationship can be express (evidenced by a written agreement) or implied (no written agreement). In Illinois, a real estate agent will owe the client certain statutory duties that are similar to fiduciary duties (see agency duties below).
Amortization – Gradual debt reduction. Normally, the reduction is made according to a predetermined schedule for installment payments.
Annual Percentage Rate – A term used in the Truth in Lending Act to represent the full cost of a loan including interest and loan fees.
Appraisal – An estimate of a property’s fair market value based upon an analysis by a disinterested, qualified, licensed person.
Appraiser – The appraiser decides the market value of a home based on its condition and the selling prices of comparable homes recently sold in the area. His or her job is to compute a fair estimate of market value that might help the lender decide a reasonable loan amount, for one example.
Appreciation – An increase in value of an asset; the opposite of depreciation.
Assessor – An elected public official who appraises property for tax purposes. He determines only the assessed value, not the tax rate.
Balloon Mortgage – Where principal and interest on a loan are amortized for a longer period than the term of the loan. For example, a 30-year amortization and a 5-year term. At the end of the 5-year term, the outstanding principal on the loan is due. The principal sum due at maturity is known as the “balloon.”
Balloon Payment – The final, lump sum payment paid at the maturity date of a balloon mortgage.
Closing – The conclusion of a transaction. In real estate, the closing can include the delivery of a deed, payment of the purchase price and expenses associated with the transaction, the signing of any documents such as notes and mortgages, and the disbursement of funds necessary to the sale or loan transaction.
Closing Agent/Attorney – A closing agent or attorney assures that all documentation related to the sale of a house has been completed properly, including the title search and title insurance. The closing agent explains all closing documents to the buyer and the seller, obtains their signatures where necessary and records the documents.
Closing Costs – All of the costs to the buyer and seller individually that are associated with the purchase, sale, or financing of real property. They include, but are not limited to, prorating of agreed items such as taxes and rents, the cost of title insurance policies, and the cost of credit reports, recording fees and escrow fees. Synonym: settlement costs.
Closing Statement – A financial disclosure form that summarizes and outlines all funds received and expected at the closing, including but not limited to the escrow deposits for taxes, hazard insurance, and mortgage insurance.
Earnest Money - The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith.
Equity – The difference between what is owed and what the property could be sold for.
Fee Simple – An estate in which the owner has unrestricted power to dispose of the property. It is the greatest interest a person can have in real estate.
Fixed Rate Mortgage – A conventional loan with a single interest rate for the life of the loan.
Index – A measure of interest rate changes used to determine changes in an ARM’s interest rate over the course of the loan.
Joint Tenancy – An equal undivided ownership of property by two or more people. Upon death of any owner, the survivor’s take the decedents interest in the property.
Lien – A legal hold or claim on property as security for a debt or charge.
Loan Commitment – A written promise to make a loan for a specified amount on specified
Loan to Value Ratio – The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.
Mortgage Insurance Premium (MIP) – The mortgage insurance required on FHA loans for the life of said loans; MIP can either be paid in cash at closing or financed in its entirety in the loan. The premium varies depending on the method of payment.
PITI – Principal, Interest, Taxes and Insurance.
Point – An amount equal to one percent of the principal amount of the investment or note. Lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.
Private Mortgage Insurance (PMI) - Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.
Title Insurance Policy– A policy that protects the purchaser, mortgage or other party against losses.
Nicole & Tony Tudisco, Realtors