As it is a specialized field, navigating through the world of real estate can certainly get confusing, especially if you don’t understand the concepts that come into play behind many of its frequently used terms.
Here are just a few of the common real estate and mortgage terms that you’re most likely to encounter in case you go out there and try to purchase a home, sell one, or apply for a mortgage loan in the near future.
Abstract of Title – a document that contains a summary of a property’s history with the recorded instruments and proceedings on the title of a property.
Adjustable Rate Mortgage (ARM) – simply put, an ARM is a type of mortgage with interest rates that vary over a period of time – unlike a fixed mortgage, which has a static interest rate.
Amortization – the process of paying of a loan wherein the payment is primary allotted to paying off an accruing interest rate, with what’s left of that amount paid towards the principal amount. A loan payment is considered completely “amortized” if it has been paid off in the specified time.
Appraisal – the evaluation of the market value of a property by a licensed appraiser. This is based on an analysis of the recent sales of comparable homes in the area.
Buyer’s Broker – this term describes the homebuyer’s representative in a home purchase. The buyer’s broker will split the commission with the listing broker, the seller’s representative.
Capital Expenditure – refers to expenses that are meant to increase the value of the property.
Capitalization Rate – refers to a percentage taken from the property’s net income that the investor will get back each year.
Closing Costs – these are the additional costs in a home sale/purchase such as attorney and appraisal fees, title insurance, recording fees, and other payments for services provided during the close. These are summarized in the closing statement.
Declaration – this document acts as the master deed of the property. It contains legal descriptions of the building’s facilities, a plot, plans and specifications of the building and its units, as well as the degree of ownership of the unit owners.
Dual Agent – refers to a broker or a salesperson that represents both the buyer and seller of a particular property in one transaction. Note that dual agency is illegal in Florida.
Due Diligence – refers to the investigation wherein a property is reviewed for any legally binding liabilities.
Escrow – Refers to a third party that acts as a sort of “keeper” of certain items relevant to a transaction – in real estate dealings, an escrow may be the holder of money and documents once members of both parties within a contract deliver certain items or fulfill certain deliverables.
Economic Depreciation – talks about a property’s deterioration over time caused by a variety of reasons: from normal use to natural hazards to negligence in terms of maintenance.
Easement – refers to the right to use a piece of land despite not having ownership of it.
Fannie Mae – A term that pertains to the Federal Mortgage Association or FNMA, known to be the largest supplier of home mortgage funds in the United States.
Fair Market Value – the price of the property agreed upon by the buyer and the seller.
Floating Rate – also referred to as an Adjustable Rate Mortgage, a floating rate is a type of loan where the interest rate is not fixed over a term.
Foreclosure – the act of a lender taking a property’s title from an individual who is not able to pay a mortgage
Ginnie Mae – A term that pertains to the Government National Mortgage Association (GNMA). Ginnie Mae provides the funding for the government loans given by the Federal Housing Authority (FHA) and the Veterans Benefits Association (VA).
Jumbo Loan – This lean exceeds the limits set by Fannie Mae and Freddie Mac, whose loans are referred to as conforming loans, as opposed to a jumbo loan which is considered to be a non conforming loan.
Lien – Pertains to a legal claim on a property, which is discharged when the debt to the lien holder is paid.
Managing Agent – the person in charge of handling and maintaining building operations.
Market Value – a property’s estimated price based on the current state of the real estate market.
Negative Amortization – An amortization is classified as negative when the loan balance becomes larger instead of smaller – this occurs on adjustable fixed mortgages where interest rates fluctuate.
Net Lease – refers to the type of lease that the tenant pays which includes the property’s fixed rent and operational costs.
Open-ended Listing Contract – a contract between a seller and a broker that does not have a termination date.
Open Listing – a property for sale that is not signed under an exclusive agreement with a real estate broker.
PITI – This acronym stands for principal, interest, taxes and insurance.
Percentage Lease – a rental amount composed of a fixed amount and a percentage of the lessee’s gross sales.
Periodic Tenancy – also referred to as an estate from year to yesr, this type of lease renews automatically.
Rate lock – A fixed interest rate that is assigned to a fixed period of time, at a fixed cost that has been agreed upon by a lender and a borrower.
VA mortgage – A mortgage given buy the Veterans Administration that can be availed by eligible veterans, members of the military, and their spouses.