Adjustable Rate Mortgage (ARM): real estate loan with an interest rate that periodically adjusts based on certain conditions, such as inflation or the state of the real estate market
Amortization: the process of spreading out loan payments over the life of a loan, making the payments smaller and more manageable
Annual Percentage Rate (APR): measures the total cost of real estate interest based on real-time financing percentage rates
Appraisal: process of estimating the real estate value of a property, usually commissioned by a bank or other party. Appraisals are not only used for real estate transactions, but also for taxation, insurance needs, and even legal disputes.
Assessment/Assessed Value: typically determined by a property appraiser, who estimates the fair market worth of the home based on an evaluation of its physical characteristics and other influencing factors like local real estate trends
Back-End Debt-to-Income Ratio: measures the percentage of an individual’s income that goes toward debt payments, taking into account all the monthly debt payments, such as mortgages, car loans, student loans, credit cards, and other loans
Blind Offer: when submitting an offer for a property, details such as the bidder’s identity and other transactional information is not disclosed. Rather, only the bid amount is visible to the seller.
Cap (Interest): the capitalization rate is used to determine the rate of return on an income-producing property and can be calculated by taking the annual net operating income of a property and dividing it by its current market value or sale price
Cap (Payment): limit the amount of a loan payment that can increase each year, acting like a safeguard for those who purchase properties so they are not hit with high or unexpected increases in their payments
Closing: the completion of the sale and purchase of a property, as well as the closing documents that must be signed within a certain period of time, typically taking place in an attorney’s office or closing agent’s office
Closing Costs: fees associated with closing on a house or property, typically including include loan origination fees, home appraisal fees, title search fees, and other expenses related to transferring ownership
Credit Report: important component of applying for a mortgage to purchase real estate, serving as a credit history of the applicant, detailing their credit-related activities in chronological order over the past seven years (including payment history, credit utilization rate, open loans and lines of credit, credit inquiries, and bankruptcies)
Comparable Market Analysis (Comps): process used by real estate professionals to assess the value of a given property based on market conditions and comparable homes that have recently sold in the area, providing an estimate or opinion of the price at which a current home may sell or appraise
Contingency: clause in a contract or offer on a property that makes the transaction dependent upon the occurrence of a certain event (e.g. sale is contingent on obtaining financing within a certain period of time)
Contract of Sale (or Purchase Agreement): agreement between a seller and buyer for the conveyance of real estate used to outline the terms and conditions that accompany the sale of a property, including timelines for closing, required deposits, inclusions and exclusions, attorney review provisions (where applicable), information related to the title condition, and other pertinent details about the property itself
Conventional Loan: the most popular type of mortgage loan used by homebuyers to purchase real estate, typically offered by banks and other lending institutions and are not part of any government program
Counteroffer: response to an offer made during a real estate transaction, which will typically include any changes or modifications requested by the buyer or seller that has not been agreed upon in the initial offer. Counteroffers can include details such as additional incentives, higher purchase prices, different financing terms, and other requests that would alter the agreement of the original offer.
Credit Limit: predetermined maximum amount of credit that a lender will extend to an individual or business, and can be used for both long-term financing options such as mortgages, home equity loans, and lines of credit
Debt-to-Income Ratio: comparison of the consumer’s total monthly debt payments to the consumer’s gross income; in other words, their total debt divided by their monthly income before any deductions
Deed: legally binding document that conveys ownership of real property, describing the owner and the property they are transferring, such as their name, address, and title to the real estate. It also outlines exactly what is being conveyed and must be signed by all parties, witnessed, and notarized if required in order for it to be valid.
Disclosure: gives all parties the necessary information about the property and the transaction process. Disclosure statements might include information on local zoning ordinances, private easements, hazardous material near the property in question, and past ownership details.
Down Payment: money that a homebuyer puts forth at the time of purchase to secure a home, usually expressed as a percentage of the total purchase price (typically ranging from 3 – 20%), and helps to make the loan less risky for the lender
Escrow: provided by third parties — who act as a neutral intermediary during the transaction — keep funds and important documents in a safe, protected space until closing, ensuring the entire process moves smoothly
Fixed Rate Mortgage: entails an agreement between a borrower and lender to provide a consistent interest rate over the life of the loan, regardless of any economic fluctuations or unforeseen events. Fixed Rate Mortgages can typically range from 10 – 30 years, with most lenders requiring a 20% down payment.
Front End Debt-to-Income Ratio: measures the amount of a borrower’s total monthly income that they’re using to pay off all housing expenses, including mortgage payments, taxes, and insurance. It’s calculated by dividing the housing expenses by the gross monthly income and expressed as a percentage.
Inspection: in-depth analysis of a property conducted for buyers, sellers, or maintenance purposes. It typically includes the evaluation of the structure and systems of the building which may include the electrical system, heating and air conditioning system, plumbing system, roofing, insulation and ventilation system, walls, ceilings, and floors.
Loan-to-Value Ratio: reflects the amount of money a lender is willing to let you borrow compared to the estimated value of the property. The higher the Loan-to-Value Ratio, the greater the risk assumed by lenders and the harder it may be for borrowers to qualify for a loan.
Market Value: appraised value of a property based on an estimated price by a local appraisal professional. Market Value is the most probable selling price of a home if it were to be listed on the market today and given reasonable time to attract potential buyers.
Mortgage: type of real estate loan that allows people to buy a property and make payments over time. Mortgages typically come with an interest rate, which is an additional cost for borrowing the money and can be either fixed or adjustable.
Offer: written correspondence from a buyer to a seller that indicates the buyer’s intention to purchase the property. This offer typically includes details of the sale transaction such as price, terms, contingencies, and time frames.
Pre-Approval: submitting an application with financial details to a lender, who will then provide an estimate of the maximum loan amount that you can qualify for
Title: a legal document, including any associated instruments and documents, that conveys a person or entity’s rights of ownership to a piece of real property. A title provides protection against fraud and also serves as evidence of a title agreement between two parties.
Walk-through: inspection of a home or property to assess the overall condition and provide an opportunity for prospective buyers to envision themselves living in the space. Walk-throughs provide a comprehensive overview of a dwelling, allowing buyers to more accurately consider its true worth, and can be done in-person or virtually.