If you are new to real estate investing, you might be wondering where to start.  As Benjamin Franklin stated, “An investment in knowledge pays the best interest.”

First, get a lay of the land by beginning with the terminology of real estate and investing. 

Key Real Estate Terms

 

Adjustable-Rate Mortgage: A mortgage that allows the lender to change the mortgage’s interest rate. The rates, then, will move up and down according to the market.

Adjustment Period: The time from one adjustment date to the next in an adjustable-rate mortgage.

Amortization: The repayment of a loan through installments where payments cover both the principal and the interest so that the principal is paid down over time.

Annual Percentage Rate (APR): The cost of a mortgage throughout the year including interest, mortgage insurance, and loan.

Annuity: The amount paid on a loan annually, often a set amount per year.

Appraisal: An analysis of a property’s fair market value, prepared by a qualified appraiser.

Appreciation: The increase in a property’s value over time. The opposite of depreciation.

Assessed Value: The property value as determined by a public tax assessor for taxation purposes. The process of obtaining this analysis is called an assessment.

Assessor: A public official who determines the assessed value of a home for taxation purposes.

Asset: Anything of monetary value that is owned by a person, ranging from property and personal items to loans, stocks or mutual funds.

Assignment: The transfer of a mortgage from one person to another.

Assumable Mortgage: A mortgage that can be transferred from the seller to the buyer. Also called Assumption.

Assumption Clause: The provision written into an assumable mortgage that allows for the transfer of a mortgage from seller to buyer.

Binder: A signed agreement, and the payment of an earnest money deposit, where a buyer agrees to purchase real estate.

Bridge Loan: A loan collateralized by the borrower’s present home, which is for sale, in order to allow the proceeds to be used for closing on a new house before their current residence is sold. Also called a swing loan.

Broker: A person who assists in negotiating contracts between parties for a fee.

Capital Expenditure: The cost of any property or home improvement, whether it is to add value or to maintain the property.

Certificate Of Title: A certificate stating who real estate’s title is legally held by.

Chain Of Title: The history of a real estate’s titles from the earliest documents until the most recent.

Clear Title: A property’s title without liens or unresolved questions regarding ownership.

Closing: The meeting when a property’s sale is finalized and the buyer signs the mortgage documents and pays closing costs. The ownership is then transferred from seller to buyer.

Closing Costs: Expenses beyond the price of the property that are related to transferring a property’s ownership including taxes, attorney fees, an origination fee, escrow, title insurance and a survey. Your realtor or lender should be able to estimate closing costs before you consider a purchase.

Collateral: An asset put up as a guarantee on a loan. If the borrower fails to repay the loan, he or she risks losing the asset.

Commission: The fee a broker or agent receives for negotiating a real estate sale or loan. Typically it is a percentage of the property or loan’s price.

Commitment Letter: A formal document provided by a lender stating a loan’s terms, and agreeing to lend it to a homebuyer. Also known as a loan commitment.

Comparables (Comps): Comparables are recently sold properties that are similar in size, location, and amenities to a home being appraised. They are used to help determine a property’s fair market value.

Deed: The document conveying title to a property.

Default: The actionable failure to make mortgage payments or other requirements of the loan.

Delinquency: Failure to meet a time sensitive mortgage payment.

Depreciation: The decline in a property’s value. The opposite of appreciation.

Down Payment: A part of a home’s purchase payment made when buying a home. It is not usually financed with a mortgage.

Earnest Money Deposit: A deposit made to show that a potential buyer is serious about buying the house.

Easement: Allows people other than the owner to access a property.

Equity: In an owned property it is the difference between the fair market value of the property and the remaining balance of its mortgage.

Escrow: When a buyer’s deposit or payment is left with a third party after a sale has been agreed upon but before all conditions of the sale have been met.

Fair Market Value: The highest price a typical buyer would pay, and the lowest a seller would accept.

Fixed Installment: A monthly mortgage payment that includes the payment of both principal and interest.

Fixed-Rate Mortgage (FRM): A mortgage where the interest rate will not change during the life of the loan.

Foreclosure: The legal proceedings that follow a borrower defaulting on a loan. It allows the lender to assume interest in the mortgaged property and is often followed by a forced sale to pay off the debt.

Forfeiture: The loss of property, money, or rights due to a breach of legal obligation.

Fully Amortized Adjustable Rate Mortgage: An adjustable-rate mortgage (ARM) with a monthly payment sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Growing-Equity Mortgage: A fixed-rate mortgage that automatically increases your payments over time in order to pay off the principal more quickly.

Home Equity Loan: A secondary mortgage loan where the amount of the loan is based on the borrower’s current equity in a property.

Home Inspection: When a licensed home inspector evaluates the structural and mechanical condition of a property.

Homeowner’s Insurance: A comprehensive policy that includes both personal liability insurance and hazard insurance coverage.

Income Property: Real estate that has been either developed or improved to produce income.

Initial Interest Rate: The interest rate at the time of closing. Also called a “start rate” or “teaser.”

Installment Loan: A loan that is repaid in equal, regularly scheduled installments.

Interest: The fee a lender charges for borrowing money.

Joint Tenancy: A form of co-ownership. It gives both parties equal interest and equal rights in the property.

Liabilities: This includes all financial obligations, including long- and short-term debt.

Lien: A legal claim against a property. It must be paid off before a property can be sold.

Line Of Credit: When a financial institution or bank extends credit. It is always for a specific amount and a limited time.

Liquid Asset: An asset that is easily converted into cash.

Loan: Borrowed money, also called principal.

Lock-In: A guarantee by a lender that a specified interest rate will not go up as long as the property closes within a set period of time. Also called a rate lock.

Maturity: The date the remaining principal balance of a loan becomes due.

Mortgage: A legal document that offers a property to the lender as security for a loan’s repayment.

Mortgage Broker: A company or individual who, for a fee or commission, brings borrowers and lenders together.

Net Worth: A person’s assets minus all liabilities.

Note: A legal document that states the terms of a mortgage.

Origination Fee: A fee, stated in points (1 point is 1 percent of a mortgage), that is paid to a lender for processing a loan application.

Owner Financing: This is when the property seller provides all or part of the financing.

PITI – Principal, Interest, Taxes, And Insurance: The main components of a monthly mortgage payment. Principal is the actual mortgage loan balance. Interest is the fee charged for borrowing. And taxes and insurance refer to the payments made for taxes and insurance each month.

Pre-foreclosure Sale: When an investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount still owed.

Prime Rate: The lowest interest rate a bank can offer. It is offered to their preferred clients only but sets the standard for others.

Principal: The outstanding balance of a loan. Also refers to the part of a monthly payment that goes directly to that balance (rather than interest, taxes or insurance.)

Promissory Note: A written promise to repay a loan within the specified time period and conditions.

Purchase and Sale Agreement: A written contract stating the terms and conditions of a sale. Signed by owner and buyer.

Real Estate Settlement Procedures Act: The law requiring lenders to give borrowers notice of closing costs before a sale is made.

Refinance: Paying off one loan with the proceeds of a new loan on the same property.

Rehabilitation Mortgage: A mortgage obtained for renovation or home improvement.

Repayment Plan: A plan arranged between lender and borrower to repay a defaulted loan. Also called relief provisions.

Revolving Liability: The most common revolving liability is a credit card. This is an arrangement that allows a person to borrow against a preapproved line of credit for short-term purposes.

Second Mortgage: A mortgage that has a second, subordinate lien.

Secured Loan: A collateral-backed loan.

Survey: A map showing the legal boundaries of a property as well as manmade or natural physical features.

Title: The legal document stating a person’s ownership or right to a property.

Total Expense Ratio: Total obligations as a percentage of gross monthly income, including housing expenses and other debts.

Transfer Tax: State and other taxes owed when a title is passed on to a new owner.

Trustee: A person who legally controls someone else’s property for their benefit.

Truth-In-Lending: A federal law requiring lenders to disclose the full terms and conditions of a mortgage, and all charges included, in writing.

Underwriting: The analysis of a borrower’s credit, and the property’s fair market value, to determine the risk involved for the lender.

Unsecured Loan: A loan that is not backed by collateral.

 

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