There is a lot of technical terminology in Real Estate. It can be very confusing and overwhelming, especially if you are new to buying or selling a home.
๐๏ธ Below is a list of some of the most used real estate terms that you may want or need to know along your trek to real estate happiness.
But don’t worry, there won’t be a quiz. ๐
Find the answers to your most asked questions about real estate. Click on the big + button to view the answer.
What is Amortization?
Amortization of a mortgage refers to the process of paying off your home loan in regular monthly payments over a fixed period of time, usually 30 years.
Do you know what kind of mortgage you have? Do you know whether your payments are going to increase over time? ๐
โAmortizationโ is the term used for the schedule of mortgage installment payments over a period of time. Typically, a buyerโs amortization schedule is one payment per month over 15 or 30 years.
๐ข Important:
๐ There are both adjustable and fixed-rate mortgages. With an adjustable rate, the lender can increase the rate on a predetermined schedule, which would impact your amortization schedule.
๐ With a fixed rate, your payments with remain the same for the life of the loan, unless you refinance or there are changes to taxes or insurance.
Capitalization Rate aka Cap Rate
An equation to estimate the potential return on an investment in the real estate market. Calculated by dividing net annual income by property market value.
Interested in investing in real estate?ย
Youโll need to understand cap rates.
A propertyโs cap rate (or capitalization rate) is an estimate of its rate of return. To find a propertyโs cap rate, divide the net annual income you expect it to generate by its current market value.
Cap rates are a great tool for comparing properties, but they donโt tell the whole story! You also need to account for financing costs, management expenses, and more.
Are you searching for an investment property that will pay off? We can help! Contact us today for a free consultation.
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A condominium (condo) is a type of housing where several people own separate units in larger building or complex. Each unit is owned by an individual.
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In real estate, a deed is a document that shows who owns a piece of property. When someone buys a house, they get a deed that shows they are the owners.
This is not the same as a Deed of Trust.
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What is an easement? ๐๐ก
A right to cross or otherwise use someone else’s land for a specified purpose.
The term often crops up after buyers have made an offer on a home thatโs been accepted, at which point a title search brings up the easementโwhich is essentially the legal right for someone else to use the property, or part of the property for a specific purpose.
Say what? You bend over backward to buy a home and now you have to share?! Donโt worry, in most cases, itโs not as bad as it sounds.
Types of Easements:
๐ Right of way: This is where a neighbor may need to pass through the property via a driveway to access the main road, a neighborhood playground, or a community feature (like a lake).
๐ Utility maintenance: This easement is typically granted to utility companies to run power and cable lines on a property.
๐ HOAs/condos: If you live in a condo or home managed by a homeowners association, odds are these institutions own much of the propertyโwhile residents have rights to pass through.
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The equity in a home or property is the difference between how much your home is worth and how much you owe on your mortgage.
So if your home is worth $500,000 and you owe $450,000 on your mortgage, your equity in the home is $50,000.
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What is a Foreclosure?
When the lender takes ownership of a property due to failed payments by the buyer.
A foreclosure is when the lender takes ownership of a property due to failed payments by the buyer. It’s a legal process that can be complex and time-consuming. If you’re facing foreclosure, it’s important to understand your rights and options.
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What is a Home Equity Loan?
A home equity loan โ sometimes called a second mortgage โ is a loan that’s secured by your home.
Unlike a HELOC, a home equity loan is a fixed amount. You receive a lump sum of money which is often used to purchase the home. It may also be used to consolidate other debt like credit card debt, at a lower interest rate.
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What is a Homeowners Association (HOA)?
A homeowners association (HOA) is an organization that makes and enforces rules and guidelines for a subdivision, planned community, or condominium building.
Like many relationships, it’s complicated.
A homeowners association (HOA) is a non-profit organization that takes care of the common areas in a planned community.
HOA fees pay for things like landscaping, snow removal, and repairs to common areas.
A Homeowners Association is an organization made up of homeowners who live in a specific neighborhood or development. The HOA is responsible for maintaining common areas and enforcing rules and regulations.
When you buy a home in a development that has an HOA, you agree to the terms and conditions (rules) of the HOA. CC&Rs.
A homeowners association (HOA) is a private organization that manages and governs a residential community, such as a planned neighborhood, condominium building, or townhouse complex. HOAs are responsible for:
Creating and enforcing rules
HOAs establish rules and guidelines to maintain uniformity and protect property values. These rules can include requirements for yard items, door colors, and car storage.
Collecting fees
HOAs collect monthly or annual dues from residents to pay for common area maintenance and services.
Providing amenities
HOAs can offer amenities like swimming pools, gyms, snow removal, and security.
Running the community
HOAs are typically run by a board of directors made up of elected volunteers.
HOAs can be beneficial because they help maintain the neighborhood and preserve property values. However, some people find the rules to be overly restrictive. HOAs can impose fines on homeowners who don’t comply with the rules, and in extreme cases, they can even force foreclosure.
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Cornell Law
Many HOAs have very particular guidelines like preventing any items being in the yard, requiring doors to be a specific color, requiring cars to always be in the garage, or even requiring flower beds to have specific flower colors. As such, it is very important that homeowners look at the CC&Rs for the property they potentially buy.
When homeowners break a restriction or do not pay fees, the HOA will have specific remedies set in the CC&Rs such as fines or even forcing the home to be foreclosed on in extreme circumstances, ranging widely among different HOAs. Some laws limit how HOAs can punish homeowners such as limitingย foreclosureย actions to when the homeowner acts unruly, but these laws vary greatly from state to state and city to city. Further, some federal and state laws may prevent the enforcement of restrictions by HOAs that becomeย unconscionable or against public policy. For example, federal laws prohibit HOAs from banning homeowners from having a service animal.ย https://www.law.cornell.edu/wex/homeowners%27_associations_%28hoas%29#:~:text=Many%20HOAs%20have%20very%20particular,unconscionable%20or%20against%20public%20policy.
Investopedia
Bankrate
https://www.bankrate.com/real-estate/what-is-an-hoa/
Rocket Mortgage
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What is an Offer to Purchase in real estate? ๐ค
When does it come into play? And what does it entail?
An Offer to Purchase โ usually just referred to as an offer โ is a written document submitted by a prospective buyer to a seller that outlines the terms of the sale.
You’ve probably heard someone say:
We just put in an offer to buy our first home.
The buyer’s agent will be the one to submit the offer to the seller’s agent. The seller’s agent will then bring the offer to the seller.
It can be submitted at any time during the negotiation process, but it usually occurs after the buyer has made an initial offer and the seller has accepted it.
The Offer to Purchase should include all of the terms of the sale, including the purchase price, the down payment, the closing date, and any contingencies.
Once the offer is accepted, you are “under contract” to purchase the home, pending any contingencies.
Below is an example of an Offer to Purchase Real Estate.
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What are Property Taxes?
Property Taxes are a levy or tax imposed by a municipality (city, town, or county) on real estate and personal property. The amount of tax varies depending on the property value.
Property taxes are an annual tax that local municipalities collect each year, based on the assessed value of your property (not on the appraised value of your home). These funds help pay for services that benefit the community, such as schools, roads, maintenance, etc.
First-time homeowners often forget to factor property taxes into the overall cost of their new home, which can come as a nasty shock come tax season. So let this be a reminder to all homeowners to calculate property taxes into their annual budget!
๐ฐ BONUS TIP: If you own a rental property, your property taxes may be tax-deductible ๐ฐ
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Refinancing a home is the process of replacing an existing mortgage with a new one that has more favorable terms.ย The purpose of refinancing is to achieve one or more goals, such as:
- Lowering interest rates
This can reduce monthly payments and the overall cost of the home. Refinancing can be especially worth it if the interest rate can be lowered by 0.25%, 0.5%, 1%, or more. - Consolidating debts
Refinancing can allow debts to be consolidated into one loan at a lower interest rate. - Changing the length of the loan
Refinancing can shorten the term of the loan, such as moving from a 30-year loan to a 15-year loan. - Switching between fixed-rate and adjustable-rate mortgages
Refinancing can allow a homeowner to switch from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) or vice versa. - Accessing home equity
Refinancing can allow homeowners to tap into their home equity to raise funds for home improvements, repairs, financial emergencies, or large purchases.
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What is a Reverse Mortgage?
A financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income. This type of loan is for adults ages 62 and older.
Should you get a reverse mortgage?
While it can be a great way to supplement your retirement income, there are some things to watch out for:
โ ๏ธ High fees
To get and finalize your reverse mortgage, youโll be paying a range of fees that can add up quickly.
โ ๏ธ Variable or high-interest rate
The interest rate is often higher than that of a standard mortgage. It may also be variable, rather than fixed, which means it can increase in the future.
โ ๏ธ Less money for your heirs
The remaining amount of your estate will need to be repaid when youโre no longer here, usually in a specific period of time, which can be costly and stressful for your family.
This is why, in some cases, downsizing can be a better option. If youโre deciding between the two, contact us to discuss your options and make the best choice for your needs.
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What is a short sale?
The sale of a home sold for less than what’s owed on the mortgage to prevent foreclosure.
A โshort saleโ is a home sold at a discounted price. But why would someone want to sell their home for less than itโs worth? ๐ค
Homeowners struggling to make payments on their mortgage are faced with the option to foreclose on their property, which can severely damage their credit.
But a short sale can leave less of a negative impact, and some sellers can qualify for other home loans once the short sale closes.
If youโd like to learn more about short sales in our area (how they work, if theyโre in your best interest, or how to take advantage of them if youโre a buyer), send us a message ๐ฒ
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