For most, the world of real estate can be confusing and foreign. With the abundance of information and resources available to buyers and sellers, it can often be challenging to determine what terms are most important to understand. To help you best understand key industry terms frequently thrown around, we’re breaking down the ABCs of real estate below.
A is for Appraisal:
An appraisal is an estimate of a home’s market value. This can be based on comparable recent sales of nearby homes, current market trends, and various aspects of the property.
B is for Backup Offer:
A backup offer is a secondary offer on a home that’s under contract. If the original contract ends up falling through, the backup offer will come into play so the property can still be sold within the appropriate time frame.
C is for Contingent Offer:
A contingent offer is a conditional offer that the seller accepts. For the sale to be finalized, certain conditions must be met by the buyer, the seller, or both. This may have to do with completing maintenance on the home, scheduling specific moving time frames, or reducing other associated costs.
D is for Down Payment:
Paid upfront by the buyer, a down payment is often made in cash and equates to a certain percentage of the property’s price. Typically, this is between 5% and 20% of the property’s total cost.
E is for Escrow:
Escrow is a legal agreement in which a neutral third party temporarily holds funds from the buyer. Once all of the conditions have been met for both parties, the funds are distributed.
F is for Federal Housing Administration (FHA):
The FHA is a government agency that offers mortgage insurance to approved lenders that meet specific qualifications. Often, the FHA insures loans for low- to moderate-income buyers, and the agency protects lenders against losses from mortgage defaults.
G is for Good Faith Estimate (GFE):
A good faith estimate (GFE) provides a fair assessment of the expected fees, costs, and terms associated with a potential mortgage due at closing.
H is for Homeowners Association (HOA):
An HOA is a management organization for a specified community, and it creates and enforces specific rules for all properties and owners within its jurisdiction.
I is for Inspection:
An inspection is an examination of a property’s current condition. Specifically, it takes into account the home’s safety and is typically completed by a professional prior to the sale of a home.
J is for Jumbo Mortgage:
A jumbo mortgage is a financing option where the loan amount exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). This option is often utilized for pricier luxury home purchases.
K is for Key Rate:
A key rate is an interest rate that banks use to determine the interest rates it charges borrowers and pays depositors. This is set by the federal government, and it can primarily affect the cost of a mortgage for homebuyers.
L is for Loan-to-Value (LTV):
LTV is the ratio used by lenders to assess a buyer’s risk prior to being approved for a mortgage. This is calculated by dividing the mortgage amount by the total appraised value. The lower the LTV, the less risky a mortgage application will appear to lenders.
M is for Multiple Listing Service (MLS):
An MLS is a database where agents can list and market for-sale homes to potential buyers and brokers.
N is for Net Proceeds:
This is the amount received by the seller at closing after all costs and expenses have been deducted from the gross proceeds.
O is for Open House:
An open house allows sellers to showcase a listing. Potential buyers have the opportunity to explore the listing in person and picture themselves living there.
P is for Pre-approval Letter:
A pre-approval letter is a document from a lender stating the amount the lender is willing to give to the buyer for a mortgage. This letter is helpful to obtain as early as possible during a home search to give buyers an idea of what they can afford.
Q is for Quitclaim Deed:
A quitclaim deed is used to transfer property rights from one owner to another. This is typically used between spouses or family members, and it does not require any validation of ownership.
R is for Real Estate Owned (REO) Property:
REO’s are repossessed properties that have fallen under the ownership of a mortgage lender or investor after an unsuccessful sale at an auction.
S is for Seller Disclosure:
A seller disclosure is a document in which the seller discloses known defects in the home. This includes past problems with all mechanical systems, such as electrical, water, and heating, among others.
T is for Title:
A title is a document that shows legal ownership of a property.
U is for Under Contract:
If a home is under contract, the buyer and seller have agreed to terms, but the closing has not yet been finalized.
V is for VA Loan:
A VA loan is a financing option available specifically for veterans and their spouses. Private lenders make these loans, and they are guaranteed through the U.S. government.
W is for Walkthrough:
Conducted before a sale is finalized, a walkthrough is the last time for potential buyers to inspect the home and ensure it is in the same condition as their last viewing.
X is for “X marks the spot!”:
X is where you sign on the dotted line and finally take ownership of your dream home!
Y is for Yield-Spread Premium (YSP):
A YSP is what a mortgage officer receives from a lender for selling a loan with a higher interest rate than the market mortgage rate.
Z is for Zero Lot Lines:
A zero lot line is a property built extremely close to or on the home’s property line.
