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Adjustable-rate mortgages have interest rates which change periodically. A homebuyer with an adjustable-rate mortgage can start with lower monthly payments compared to a fixed-rate mortgage, but the changing interest rates mean that monthly payments can go up later on.
Amortization is the term used for the schedule of mortgage installment payments over a period of time. In real estate, a typical buyer’s amortization schedule is one payment per month over 15 or 30 years.
A real estate appraisal is a process designed to develop an accurate opinion of value for real property. In a real estate transaction, an appraisal performed by a third party is often required by a lender to ensure that the amount being requested for the loan reflects the property’s fair market value. In situations wherein a home’s appraised value is less than what the buyer offered, the lender can request the buyer to cover the cost’s difference.
Expenses incurred by home buyers and sellers to finalize a real estate transaction are known as closing costs. These may include appraisal fees, taxes, loan origination fees, credit report fees, title insurance, and so on. In most situations, the buyer usually pays from 2% to 5% of the home’s purchase price, although closing costs can be paid by either the buyer or the seller.
Deed and title are two terms that are often used interchangeably. But while they’re closely related, there’s a difference between the two. The title is a concept and not a physical document. It represents legal ownership of the home and all of the rights that are transferred from seller to buyer. The deed on the other hand, is a physical, legal document that conveys the title to the new owner after a home is sold. It includes a description of the property and identifies the grantee (buyer) and grantor (seller) of a specific transaction.
The down payment is the amount paid by the homebuyer during the closing period. Most home loans require a 20% down payment, while several conforming loans only require a down payment of 5%. There are also loans offered by the Federal Housing Administration (FHA) that accept a 3.5% down payment.
The part of the property officially owned by an individual is known as home equity. While a person does have ownership of a property he or she has purchased, the mortgage lender has interest in the property up until it’s completely paid off.
Escrow is a step in the home buying or selling process which happens when a neutral third party holds something of value (often the buyer’s earnest money check) during a real estate transaction. Once the transaction is completed during the closing period, the third party will then release the funds held during escrow.
A Federal Housing Administration or FHA loan is a mortgage issued by a lender approved by the FHA and insured by the agency itself. An FHA loan is designed for low to moderate income homebuyers, and requires lower minimum down payments and credit scores compared to other conventional loans.
Foreclosure is a legal process that happens whenever a homeowner is unable to make a mortgage payment, usually for a period exceeding 90 days. In a foreclosure, the owner forfeits all of their rights to the property. Should the owner fail to pay off any outstanding debts on the property or sell it through a short sale, the home will enter a foreclosure auction. If it’s still not sold during the auction, the lender will then have control over the property.
A homeowner’s association or HOA is a private organization within a planned community, subdivision, or condominium tasked to create and enforce rules for the homes in the community and its residents. Those who buy a property within an HOA’s jurisdiction are automatically included as members, and are required to pay dues or HOA fees.
The Multiple Listing Service or MLS is a collection of over 700 regional databases populated by listings. Each database contains its own set of listings which agents can get access to by paying dues. Member agents are allowed to share listings across different regions without needing to pay dues for each one. The MLS is widely considered the most comprehensive service for listings available today.
In the real estate business, homebuyers need to make an offer on a property they want to purchase. An offer can be for the home’s full list price, or what the buyer and their agent consider a fair market value for the home. Buyer’s agents are in charge of putting the formal offer in writing before submitting it to the seller’s agent. In case the seller opts not to make a counter offer, he or she can approve the offer immediately, which turns it into a purchase contract.
A homebuyer who is pre-approved means a lender has verified their information, checked their credit, and has approved them for a specific loan amount for up to 90 days. The process requires buyers to fill out an application in order to allow a lender to examine their current financial situation, including their credit worthiness, debt-to-income ratio, and ability to repay.
Pre-qualification is the first step to getting pre-approved for a loan. It is meant to give a homebuyer an idea of how much of a loan they’ll be able to qualify for. The pre-qualification process is based on data submitted by a consumer, whereas the pre-approval process uses only verified consumer data such as credit checks, for example.
Probate sales occur whenever a homeowner passes away without writing a will or leaving the property to someone else. The probate court will authorize an estate attorney to get the services of a real estate agent, who will then be tasked with selling the property. Compared to a conventional sale, probate sales are usually more complicated, and can take more time to complete.
A seller's disclosure is a document issued by a home seller to a buyer. It outlines any existing issues with the property and other important details buyers need to know about regarding the home. It typically includes repairs performed on the home, details on defective systems or appliances, and history of leaks and other environment-related issues.
A short sale happens whenever a property is sold for less than what is owed on its mortgage. In a short sale, the seller pays for the difference in what is owed to sell the home. These are often used as an alternate option by homeowners and banks to avoid foreclosure.
Homes sold by a trustee and not a private party are known as a trust sale. This often occurs because the original homeowner has passed away and has assigned their assets into a living trust. Trustees who have never occupied the property for sale are not required to offer the same disclosures as sellers in a conventional sale.
A Veteran’s Affairs or VA loan is a type of home loan that is only available to US military veterans and their surviving spouses. This type of loan is designed to assist veterans who are looking to purchase a property without needing a down payment or mortgage insurance. VA loans are available through banks and mortgage companies. A percentage of VA loans are guaranteed by the federal government, allowing banks to offer more advantageous loan terms.
Cap Rate is a term in commercial real estate that refers to the way a building is evaluated. It’s calculated by taking the net operating income, NOI, and dividing it by the cost of the building in order to give the rate of return (the term “return” may not be appropriate in all scenarios such as a building that is 100% financed). Commercial Brokers frequently use this term in connection with the sale of investment real estate.