Selling your home and confused by all the real estate buzzwords? Check out our glossary of the most common phrases used in the home buying process.
It’s no secret that buying and selling a home can be a confusing process. Dozens of complex terms are thrown around casually, which can add unnecessary stress. To help make the process easier, we’ve made a real estate glossary of the most important home equity terminology that all home buyers and sellers should familiarize themselves with as they navigate through their real estate journey. Understanding these real estate terms and their implications is the first step to unlocking the hard-earned equity in your home.
Aging in Place: Aging in place refers to staying in one’s home as they age, as opposed to moving into a communal living facility.
Appraised value: The appraised value is the value assigned to a property by a licensed professional based on a multitude of considerations, including, for example, recent sales nearby, neighborhood features, local market conditions, and the condition of your home.
Broker: In the real estate world, a broker is a real estate agent with additional training and licensing. A real estate broker can work independently or manage his or her own real estate firm.
Buyer: A buyer is a person who purchases a home from someone else.
Cash out refinance: Through a downpayment and monthly payments, homeowners begin to accrue home equity — and a cash-out refinance is a way for borrowers to take out some of this equity in cash. Cash-out refinancing at the right time can also help borrowers attain better rates, but this tool is especially valuable to those looking to free up equity to put toward larger purchases.
Closing costs: Closing costs refer to the many fees that the home buyer and seller must pay during the finalization of the transaction. These costs often entail fees relating to title, HOA, property tax, insurance, mortgage, and other miscellaneous expenses.
Commission: In real estate, commission is the amount of the total home price that is paid out to the buyer’s and seller’s real estate agents. Simply put, commission is the means by which agents get paid, and the agents on both sides of the transaction split the commission. Generally speaking, the standard commission fee is 5-6% of the home’s purchase price.
Deed: A property deed is an official document that transfers ownership from one party to another, i.e. from a seller to a buyer.
Down Payment: A down payment is the initial amount a buyer pays for a home in cash. Whatever the buyer does not put toward the home in cash will be taken out in the form of a loan, to be repaid over time.
Due Diligence: Due diligence refers to the time period between when an offer is accepted and when the deal closes. During this time, the home buyer has the chance to fully inspect the home and property and review all relevant documents before closing.
Escrow: In real estate, an escrow is a legal agreement that provides for a third party to temporarily hold the money and assets relating to a transaction until all conditions of the arrangement are satisfied.
HELOC: A home equity line of credit works in the same way as a credit card, but instead of unsecured debt, your debt is secured by the equity of your home. HELOCs are divided into two parts: the draw period and the repayment period. During the draw period, usually 10 years, you can withdraw money up to your established credit limit. After 10 years, the final amount you've withdrawn becomes a loan to be repaid with interest. You have the repayment period, usually 20 years, to pay the loan amount off.
Home Equity: Home equity refers to the amount of a home that a homeowner actually owns. Simply put, it’s the difference between a home’s value and the amount the homeowner owes on his or her mortgage payment.
Home Equity Loan: A home equity loan (or a second mortgage) is a financial tool that allows a homeowner to leverage the equity in their home to borrow money from a lender. As an example, let’s say that a home is valued at $400,000, and the homeowner owes half of that on the home. This would mean that the amount available for a home equity loan is a hefty $200,000. This loan amount is then paid out in full, allowing the homeowner to pay back the balance of the home loan through monthly installments.
Home Inspection: A home inspection is a professional and thorough examination of a home intended to evaluate its safety and condition. The inspector typically examines the home’s physical structure and most significant interior systems. Generally, it is a buyer’s final chance to unearth any potential problems with a home before closing.
Homeowner’s Association: A homeowner’s association, or an HOA, is an organization that oversees a residential community. Typically, an HOA will establish a set of rules and guidelines for community members to follow.
Home Warranty: A home warranty is a yearly contract that covers repair or replacement costs on a home’s major appliances and systems that malfunction due to typical wear and tear. Different home warranty companies cover different systems and appliances but most cover: refrigerator, washer/dryer, dishwasher, HVAC, and plumbing, to name a few.
iBuyer: An iBuyer, or an instant buyer, refers to a real estate company that makes an “instant” offer on a home. iBuyers leverage technology to purchase and sell homes quickly.
Lease Agreement: A lease agreement is a legal contract between a landlord and a tenant. The agreement generally outlines the agreed upon monthly rental amount and the length of the lease.
Lender: A lender in real estate refers to the bank that lends money to someone in order to finance a real estate transaction.
Market Value: The market value of a home is the likely price that a home would sell for under standard conditions on the open market.
Mortgage: A mortgage is a loan from a bank in order to purchase a home.
Mortgage Insurance: Mortgage Insurance is a type of insurance that protects the lender in the case a homeowner is unable to pay his or her mortgage and defaults on the loan. Typically, when a homeowner has put down less than 20% of the home’s value in cash, he or she will have to get mortgage insurance.
Property Tax: Property tax is a tax on property that is paid by the property owner.
Realtor: A realtor is a licensed real estate agent or broker who is a member of the National Association of Realtors (NAR) and must comply with NAR’s Code of Ethics.
Rent Back Agreement: A rent back agreement is the same thing as a sale-leaseback, wherein the seller stays in the home following the closing and pays rent for a set amount of time.
Reverse Mortgage: A reverse mortgage is a unique type of loan that allows homeowners who are 62 or older to borrow against their home equity and receive money. This money can be in the form of a lump sum payment, a fixed monthly payment, or a line of credit. In essence, whereas a typical mortgage payment requires the property owner to pay money to the lender, someone who takes out a reverse mortgage receives money from their lender. When the borrower sells the home, moves out, or dies, the loan is due and must be repaid.
Sale-Leaseback: A sale-leaseback refers to any financial transaction in which someone sells an asset and then leases it back, so that they can continue to use the asset without owning it. Historically, sale-leasebacks have been most common in the commercial real estate, machinery, and aviation world,but they have become increasingly popular in residential real-estate. In residential real estate, someone who does a sale-leaseback sells their home to a third party for an agreed upon amount, and then keeps living in their home while paying monthly rent.
Security Deposit: A security deposit is an amount of money that someone makes to the landlord prior to moving into a home. A security deposit protects the landlord in case of potential damages or missed payments. Oftentimes, if the property is in good condition when the tenant vacates, the security deposit will be returned to the tenant.
Seller: A seller is someone who sells their property to someone else.
Title: Title is a legal term that refers to who owns property.
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