Real estate mumbo-jumbo can get confusing! Buying a house is a big step and accomplishment in one’s life. Wouldn’t it be a more pleasing and smooth process if the paperwork included more easily understood terms? Until those big words are put into plain, simple English, let me give you the definition to a few important real estate terms you will run across at some point.
ACRE – An acre is how land is measured. One acre is equal to 43,560 square feet. This is an important term you’ll see when buying a home with land or just land by itself. The land size will most likely be in acreage, not in square feet or yards, etc.
ADJUSTABLE RATE MORTGAGE (also referred to as ARM) – This is a mortgage loan with an interest rate that fluctuates up and down over the length of the loan. If the interest rates are unpredictable, an ARM would make a good choice. If the rates fall, you are at the advantage. If it rises, of course, you will have a higher monthly payment than the original. On a better note, with Adjustable Rate Mortgages, there are limits on how often and by how much the interest rate varies. That keeps you from suffering through constant and drastic rate changes.
ANNUAL PERCENTAGE RATE – (also known as APR) This refers to the actual cost of borrowing money. It is basically an annual interest rate which is different from your loan rate. APR does not affect your monthly payments – it is merely used to determine the true cost of the loan. It gives you a better estimate of what you are paying over a year’s time. Lenders are required to show you their APR and it is usually located near the loan’s interest rate.
APPRAISAL – An appraisal is the value of something determined by a qualified expert. Before a loan is approved, the home must be appraised. Your lender will set up the appraisal. According to Carolina Residential Appraisals, the Standard Uniform Residential Appraisal Report (URAR) provides a description of the property based on legal information, Multiple Listing Service (MLS) data and the appraiser’s review of the property. In addition, the URAR will contain a comparison of like-properties, digital color photos of the subject and comparable properties, a computer generated floor plan and living area breakdown, and a location map showing the subject and comparable properties.
APPRECIATION / DEPRECIATION – These two terms mean an increase (appreciation) or decrease (depreciation) in value or worth of property. A home may either appreciate or depreciate year after year. As a rule of thumb, trailers and mobile homes tend to rapidly depreciate. Why? It’s because (1) their construction is weak and (2) mobile homes bring down the looks and vanity of neighborhoods. This is especially the case with mobile home parks. Modular homes and regular homes appreciate in value based upon their strict building, location, additions, extras, and the neighborhood in general. Clean homes are given a higher value than untidy ones. Furthermore, a clean home in a run-down part of town will be given a lesser value than a clean home in an upbeat area of town.
ASSUMABLE MORTGAGE – This refers to an existing mortgage that can be taken over by the new buyer. The new buyer takes on the same terms given to the original borrower.
BALLOON MORTGAGE – A balloon mortgage is a mortgage where the final payment is a lot larger than the previous payments. This mortgage is short, usually five to seven years. However, your payments are figured in a length of 30 years. Now, when your five to seven years are up, you have to pay the remaining balance at once OR refinance the remaining balance under a traditional mortgage.
BROKERAGE – A brokerage company brings together parties who want to buy, sell, exchange, or lease. They work for commission or a fee.
CAP – This is the maximum increase allowed for a specified amount of time on an adjustable rate mortgage.
CEILING – This is the maximum interest rate allowed over the life of the loan of an adjustable rate mortgage.
CLEAR TITLE – A clear title is a title that doesn’t have any liens against it.
CLOSING – A closing is the conclusion of a sales transaction. It happens when the seller transfers title to the buyer.
CLOSING COSTS – These are costs the buyer must pay at the time of a closing. It includes fees occurred during the real estate and mortgage transactions, such as title charges, credit report fee, document preparation fee, inspections, appraisals, etc. Closing costs vary from place to place.
CLOSING STATEMENT – A closing statement is a detailed, written summary of all charges and credits along with all cash received and paid out.