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Complicated Real Estate Terms Explained

An article from theloop.ca

Ready to hop into the housing market? Prepare yourself to hear more technical terms and industry jargon. From payments to property rights, there seems to be a complicated term for almost everything and you’re stuck trying to sort it all out. To help you on your journey through the world of amortization, mortgage rates, pre-qualification and more, we’ve created the following guide to the ABCs of real estate-eze. Happy house hunting!

Let’s start with the As. An ‘adjustable rate mortgage’ (ARM) is one with a rate that fluctuates. You start off with a set rate of interest for a given time period, but once that time is over, the interest rate can go up or down (though usually there’s a cap on how high it can rise.) ‘Amortization’ is another ‘A’ word you’ll need in your vocabulary. It refers to the paying back of your mortgage, over time. You’ll be shown schedules that show how much principal and how much interest you’ll pay, depending on how quickly or slowly you pay off your mortgage.

On to the Cs. When you reach the end of your wheeling and dealing and transfer the title of the property, that’s called a ‘closing’.

And now for a D word – ‘down payment’ – an amount of money you give to the seller of a property in the first stage of purchase.  It’s usually between five and twenty-five percent of the purchase price.

Here’s a weird one – ‘escrow’. This is when a third party – usually a lawyer – holds property, cash and the title to the property until the deal has been finalized. At that time the assets are handed over to the various parties, according to a legal agreement.

Here’s a fun F term – ‘flipping’! You buy a house with the intention of reselling it and making a profit. Some buyers renovate and upgrade to increase their profits while others simply wait for an upswing in the market.

And now for a G, F and E term – ‘good faith estimate.’ This is a rough appraisal of the total purchase price of a property. Get one before you sign that mortgage so you can compare costs at various financial institutions to get the best deal.

There’s a nasty L word you don’t want to have associated with any property you’re planning to buy. That word is ‘lien’. It means that there is a legal claim for an outstanding debt owed by the current owner and the holder of that ‘lien’ can sell the property to get his money back.

If someone tells you you’re getting some ‘points’ for your mortgage, don’t get too excited. That particular P word simply means that there are upfront charges that the lender supplying your mortgage is going to add to the overall cost of the loan.  One ‘point’ is equal to one percent of the total amount of your loan.

Another couple of important P words are ‘pre-approval’ and ‘pre-qualified’.  A ‘pre-approval’ means that your lending institution will investigate your financial situation in great depth to determine that you’ll be able to secure a mortgage of a certain amount. ‘Pre-qualification’ is the process by which you’re assessed by a lender to see how much you should be able to borrow and at what rate of interest. With that ‘pre-qualification’ in place, you’ll be free to house hunt and negotiate, knowing that you’ll be able to get the mortgage you need.

The final ‘P’ word is ‘prime rate’ – the interest rate commercial banks offer their best customers.

Though it sounds like SCUBA, the ‘U’ word ‘underwater’ actually refers to the drastic situation that occurs when a property’s market value dips below the balance left on the mortgage. The final ‘U’ word you’ll need to know when you go house hunting is ‘under writing’ – the process by which a lending institution decides whether or not to give a loan.  It’s a matter of looking at your credit history, credit score, income, other debts and property values.