Every industry has its own language, and real estate is no exception.
From amortization to LTV (Loan-to-Value), it can be daunting for a real estate novice to navigate all these confusing terms.
To make it easier, Park Place University is going to have a multiple part series on Real Estate terms you will most likely encounter at he beginning stages of your journey. Instead of bombarding you with 100 words in one list, we will break down each section to 5-10 words.
Appraisal
An appraisal is a professional estimate of the value of a property, usually performed by an appraiser. An appraisal is a required step when purchasing real estate. Mortgage lenders want to protect their investment, so in order to do so, they want to get a professional opinion of how much the property is worth.
Closing / Closing Costs
Once all parties have signed the required documents, all financial responsibilities have been executed and the sale of the property is finalized, we can consider it Closed. Closing costs are a variety of fees charged by: a title company, the lender, insurance companies, the government, HOA, real estate agents, and more. These fees are usually paid at the time of closing a real estate deal.
Contingencies
A contingency is a written clause within the offer contract that provides the buyer an opportunity to withdraw from the deal and keep their deposit if the contingencies are not met. Various types of contingencies include Inspection Contingencies, Appraisal Contingencies, Mortgage/ Loan Contingencies, etc.
Due Diligence
A due diligence period is often times included in the purchase agreement of a property. This is a time period in which a buyer can examine the property before they continue to the final stages of the purchasing process. As a buyer, you should hire professionals to inspect the property and perform various tests.
If any surprising findings were made by yourself, inspector, or any other professional, you may be able to negotiate your purchasing contract to include certain seller credits. You may also be afforded the ability to terminate the contract as a whole as long it was done in the proper time frame. Due diligence is an important factor in any purchasing process as it allows you to get a more in depth understanding of your future investment.
Equity
Equity is the investment a person or company has in their property. In order to calculate equity, take the market value of the home and subtract any mortgages or liens against the property. The amount leftover is the amount of equity you have in the home.
Inspection
An inspection is the process in which a buyer pays a licensed inspector to visit the property and prepare a detailed report on its existing condition and if it requires any maintenance or repairs. An inspection usually occurs during the due diligence period stated in the purchasing agreement.
Pre-approval letter
Getting a mortgage pre-approval letter is important because it gives home buyers an idea of what they can afford. A mortgage pre-approval letter is issued by the lender and identifies the terms, loan type and loan amount the buyer qualifies for after checking the buyer’s debt-to-income ratios along with cash on hand and credit history.
Many sellers or their agents require a mortgage letter with any home offer that isn’t all-cash, since it acts as proof the buyer has been qualified to get financing.
Principal
The principal balance of a mortgage loan is the amount of money owed to the lender, not including interest. Say you borrow $300,000. That’s the principal of the loan, or what you borrowed to buy the home. Buyers pay the principal plus interest each month, although calculated on a daily basis for most loan types. Payments nearly always go toward interest first, then toward paying down the principal. After all, the interest is the reason the bank agrees to make the loan.
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