Editor’s note: This is the first in a four-part monthly series related to the real estate industry.
Sometimes, it may seem like a Realtor is speaking a different language. “Escrow.” “Amortization.” “Tenancy in common.” What do those terms mean?
Vicki Trembly, a realtor with Caldwell Banker Griffith &Blair American Home, said Realtors and real estate agents often “rattle off jargon or lingo” used in the real estate industry that may be confusing to buyers or sellers.
“We need to explain it in a way that people will understand,” she said.
That may mean using visual aids, such as copies of forms or reports, to explain a home-buying process or presenting information in small doses so the client won’t be overwhelmed by unfamiliar terms or procedures, Trembly noted.
The Sunflower Association of Realtors has compiled a list of terms often used in the real estate industry, an understanding of which may prove helpful when buying or selling a home.
n Amortization: A loan payment consists of a portion that is applied to pay the accruing interest on a loan, with the remainder applied to the principal. Over time, the interest portion decreases as the loan balance decreases and the amount applied to principal increases, so the loan is paid off, or amortized, in the specified time.
n Amortization schedule: A table showing how much of each payment will be applied toward principal and interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
n Appraisal: A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
n Appraised value: An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience and analysis of the property. Because an appraisal is based primarily on comparable sales and the most recent sale is the property in question, the appraisal usually comes out at the purchase price.
n Assessed value: The valuation placed on property by a public tax assessor for purposes of taxation.
n Certificate of Eligibility: A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.
n Closing costs: Closing costs are separated into non-recurring closing costs and pre-paid items. Non-recurring closing costs are any items that are paid once as a result of buying the property or obtaining a loan. Pre-paids are items that recur over time, such as property taxes and homeowner’s insurance.
A lender attempts to estimate the amount of non-recurring closing costs and prepaid items on the good faith estimate, which must be issued to the borrower within three days of receiving a home loan application.
n Contingency: A condition that must be met before a contract is legally binding.
n Conventional mortgage: Refers to home loans other than government loans (VA and Federal Housing Administration).
n Earnest money deposit: A deposit made by the potential homebuyer to show he or she is serious about buying the house.
n Escrow: An item of value, money or documents deposited with a third party to be delivered upon the fulfillment of a condition. Example: The earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
n Escrow account: Once the purchase transaction is closed, you may have an escrow account (or impound account) with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in the escrow account (impound account) and used by the lender to pay your property taxes, homeowner’s insurance and other items when they come due.
n Escrow analysis: Each year, your lender will perform an escrow analysis to make sure they are collecting the correct amount of money for the anticipated expenditures.
n Escrow disbursements: The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance and other expenses as they are due.
n FHA mortgage: A mortgage insured by the Federal Housing Administration. Along with VA loans, it’s often referred to as a government loan.
n Flood insurance: Insurance that compensates for physical property damage resulting from flooding. It’s required for properties in designated flood areas.
n Home inspection: A thorough inspection by a professional to evaluate the structural and mechanical condition of a property. A satisfactory home inspection often is included as a contingency by the purchaser.
n Homeowner’s warranty: A type of insurance often purchased by homebuyers that covers repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often asks the seller to pay for this coverage as a condition of the sale, but either party can pay.
n Joint tenancy: A form of ownership or taking title to property in which each party owns the whole property and ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety.
n Mortgage insurance: Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Mortgage insurance is usually required on loans that have a loan-to-value higher than 80 percent. FHA loans and certain first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.
n Mortgage insurance premium: The amount paid by a mortgagor for mortgage insurance, either to a government agency or to a private mortgage insurance company.
n Pre-approval : A loosely used term to indicate a borrower has completed a loan application and provided debt, income and savings documentation that an underwriter has reviewed and approved. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender.
n Pre-qualification: This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income and savings.
n Principal balance: The outstanding balance of principal on a mortgage, excluding interest or any other charges.
n Realtor: A real estate agent, broker or an associate who holds active membership in a local real estate board affiliated with the National Association of Realtors.
n Real estate agent: A person licensed to negotiate and transact the sale of real estate.
n Right of first refusal: A provision in an agreement requiring the property owner to give another party the first opportunity to purchase or lease the property.
n Right of survivorship: In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
n Settlement statement: A document providing an itemized listing of the funds paid at closing, including real estate commissions, loan fees, points and initial escrow (impound) amounts.
n Tenancy in common: Unlike joint tenancy with two or more individuals on a property title, this type of ownership doesn’t pass to the others in the event of death.
n Title insurance: Insurance protecting the lender or the buyer against loss arising from disputes over ownership of a property.
n Title search: A check of the title records to ensure the seller is the legal owner of the property and there are no liens or other claims outstanding.
n USDA mortgage: A zero-down payment mortgage for eligible rural and suburban homebuyers.
n VA mortgage: A mortgage guaranteed by the Department of Veterans Affairs.
Contact niche editor Jan Biles at (785) 295-1292.