The world of real estate is full of them.
You’ll see them everywhere. You’ll hear them tossed to and fro like nobody’s business.
But there’s a chance they’ll leave you a bit confused.
I’m talking about real estate terms and acronyms.
I’ve had the pleasure of working with several clients. I’m always mindful to ensure they know what these terms and acronyms mean for them and their transaction.
The last thing I want is you to be confused and intimidated about real estate.
To help you from going crazy, I’ve put together a list of the most common real estate terms and acronyms to keep you from pulling your hair out. Check out the list below.
ACCEPTANCE/EXECUTED CONTRACT: the date when both parties, seller and buyer, have agreed to and completed signing and/or initialing the contract.
ACRE: A measure of land equaling 160 square rods, 4,840 square yards or 43,560 square feet, or a tract about 208.71 feet square
ADJUSTABLE RATE MORTGAGE: a mortgage that permits the lender to adjust the mortgage’s interest rate periodically on the basis of changes in a specified index. Interest rates may move up or down, as market conditions change.
APPRAISAL: an estimate of real estate value, usually issued to standards of FHA, VA and FHMA. Recent comparable sales in the neighborhood is the most important factor in determining value
APPRECIATION: an increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.
CLOSING: The completion of a real estate transaction (close of escrow “COE”), at which point required documents are transmitted and funds are transferred.
CMA: Comparative Market Analysis. A CMA analyzes the price of a home against others sold, pending a sale or active. It’s still not as accurate as a full property appraisal, however, because it takes the asking prices of similar properties in the area into account. This is a helpful tool to use when determining if a home is priced according to the area.
COMPOUND INTEREST: Interest paid on original principal and also on the accrued and unpaid interest that has accumulated as the debt matures.
DEED: a written instrument, which when properly executed and delivered, conveys title to real property.
EASEMENT: the right to use the land of another.
ENCUMBRANCE: anything that burdens (limits) the title to property, such as a lien, easement, or restriction of any kind.
EQUITY: the value of real estate over and above the liens against it. It is obtained by subtracting the total liens from the value.
ESCROW: The deposit of instruments and/or funds (with instructions) with a neutral third party to carry out the provision of an agreement or a contract.
ESCROW PAYMENT: that portion of a mortgagor’s monthly payment held in trust by the lender to pay for taxes, hazard insurance and other items as they become due.
FANNIE MAE: nickname for Federal National Mortgage Corporation (FNMA), a tax-paying corporation created by Congress to support the secondary mortgages insured by FHA or guaranteed by VA, as well as conventional loans.
FEDERAL HOUSING ADMINISTRATION (FHA): an agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
FHA INSURED MORTGAGE: a mortgage under which the Federal Housing Administration insures loans made, according to its regulations.
FIXED RATE MORTGAGE: a loan that fixes the interest rate at a prescribed rate for the duration of the loan.
FORECLOSURE: procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default.
FREDDIE MAC: nickname for Federal Home Loan Mortgage Corporation (FHLMC), a federally controlled and operated corporation to support the secondary mortgage market. It purchases and sells residential conventional home mortgages.
FSBO: For Sale by Owner. This means no real estate agents or brokers are involved in the sale of a property.
HOA: Homeowners Association. HOAs are the marketers, sellers, and managers of the neighborhoods and subdivisions. Homeowners associations manages tasks such as lawncare, community events, and managing rules and guidelines of homeowners in the neighborhood. “How much are the HOA fees?” should be a permanent fixture on your Ask-the-Real Estate Agent checklist.
JOINT TENANCY: Ownership of property by two or more co-owners, each of whom has an equal share and the right of survivorship.
LEASE PURCHASE AGREEMENT: buyer makes a deposit for future purchases of a property with the right to lease property in the interim.
LEASE WITH OPTION: a contract, which gives one the right to lease property at a certain sum with the option to purchase at a future date.
LEVERAGE: Use of debt financing to purchase an investment, thus maximizing the return per dollar of equity invested; enables a purchaser to obtain possession for little or no initial cash outlay and relatively small periodic payments on the debt incurred.
LOAN TO VALUE RATIO (L-T-V): the ratio of the mortgage loan principal (amount borrowed) to the property’s appraised value (selling price). Example – on a $100,000 home, with a mortgage loan principal of $80,000 the loan to value ratio is 80%.
MLS: Multiple Listing Service. This portal is a free internet service for homebuyers that lists real estate listings for sale by agents and other realty professionals who are MLS members (click here to access the MLS). The database and software are also used by real estate brokers to facilitate sales transactions. Everyone has access to the same database of properties on the market.
MORTGAGE: a legal document that pledges a property to the lender as security for payment of a debt.
MORTGAGE INSURANCE PREMIUM (MIP): the amount paid by a mortgagor for mortgage insurance. This insurance protects the investor from possible loss in the event of a borrower’s default on a loan.
NOTE: a written promise to pay a certain amount of money.
ORIGINATION FEE: a fee paid to a lender for services provided when granting a loan, usually a percentage of the face amount of the loan.
PRIVATE MORTGAGE INSURANCE (PMI): Mortgage guaranty insurance available to conventional lenders on the high-risk portion of a loan, with payment included in the borrower’s loan installments.
REO: Real Estate Owned (Other Real Estate Owned). A REO is a property that has been repossessed by a bank or lender, usually after the home fails to sell at a foreclosure auction. Although some REOs are maintained by the lender that repossesses them, buyer beware: many others are often in shabby shape.
SECOND MORTGAGE / SECOND DEED OF TRUST / JUNIOR MORTGAGE / JUNIOR LIEN: an additional loan imposed on a property with a first mortgage. Generally, a higher interest rate and shorter term than a “first” mortgage.
SETTLEMENT STATEMENT (CLOSING DISCLOSURE): a financial statement rendered to the buyer and seller at the time of transfer of ownership, giving an account of all funds received or expended.
SHORT SALE: A sale for less than is owed on a loan where the lender agrees to accept sale proceeds to extinguish the debt.
TITLE INSURANCE: an insurance policy that protects the insured (buyer or lender) against loss arising from defects in the title.
ZONING: An act of city or county government specifying the possible uses of property in a particular area.
Do you have any questions about the terms in the article or something you do not see? Just let me know if the comment section below and I’ll be happy to help.