Are you looking for info on the most commonly used real estate terms? Then you can rest assured that this is the right article for you. Majority of these terms are unique to this industry. Whether you wish to buy or sell real estate, you need to understand and use these phrases appropriately. The more you learn the smother your transactions will be. Read on to know the most common of all real estate terms:
There are two point types. Origination points are added to cover any expense associated with loan processing while discount points reduce the interest rate. A single point denotes 1% of the entire loan amount. Therefore, to lower the interest rate by 1 point on a $ 400, 000 mortgage will compel you to pay $4, 000 extra at closing.
2. Loan to Value Ratio- LVR
This is the amount of financing you will get relating to the value of your new home. For instance, a mortgage of $ 70, 000 on a home valued at $ 100, 000 means that the LVR is 70%. This is importance since LVRs higher than 80% implies you have to get private mortgage insurance (PMI).
3. Fixed- Rate Mortgage
Conventional fixed- rate mortgage simply means that the interest rate will not change over the course of the loan. Financing will typically be spread out over 30, 20 or 10 years. this depends on the payment capability and needs of the buyer. This mortgage ensures that the buyer is secure with the knowledge of how much they have to pay in the long term to own the house.
4. Closing Costs
There are lots of expenses to offset and agencies that have to be compensated with all real estate transactions. The seller and buyer usually split these fees, commonly referred to as the ‘closing costs’. They may include discount points offset to lower the rate of interest, the attorney fees, title insurance, escrow payments and origination fees.
This is the neutral 3rd party who holds the money (and the earnest money deposits) and documents during the process of issuing a home loan for safekeeping till the transaction has been completed. The Escrow account may also be used when one completes the home loan to protect the insurance monies and property tax collected with every mortgage payment.
6. Annual Percentage Rate- APR
This is the annual calculation including the quoted rate of interest and any additional house costs such as points and origination fees. Note that the APR will normally be higher than the advertised rates of interest due to such additional factors.
7. Adjustable Rate Mortgage- ARM Loan
The initial interest rate on this loan is lower than the typical fixed- rate mortgage. This rate is locked in for 1 or more years. After the initial term, the interest rate may go up to specified limits although over pre- determined intervals over the course of the mortgage.
The lower rate of interest translates to lower monthly payments, initially. However, the tradeoff is in the potential higher payments should the interest rate go up.
There are many other terms used in real estate. Ensure you read, understand and apply these before you transact any business in this industry. Knowing these real estate terms gives you added knowledge that you can use when you sell or buy a home and apply for mortgages.
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