Do You Speak Real Estate?

Anyone interested in real estate should be able to talk the
talk. Here is a list of common phrases and words with a
short explanation. Use it as a reference:

Adjustable Rate Mortgage (ARM). A type of mortgage loan
whose interest rate changes periodically up or down, usually
once or twice a year. They are tied to an interest rate
index like 11th District Cost of Funds.

Annual Percentage Rate (APR). Everything financed in your
mortgage loan package (interest, loan fees, points or other
charges) expressed as a percentage of the loan amount
(usually slightly above the actual interest rate alone).

Assumable Loan. A loan in which the lender is willing to
“transfer” from the previous owner of the home to the new
owner, sometimes at the same interest rate, sometimes at
a new rate. An assumable loan can make your home more
attractive to buyers when you want to sell. Often the
new buyer has to qualify for the assumption just as he/she
would for a new loan.

Closing Costs. Costs the buyer must pay at the time of
closing in addition to the down payment: including points,
mortgage insurance premium, homeowners insurance,
prepayments for property taxes, etc. Closing costs average
3% to 4% of the loan amount.

Contingency. A condition put on an offer to buy a home;
such as the prospective buyer making an offer contingent
on his or her successful sale of a present home.

Conventional Mortgage. A type of mortgage not insured by
either the Federal Housing Administration (FHA) or the
Department of Veterans Affairs (VA), and thus usually
requiring a 10% to 20% down payment.

Earnest Money. Funds submitted with an offer to show
“good faith” to follow through with the purchase. Earnest
money is placed by the buyer into an escrow/trust account
until closing, when it becomes part of the down payment or
closing costs.

Escrow. A procedure in which documents or transfers of
cash and property are put in the care of a qualified third
party, other than the buyer or seller.

FHA Financing. Financing for a loan which will be insured
against loss by the Federal Housing Administration. Such
financing allows for a lower down payment than required
by most lenders.

Homeowners Insurance. Insurance that protects the homeowner
from casualty (losses or damage to the home or personal
property) and from liability (damages to other people or
property). Required by the lender and usually included in
the monthly mortgage payment.

Loan Origination Fee. A fee charged by the lender for
evaluating, preparing, and submitting a proposed mortgage
loan.

Mortgage Insurance Premium (MIP). A charge paid by the
borrower (usually as part of the closing costs) to obtain
financing, especially when making a down payment of less
than 20 percent of the purchase price, for example on an
FHA-insured loan.

Point. An amount equal to one percent of the principal
amount being borrowed. The lender may charge the borrower
several points in order to provide the loan.

Property Taxes. Taxes (based on the assessed value of the
home) paid by the homeowner for community services such
as schools, public works, and other costs of local government.
Paid as a part of the monthly mortgage payment.

Title Insurance. Protects lenders and homeowners against loss
of their interest in property due to legal defects in the title.

VA Loan. A loan guaranteed by the Department of Veterans Affairs
against loss to the lender, and made through a private lender.

When it comes to real estate, now you can sling the lingo with
the best of them.

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