Once you enter the realm of real estate, whether buying or selling, you’ll hear a lot of language that may sound foreign.
Keep this decoder handy – you’ll most likely need to refer to it often in the beginning.
A
Addendum – Any time a change is made in the original purchase contract the party that makes the change must submit an addendum to the other party. Some of the changes that may be made include an extension of the closing date, additional time for inspections or changes in the purchase price to reflect the seller’s payment for repairs.
Appraisal – The buyer’s lender will have the house appraised by a professional appraiser to determine its current market value. This ensures the lender that it is lending the appropriate amount of money for the home.
C
Closing costs – An umbrella term for the fees paid at closing. These include lender charges, the down payment and others.
Closing disclosure – A five-page document detailing the exact terms of a mortgage, provided by the lender, by law. The borrower is entitled to receive this form no later than three days before closing. It includes, among other items, the fees required to close (closing costs).
CMA (Comparative Market Analysis) – A CMA is the determination of the home’s value by a real estate agent and is used to determine a fair asking price. It is similar to the appraisal but does not take the place of it.
Comps – Short for comparables, it describes homes that have sold within the last six months, typically within one mile of a subject property. Real estate agents and appraisers study comps to determine a home’s current market value.
Contingency – When certain conditions must be met before the buyer is locked into the contract the buyer’s agent will insert these conditions into the contract. Common contingencies include those for the sale of the buyer’s home, the successful procurement of financing at certain terms and inspections.
Contingency Release — When the contingency requirements are met, both parties to the transaction will be asked to sign a contingency release form to acknowledge that fact.
Counteroffer – If you are not in agreement with the price or terms of the buyer’s offer we’ll file a form known as a counteroffer, eliminating or changing the parts of the offer to which you don’t agree.
D
Debt-to-income ratio – You may hear this referred to as your “DTI.” It is a ratio of a borrower’s debts to his or her gross income.
Deed – A document used for the transfer of real property.
Disclosures – Full disclosure is the seller’s most important duty. Not only is it required by law, but it protects you as well as the seller.
Down payment – A percentage of the purchase price paid to the lender, typically at closing.
E
Earnest Money Deposit – Often 1 percent of the purchase price, the earnest money deposit is to show your good faith in following through on the purchase. The funds are held by either the escrow company or the broker’s trust account and applied to the purchase at closing.
Escrow – Escrow is a process that ensures the purchase funds are distributed and the transfer of the house is completed. It is overseen by an escrow company, which is a neutral third party.
Escrow Impounds – Escrow impounds include prepaid taxes and insurance. The impounded funds provide insurance to the lender that taxes and insurance payments will be made. The lender can request no more than two months payments.
F
Final Walk-Through – The final walk-through is performed by the buyers. They have one last chance to view the house to ensure that it is in the same condition as when they agreed to purchase it. The final walk-through generally happens during the week leading up to closing.
L
Loan estimate – The loan estimate is a document that the lender is required to send you within three days of applying for a mortgage. It details the terms of the loan, estimated closing costs and an estimate of the monthly payment. Consumers use this 3-page document to compare lenders when shopping among them. Learn more about it ConsumerFinance.gov.
Loan-to-value ratio – A mortgage formula that help lenders assess risk in lending to borrowers. It is realized by dividing the value of the home by the price. Some real estate agents are under the impression that the “price of the home” is the figure used, but it is not. The higher the DTI, the riskier the borrower. Borrowers with LTVs below 80 percent typically get more favorable loan terms.
M
MIP – Short for “mortgage insurance premium,” it’s FHA’s version of PMI (see below). Unlike PMI, MIP is payable for the life of the loan, in most cases.
MLS – Short for Multiple Listing Service, the database of properties for sale, sold, pending sale, withdrawn from the market and expired listings.
P
PITI – Short for principal, interest, taxes and insurance, the four parts of your mortgage payment.
PMI – Short for “private mortgage insurance,” it describes the fee charged to homebuyers who pay less than 20 percent down on the home. The fee is a percentage of the annual loan amount, and it varies.
T
Title Insurance – An insurance policy that protects against damages due to defects in the chain of title.
Title search – A search of public records to determine who owns the title of a piece of real estate and if there are any encumbrances on it, such as liens. These are known as “defects” or “clouds” on the property’s title and must be cleared before the sale can close.
Transfer taxes – Fees imposed by the federal, state, county or municipal government whenever there is a transfer of title of real property.
