15 Real Estate Buzzwords Explained

So you are entering the real estate world? Whether you are trying to buy or sell a home (or do both!), you need to familiarize yourself with the lingo. You don’t want industry jargon to confuse you and keep you from missing something crucial. Here are 15 real estate buzzwords to keep you in the know.

Adjustable Rate Mortgage (ARM)

When applying for a home loan, you can get an adjustable-rate mortgage (ARM) or a fixed-rate mortgage. An ARM usually has a specific interest rate for a set time and then the interest rate fluctuates. Most of these mortgages have a cap on how high the interest rate may increase.

Amortization Schedule

First off, amortize basically means to reduce a debt. An amortization schedule is a detailed breakdown that illustrates how much interest and principal of the mortgage has been paid off and how much remains with each payment.

Closing

The final step in a real estate transaction, a closing is the transfer of the title of the property for money or other considerations.

Down Payment

The down payment is the amount of money that a buyer pays upfront in order to purchase a property. This amount is typically between 5% and 25% of the value of the property.

Escrow

When a third party holds property, cash and the property title until all conditions of the property agreement have been satisfied. The third party, likely a lawyer, will then hand over the assets to the respective parties, as outlined in the agreement.

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Fannie Mae/Freddie Mac

The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are two government-sponsored enterprises that purchase mortgages from lending institutions. Their purpose is to promote stability and affordability in the housing market.

Flipping

Flipping is a way to invest in real estate with the goal of purchasing a property to re-sell it. Investors profit from the resale of the property if its market value increases either through price appreciation or repairs and remodeling.

Good Faith Estimate

A good faith estimate is an approximation of the total cost of the purchase of property. It is provided before the mortgage loan is secured so the homebuyer can compare the offers of different lending institutions.

Lien

A lien occurs when a legal claim is put on a property in order to receive payment for debt or for services rendered. The holder of the lien can sell the property in order to recover the money owed.

Points

Mortgage points are upfront charges the lender may add to the overall price of the mortgage. One point is equal to 1% of the total amount of the loan.

Pre-Approval

Pre-approval from a bank locks in an interest rate for a specific amount of time. It is an in-depth process that requires a potential buyer to provide a lending institution with proof of income and debts. The lender will most likely check your credit report in this process. If you’re considering getting pre-approved for a home loan, it’s smart to make sure your credit is in good shape before you apply. You can get a breakdown of your credit strengths and weaknesses using the free Credit Report Card, which also updates two of your credit scores for free every month.

Prequalification

When a potential buyer is screened by a lender or third party to see how much the buyer can borrow as well as the terms of the loan. This is purely informational and does not obligate the lender.

Prime Rate

This is the interest rate that commercial banks offer to their best customers. This generally means large corporations that are the most creditworthy.

Underwater

When a property’s market value is less than the balance of the money owed on the mortgage. This is usually associated with drastic falls in the market value of the property.

Underwriting

The process a lender undergoes in determining whether to extend credit. A lender makes its decision based on a variety of factors including the borrower’s credit scores, credit history, income, other debt obligations and property value.