Are you thinking of buying your first home but feel overwhelmed trying to understand all of the new terms you're learning?
Fear no more! We've broken down TWENTY of the most commonly-used real estate terms and what they mean. Now you can buy your home or meet with your realtor feeling like a pro!
If the buyer or seller want to change an existing contract, an addendum is used to outline the specific part of the contract that they would like adjusted.
2. Adjustable-rate Mortgage
There are two types of conventional loans: the fixed-rate and the adjustable-rate mortgage.
In an adjustable-rate mortgage, the interest rate can change over the course of the loan at five, seven, or ten year intervals. In a fixed-rate mortgage, the interest rate stays the same throughout the life of the loan.
This is the schedule of your mortgage payments spread out over time.
To be able to secure a loan from the bank to purchase your home, the home needs to be appraised so the bank can be sure they are lending the correct amount of money. The value of the home is based on an inspection of the property as well as the sale price of comparable homes in the area.
The amount a home's value will increase over time.
6. Assessed Value
This is how much a home is worth according to a public tax assessor. This determines how much city or provincial tax the owner will pay.
7. Cash Reserves
This is the money left over for the buyer after the down payment and additional closing costs.
8. Closing Costs
In additional to the final agreed upon price of the home, closing costs also make up about 2-5% of the purchase price- not including the down payment.
9. Comparative Market Analysis
A Comparative Market Analysis, or CMA, is a report that defines the accurate value for the home based on comparable homes in the area.
Contingencies are conditions that have to be met in order for the purchase of the home to be finalized.
Equity is ownership. It refers to how much of the home you actually own- which is the amount of principal you have paid off. The more equity you have, the more financial flexibility you have.
Escrow is an account that the bank sets up to receive monthly payments from the buyer.
13. Lock-in Period
The period of time in which a borrower cannot repay their loan in full without incurring a penalty fine by the bank.
14. Mortgage Broker
The Mortgage Broker is responsible for taking care of all aspects of the deal between borrowers and lenders, whether that be originating the loan or placing it with a funding source such as a bank.
Principal, interest, taxes, and insurance. This refers to the sum of each of these charges quoted on a monthly basis. The costs are calculated and compared to the borrower's monthly gross income when being approved for a mortgage loan.
16. Pre-Approval Letter
Before buying a home, a buyer can obtain a pre-approval letter from a bank. This estimated how much the bank will lend and help determine what the buyer can afford.
The principal is the amount of money borrowed to purchase a home. Paying off the principal allows a buyer to build equity in a home. Principal is combined with interest to determine the monthly mortgage payment.
18. Private Mortgage Insurance
Private mortgage insurance, or PMI, is an insurance premium that the buyer pays to the bank in order to protect the bank from default on a mortgage. These insurance payments typically end once the buyer builds up 20% equity in a home.
This is when you restructure your home loan- the process of replacing your old loan with an entirely new loan that has different rates and payment structures. Typically, people refinance their home loans to get a lower interest rate on their mortgage, and therefore lower the monthly payment and overall debt owed.
20. Transfer Tax
Transfer tax is a transaction fee charged upon the transfer of a property’s title.