Glossary of Real Estate Terms
If you are a first-time home buyer, just moving, upgrading, or investing, you need to understand all the acronyms and terms that are a part and parcel of the Las Vegas real estate industry.
Not knowing these phrases and terms can cost you dearly and even shatter your dreams of ownership of a home in Las Vegas. Of course, you will benefit from the presence of an experienced real estate agent on your side, but it pays to gain an understanding of the most commonly used terms in this industry.
What is ARM?
This is an acronym that stands for Adjustable Rate Mortgage. Also referred to as a variable rate mortgage, the rate of interest fluctuates in ARM in comparison to a fixed-rate mortgage.
What is an appraisal?
An appraisal is an integral step in any real estate transaction. It is usually demanded by the lender to make sure that the house is worth the amount of money that it is being sold for. With an appraisal, the lender can safeguard the money given to the buyer.
As a house buyer, you can ask for a reduction in the asking price if the actual value of the house turns out to be low after the appraisal.
What is an appraisal contingency?
An appraisal contingency clause is a safety net for buyers if their home appraises for less than what they paid. If this happens, buyers can dissolve the contract and get their money back.
As lenders want to ensure they are not paying too much for a house, there will be an appraisal done by an independent appraiser before approving any loans or mortgages.
What is amortization?
Amortization is a term mostly used by lenders and mortgage brokers. It refers to the method of reduction of the principal amount according to a schedule in which regular repayments are made by the borrower.
What is assessed Value?
This is the value of a property that is decided by the civic authorities of the County for the determination of taxes. As a buyer, you pay taxes on the property based on its assessed value.
What is the home closing?
Closing is the final step in any real estate transaction. There is a closing date on which both parties meet at a mutually decided place on a given date and time.
It is an event where the buyer and seller sign legal documents and the ownership of the property are transferred in the name of the buyer. The buyer pays different closing costs and gets the keys to the house.
What is a contingency?
You will hear the term contingency many times during the purchase of a house. It is mostly used in the sale agreement that is signed between the seller and the buyer.
It refers to terms and conditions that need to be fulfilled before the close of the deal such as home inspection, appraisal, and financing. A contingency not fulfilled has the potential to break the deal.
What is a counteroffer?
This is the response of the seller to the offer letter of a buyer where he counters the offer price of the potential buyer with another price. A counteroffer is a way of enabling future negotiations between the seller and the buyer and often leads to a price that is mutually agreed upon by both parties.
What are covenants, conditions & restrictions (CC&Rs)?
HOA’s are often a set of rules and regulations placed on real property by the homeowner's association, neighborhood association, developer, or builder that sets forth any requirements and limitations of what a homeowner is allowed to do with their property. Such restrictions may include monthly and/or annual fees or special assessments.
What is a conventional sale?
For those who are looking for a conventional sale, the property is either owned outright or the owner owes less on their mortgage than what the market indicates they could sell it for. A conventional sale often goes smoother as opposed to non-conventional sales such as foreclosures, probate-related sales, and short sales.
What are closing costs?
Closing costs are an assortment of fees, including fees charged by a lender, the title company, attorneys, insurance companies, taxing authorities, and many more. These closing costs are typically paid at the time of closing a real estate transaction.
What is due diligence?
A due diligence period is a necessary condition for any buyer to take before deciding on the purchase. A seller may provide the buyer with this time frame to fully examine their property, often by hiring experts to inspect and do tests on it so that they can make an informed decision.
What is the home down payment?
This is the most often heard term by buyers when they approach a lender for a mortgage. Down payment refers to the amount of money that the lender requires the borrower to pay upfront while the rest is financed by him for the purchase of a house.
In conventional mortgages, lenders need the borrower to put forward around 20% of the total value of the property as a down payment. This means you need at least $100000 in your bank account if you wish to purchase a house valued at $500000.
Property has its duties as well as its rights. – Thomas Drummond
What is Debt to income ratio?
This is a ratio that holds considerable importance for the lender. If you have applied for a mortgage, the lender finds out your current financial situation by calculating your debt to income ratio. The monthly repayment made towards various debts is divided by the gross monthly income to calculate this ratio.
The higher this ratio, the more difficult it becomes for you to secure a mortgage at a low-interest rate. If the lender agrees to a lower down payment because of your good credit, he will ask you to get the mortgage insured and the premium is added to your monthly repayment.
What is home equity?
Equity is a term that tells you your stakes in a property. For example, when you pay a 20% down payment to purchase a house, your equity in that house is 20%. This equity increases in two ways.
The first method is of course your monthly repayments in your mortgage account while the 2nd way is through appreciation in the value of the house over time.
What is earnest money?
This is the amount of money that you pay to the owner of the house when you have finalized it and intend to buy it shortly. You pay this token money which is usually around 1% of the total sale price.
This money is held in an escrow account and adjusted in the final payment if the deal goes ahead smoothly. If the deal falls through because of any reason, this earnest money is forfeited by the owner of the property.
What is an escrow?
Escrow is a term you will hear often during the purchase of a property. It is the name of the account in which money is usually held by a neutral third party referred to as an escrow agent. The funds are transferred into the account of the seller once contingencies have been met and the deal is about to be closed.
What is an escrow holder?
The escrow holder is the agent and depositary who collects the money, written instruments, documents, personal property or other things of value to be held until certain events happen. This is usually outlined in an agreement between all parties involved.
What is an EMI?
This is the most popular acronym in the real estate industry, especially home-buyers. It stands for equated monthly installment and refers to the schedule of monthly repayment that a borrower needs to maintain after obtaining a mortgage.
It is important for you as a home buyer to know the amount of money that you will be required to pay back to your lender every month to know if you can afford it comfortably or not.
What are FHA loans?
FHA loans are a type of mortgage that is insured by the federal government. Basically, instead of lending money, the FHA insures banks and private lenders when they do not repay their loans in full or on time.
What is a fixed-rate mortgage?
This is the most common type of mortgage provided by banks to borrowers around the country for the purchase of a home. The rate of interest offered to the borrower remains the same throughout the mortgage irrespective of what happens to it because of market forces.
As the rate of interest remains unchanged, the monthly repayments of the borrower also remain the same and he does not have to worry about increased EMI even if the mortgage rate goes up in the market.
What is a hard money loan?
Hard money loans can be a great alternative to traditional lenders because they are not dependent on your credit score. You will need a large down payment, and the loan is short-term with high-interest rates.
What is a home inspection?
A home inspection is a very important step in the home buying process. It is an exercise that reveals the real condition of the structure and the features of the house that you are planning to buy.
Inspection is carried out by a qualified professional who is hired by the buyer. As a buyer, you pay the fee of the inspector which runs into several hundred dollars. It is an investment into the asset that you are trying to create.
You should never treat inspection as an expenditure. You can add more features to this inspection if you want to know more about the condition of the house you are buying.
What is inspection contingency?
The inspection contingency is a clause sometimes offered in a purchase agreement that grants buyers the opportunity to perform any necessary inspections before finalizing their purchase.
What is a land lease?
If you are considering buying a home, there are some things to consider before signing the final contract. There is a difference between purchasing a property and renting one, but both have benefits.
A land lease may be better for someone who doesn't want to worry about the upkeep of the property and allows them to pay rent to live in their desired location instead of being tied down with more responsibilities as an owner.
What is a loan contingency?
A mortgage contingency is a clause or addendum in an offer contract that allows the buyer to back out of a deal and keep their deposit if they are unable to secure a mortgage with specified terms during a fixed period.
What is homeowner’s association?
The homeowner’s association often referred to as an HOA, is a private organization that manages property in the community. When you purchase a home with an HOA-managed property, it means you are agreeing to follow their rules and pay the monthly or annual dues.
If you do not comply with these agreements, they can file for a lien against your home and/or foreclose on your home.
What is a home sale contingency?
A home sale contingency can be a clause in the contract or an addendum that is negotiated with a seller. It indicates to the seller that you are only purchasing their property if you can sell your current property and move in.
What is mortgage insurance?
As the name implies, an insurance policy that is issued for the safety of the mortgage is called mortgage insurance. It is reported to protect the financial interest of the lender. Most lenders require the borrower to pay the premium of the mortgage insurance policy if he does not pay a 20% down payment.
Such insurance protects the lender in case the buyer defaults on his mortgage. Mortgage insurance can be issued by a federal agency like FHA or a private insurance company. In the case of a private insurance company, the insurance is referred to as Private Mortgage Insurance (PMI).
What is a Multiple Listing Service (or MLS)?
An MLS is a database that allows real estate agents and broker members to access and add information about properties for sale in an area. When a home is listed for sale, it gets logged into the local MLS by a listing agent. Buyer’s agents often check the MLS to see what’s on the market and what similar homes have sold for.
This system opens up new opportunities as well as limitations of this type of service. It's not uncommon for buyers or sellers to use an online tool like Zillow which can increase buyer competition due to ease-of-accessibility, but also put pressure on prices based on demand and interest levels.
What is a pre-approval letter?
This is a very important document for a home buyer. It is a letter issued by a lender that contains details of the amount of money and the rate of interest at which the lender is ready in principle to disburse a mortgage to the buyer.
This letter holds great importance for the buyer as it gives him a clear idea of the amount that he can get from the lender for the purchase of a house.
This knowledge keeps his house hunt on track as he sees only houses that fall within his home buying budget. Also, sellers take the offer of such a buyer seriously as they know he has already arranged his finances.
Don’t wait to buy real estate, buy real estate and wait. – T. Harv Eker
What is a preliminary report?
A preliminary report is a document that can be used to clear up any issues with the title of an individual’s property. This report provides details such as ownership history, liens, and easements - it gathers this information from existing records at the county recorder’s office.
A preliminary report is required for a title insurance company to issue its policy and will provide peace of mind for homeowners who want to know how much risk they are taking on when buying or selling land.
What is a purchase and sale agreement (PSA)?
A purchase and sale agreement is a written contract between the buyer and seller of a home, outlining the terms of both parties. This often includes details about how much each party will be paying for the property when they should close on it, and even what appliances are included in the sale. When this type of agreement is made with your realtor before you find your dream house, it will make finding an appropriate home that much easier to find.
What is Real-estate owned (REO)?
Fewer homes are in foreclosure these days, but that doesn't mean the market is a one-way street. There are still some opportunities out there for buyers to purchase properties at below market value; specifically, those who buy REO properties.
These "REOs" (short for Real-Estate Owned) can often come with perks like extended warranties and free home inspections if you know where to look!
What is Pre-qualification?
Getting pre-qualified is an important step in the home buying process for many reasons. A lender can estimate your financing options based solely on what you tell them, and not on any other information they gather that might cost more to acquire. The input tone should be professional.
What is a REALTOR®?
A REALTOR®, which stands for someone who holds themselves accountable for upholding the code of ethics of the National Association of REALTORS® (NAR) can help you find the perfect property to make your dream home come true!
What is Rent-back?
Rent-back, or leaseback, refers to an arrangement whereby the buyer agrees to allow the seller to stay in the house beyond the close of escrow. Terms are negotiated beforehand and will often involve a lease deposit, daily rental rate, and length of time allowable.
What is a seller concession?
Sellers may offer concessions to entice buyers to purchase the home or sweeten the deal. Concessions are often seen as an opportunity for a seller to relinquish some of their property's value to entice buyers and sweeten the deal.
What is seller disclosure?
A seller’s disclosure is a full account of all the information that the seller knows about a property. They are not limited to just disclosing any problems, but also include anything that would affect a buyer's decision to purchase it in the first place.
What is a backup offer?
A backup offer is a good way to make sure you get your dream home, even if the first buyer doesn't work out.
With a backup offer, there's always a chance that someone else will swoop in and purchase it before you do. That's why it’s imperative to be proactive and submit one when you see something on the market that seems too good to pass up.
A backup offer gives you time to negotiate the deal and come up with earnest money without worrying about losing out on the opportunity entirely. The only catch? You can only have one active backup at a time--so once your transaction closes, don't wait too long before submitting another!
What is blind offer?
In today's competitive world, many people are looking for a way to be first. The most popular way is by making blind offers on properties. This can happen when a buyer hasn't seen the property they're buying or even had access to it and they want that advantage over other buyers in the area.
It's often used during highly competitive situations where being fast with an offer could mean getting what you want before anyone else does!
What is mortgage principal?
This is the amount of money for which a mortgage is taken by the buyer. For example, if the amount of mortgage is $400000 for the purchase of a house valued at $500000, the principal, in this case, is $400000 and it keeps reducing when the borrower repays the EMI according to a schedule. An EMI is made up of two parts. The first part goes to service the principal amount while the other part goes to serve the interesting part of the loan.
What is a probate sale?
The probate sale is a process that, in comparison to other sales, can be more complicated and take more time. In these situations when an elderly homeowner dies without leaving any property to someone, the court will authorize an estate attorney or representative to hire a real estate agent who will sell the house.
The reader should not forget that this process usually takes longer than conventional sales do which are often completed within days of the listed home going on sale.
What is proof of funds?
To ensure your offer is taken seriously, it's important to come prepared with financial documentation. If you're buying a house with a mortgage, they'll want proof of funds showing that you have the cash for your down payment and closing costs.
This will make them confident in their decision to sell their house to you. If paying all cash, they may ask for proof of funds too!
What is a short sale?
A short sale is a type of property transaction in which the house is sold for less than what it was originally purchased for. The closing process can be lengthy and drawn out, but with patience and perseverance, you may find yourself at the end of your arduous journey.
What is subject to inspection?
The subject to inspection clause means that the seller is not allowing potential buyers to view the property without an accepted offer. The reasons for this are often privacy concerns or uncooperative tenants, but it may also be a good idea for prospective purchasers to have time for inspections before they commit.
What is a Title?
The title of a property is ownership rights. Until the title is transferred in the name of the buyer, the ownership remains with the seller. It is only with the close of the deal that the buyer gets ownership rights transferred in his name.
It is in the interest of the buyer to make sure that the title is clear and that there are no errors in the title records in the past. Lenders go for a title search to make sure that the title is clear.
Still, many lenders insist upon taking title insurance so that their financial interests are not harmed in the future if a third party lays claims to the title of the house.
What is a Trust Sale?
A trust sale means that the home is being sold by a trustee of a living trust - and not a private party. More often than not this is because the original homeowner has passed away, or has placed their assets in a living trust.
This option is offered to homeowners who have passed on, and their children want to sell the house while keeping it within family hands instead of putting it up for sale privately.
What is an offer letter?
Every buyer needs to make an offer for the house that he finalizes and intends to buy. This letter contains the price that he is ready to pay to the owner as well as all contingencies that need to be met before the close of the deal.
In real estate, the offer letter has great importance as the seller decides which offer to accept among the several offers that he receives from potential buyers.
What is a VA loan?
A VA loan is a low-to-no down payment option for the military, active and retired, or eligible spouses. This loan has competitive rates and fees that can help veterans get back on their feet financially.