Your Guide to Real Estate Terms
The mortgage process is confusing enough. Don’t let the terms involved confuse you further. Here’s your guide to common real estate terms you may encounter in the housing market.
1. ARM – An adjustable rate mortgage (ARM) is a mortgage that has a fluctuating interest rate. Most commonly, the rate will vary at the 5, 7 or 10-year mark.
2. Closing costs – These are costs that must be paid in order to officially close the mortgage loan. These costs generally are approximately 2-5% of the purchase price of the home. These are in addition to the down payment and cover the fees associated with the administrative side of processing, underwriting, and finalizing the loan.
3. Down payment – A down payment is the amount of money you put down upfront on a home. It is the borrower’s way of saying they are serious about buying a home and paying off the mortgage loan. The amount of this payment fluctuates due to a variety of mortgage loan program options and what the borrower has available. The amount of down payment could affect the terms of the mortgage loan.
4. Escrow – Escrow is the deposit of funds into a neutral account that will be passed from one party to another when the terms and conditions of an agreement are met. An escrow account is used to protect both sides of the agreement, as it is a neutral account.
5. Fixed rate – A fixed rate is a mortgage loan that has the same interest rate for the entirety of the loan. It does not fluctuate with the market or economy.
6. Inspection – Multiple inspections are generally required with the purchase of a home. These are to ensure the property does not have any unseen issues that could affect the sale or integrity of the purchase.
7. Interest rate – The interest rate is the extra cost you will incur and be held contractually obligated to pay in return for borrowing the money to purchase the property. The interest rate is added to the principal amount of the loan amount.
8. Offer – An offer is the term used to signify that a potential borrower has officially told the listing agent and seller they are willing to pay a specific price for the property. Offers sometimes include conditions such as repairs as well as the dollar amount.
Talk to your mortgage professional if more terms arise during your mortgage loan process that are not familiar to you.