UNDERSTANDING REAL ESTATE TERMINOLOGY by W Troy Swezey
Purchasing a home can be a complicated and confusing process,
especially for first-time buyers. Throughout the process,
first-time home buyers will encounter a variety of unfamiliar
real state terms. There are several key terms associates with
purchasing real estate that are helpful to learn.
For example, many buyers confuse the terms broker and
salesperson. A broker is a properly licensed individual, or
corporation, who serves as a special agent in the purchase and
sale of real estate, a salesperson is an individual employed or
associated by written agreement by the broker as an independent
contractor. The salesperson facilitates the purchase or sale
of real estate.
Once you decide to purchase, a salesperson will prepare a sales
contract to present to the seller along with your earnest money
deposit. The sales contract is the document through which the
seller agrees to give possession and title of property to the
buyer upon full payment of the purchase price and performance of
agreed-upon conditions. The earnest money is a buyer’s partial
payment, as a show of good faith, to make the contract binding.
Often, the earnest money is held in an escrow account. Escrow
is the process by which money is held by a disinterested party
until the terms of the escrow instructions are fulfilled.
After the buyer and seller have signed the contract, the buyer
must obtain a mortgage note by presenting the contract to a
mortgage lender. The note is the buyer’s promise to pay the
purchase price of the real estate in addition to a stated
interest rate over a specified period of time. A mortgage
lender places a lien on the property, or mortgage, and this
secures the mortgage note.
The buyer pays interest money to the lender exchange for the use
of money borrowed. Interest is usually referred to as APR or
annual percentage rate. Interest is paid on the principle, the
capital sum the buyer owes. Interest payments may be disguised
in the form of points. Points are an up-front cost which may be
paid by either the buyer or seller or both in conventional loans.
In general, there are two types of conventional loans that a
buyer can obtain. A fixed rate loan has the same rate of
interest for the life of the loan, usually 14 to 30 years. An
adjustable rate loan or adjustable rate mortgage (ARM) provides
a discounted initial rate, which changes after a set period of
time. The rate can’t exceed the interest rate cap or ceiling
allowed on such loans for any one adjustment period. Some ARMs
have a lifetime cap on interest. The buyer makes the loan and
interest payments to the lender through amortization, the
systematic payment and retirement of debt over a set period
of time.
Once the contract has been signed and a mortgage note obtained,
the buyer and seller must legally close the real estate
transaction. The closing is a meeting where the buyer, seller
and their attorneys review, sign and exchange the final
documents. At the closing, the buyer receives the appraisal
report, an estimate of the property’s value with the appraiser’s
signature, certification and sporting documents. The buyer also
receives the title and the deed. The title shows evidence of
the buyer’s ownership of the property while the deed legally
transfers the title from the seller to the buyer. The final
document the buyer receives at closing is a title insurance
policy, insurance against the loss of the title if it’s found
to be imperfect.
Buyers should plan on at least four to twelve weeks for a
typical real estate transaction. The process is difficult and
at times, intimidating. A general understanding of real estate
terminology and chronology of the transaction, however, will
help any real estate novice to confidently buy his or her first
home.
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W. Troy Swezey is the author of “UNDERSTANDING REAL ESTATE
TERMINOLOGY." As a Realtor at Century 21 Paul & Associates, he
has helped many individuals with their real estate needs. Visit
his web site to download his free e-book, “REAL ESTATE SECRETS
EXPOSED.” http://www.TroyIsMyRealtor.com or
TroyC21@usa.net
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