Real estate terminology can be confusing, especially if you’re a first-time homebuyer. Before you start touring homes and meeting with mortgage professionals, you may want to do some research into commonly used real estate terms.
To help you out, we’ve created a glossary of mortgage and real estate terms to know during your home search.
A mortgage in which your interest rates and payments will change over the course of the loan. This type of mortgage can be riskier than a fixed-rate mortgage, but it can be a good option for homebuyers who do not plan to live in their home for more than a few years.
The practice of paying back a loan over a period of time in regular, scheduled installments. An amortization schedule is a table that lists what your regular payments will look like over the course of your entire loan, showing how much of each payment is going to principal balance vs. interest.
An estimated value of a property as determined by a licensed appraiser. The appraiser takes into account the value of similar properties and current market trends. They will also perform a visual inspection of the home. Appraisals are crucial to the closing process, as it determines how much money banks will lend you for your mortgage.
The time at which the sale of a property is finalized. At closing, you will meet with the seller to sign documents authorizing the transfer of ownership. This is also when the down payment and closing costs are due.
Fees that must be paid by the homebuyer at the time of closing. Closing costs typically include fees related to appraisal, title, and insurance. These miscellaneous costs are not included in the base amount of your loan.
Net ownership that homeowners have over their property. Equity is the difference between the appraised value of your home and the outstanding balance you have remaining on your mortgage.
A third-party account that holds funds from the homebuyer. Depending on the terms of your contract, you may be required to pay a portion of your monthly mortgage payment into an escrow account. These funds are then used to pay property tax and insurance premiums.
A mortgage in which your interest rate remains the same for the life of the loan.
A legal process in which a lender takes possession of a home, evicts the borrower, and sells the property. Foreclosure is a way for the lender to pay off a mortgage if the borrower has repeatedly failed to make their monthly payments.
Insurance that provides protection against property loss and damage. Proof of homeowners insurance is typically required by your lender before closing on a loan. Can also be referred to as hazard insurance.
Assets which can be quickly converted into cash. Typically, this term is used to determine how much money you will have available for your down payment and closing costs.
An estimate from a lender that details the full cost of your mortgage loan, including any additional fees that you may owe. This document is delivered to you a few days after you submit your loan application, so you know what to expect if you move forward with the lender. A loan estimate is sometimes called a Good Faith Estimate.
A period of time in which a lender guarantees the borrower a specific interest rate. If you finalize your loan during the lock-in period, you can rest assured that your interest rate will not increase from what the lender originally offered you.
The individual or company that matches homebuyers with a lender. A mortgage broker will work to pair you with a lender whose terms and requirements best meet your needs.
A written notice from a mortgage lender to a homebuyer that tells them what type of mortgage they qualify for, including the loan amount and any terms and conditions. Pre-approval is determined after the lender evaluates your income, credit score, debts, and other financial information. Obtaining pre-approval can speed up the homebuying process and provide assurance to the seller that you are able to purchase their property.
An estimate of how much you may be able to borrow for a mortgage based on a review of your financial situation. Compared to pre-approval, pre-qualification is much more informal. It is meant to give you an idea of the types of homes you can afford and help guide you and your realtor during your home search.
Insurance which protects a lender against financial loss if a borrower defaults on their mortgage. Private mortgage insurance is often required if your down payment is less than 20%.
Paying off your existing loan by using a new loan. Homeowners may choose to refinance their mortgage in order to reduce their interest rates and lower their monthly payments.
Written legal document that shows the ownership of a property. After you purchase a home, the title is transferred to your name.
The lender’s process of reviewing a loan application. During underwriting, the lender takes into consideration your ability to pay back the loan as well as the estimated value of the property you are buying.
This glossary only scratches the surface of mortgage and real estate terminology, but we hope it empowers you to keep learning throughout your homebuying journey. Remember that real estate agents and mortgage professionals are there to answer any questions you might have along the way. If you’re looking for additional resources to guide your homebuying process, the Brookfield Residential blog has dozens of articles covering everything from mortgage approvals to interior design trends.
When you’re ready to take the next step towards homeownership, request more information to learn about our communities and let us find your new home.