Friday, January 4, 2013

The Real Estate Dictionary Part 1

If you are relatively new to the real estate market, real estate terms and acronyms can start to make you feel incompetent. Just like any other experience with new vocabulary, a little time and experience is all you need to begin conversing fluently about ARMs and PITI with the best of them.

In order to lend a hand, we though we would offer a two part blog series, outlining basic real estate definitions you're likely to come across throughout your real estate experience- whether you're a first-time home buyer or beginnings your future real estate investing career. Don't worry, we won't conduct any pop quizzes or final exams...

Basic Real Estate Definitions Part 1

Adjustable Rate Mortgage (ARM). Here's that first pesky acronym. An ARM is a mortgage in which the total amount you pay is completely dependent on current interest rates. In other words, your mortgage payments increase and decrease over time. These are normally a risky proposition - just ask anyone who purchased a house between 2005-2008.

Annual Percentage Rate (APR). This is not the same as the percentage rate shown on your loan docs. The APR is derived from a value-based government formula which (as a guideline only) can be figured by subtracting your closing costs from your total loan amount. Use this total to calculate the interest based on your payment amount. This will yield an approximate APR, which will be slightly higher than the one on your loan doc.

(Real Estate) Broker. Who is the "broker" anyway? All real estate agents must work under a real estate Broker. Broker's have taken additional classes and hold the ultimate responsibility should anything go awry as the result of your agent's error. That's why the Broker gets paid too, even if you never saw him/her. Some real estate agents are also Brokers, allowing them to work independently.

Closing Costs. You thought you agreed on a final purchase amount. Your escrow is about to close and the Title Company (to be defined later) wants a check from you for X-thousand dollars. What??? Closing costs consist of a conglomeration of fees, such as recording costs, misc. legal fees, surveying fees, etc. Your real estate agent should be able to estimate these for you beforehand, OR you can ask the seller to pay them if you're negotiating a deal.

Escrow. Escrow is an item of value - such as money or documents, which are held by a third party entity until certain conditions are met. In real estate, it's usually money which is distributed to the seller when the sale is final.

Fixed Rate Mortgage (FRM). This is a mortgage option in which the loan is offered at the current interest rate and won't change during the lifetime of the loan. They are great when the interest rates are low - such as now - and not so great when interest rates are high - like back in the 80s. However, buyers can refinance if their credit is good and interest rates go down.

Check back for Part 2: Basic Real Estate Definitions F-Z

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