20 Terms You Should Know When Buying Real Estate
by John M. Roberts
Many people have decided that now is the time to buy a new home. If you are one of those who want to buy a home right now, whether you are a first time buyer or someone who has purchased property in the past, it is always good to know certain terms that may help you through the purchasing process.
- Appraisal: An opinion of value based on an analysis of factual details by a disinterested person who bases his or her opinion on standard formulas. In the appraisal of real estate, those formulas include the Cost Approach, the Market Value Approach, and the Income Approach. The appraised value also incorporates the location, improvements, and other factors that may have an affect on the property's value.
- Assets: Assets can be cash or capital. Cash assets is money that can be used as a down payment or for escrow fees. Capital assets are resources that can produce income or be used as collateral.
- Borrower or Mortgagee: The individual, or individuals, who applies for a loan in order to finance a property that is being offered for sale or to refinance a loan that is already held against a property that is already owned.
- Buyer: The individual, or individuals, who makes an effort to purchase a home, rental property, vacant land, or other real estate that is being offered for sale.
- Capital Gains: The gains realized from the sale of capital assets, usually calculated as the difference between the costs and the selling price minus certain deductible expenses.
- Closing Costs: Expenses that are required or incidental to the sale of real estate, such as escrow fees, loan fees, title fees, and other costs.
- Closing Statement: The statement, prepared by the escrow company, used to list the settlement figures between buyers and sellers and what each must pay.
- Cloud on the Title: An encumbrance on the title to a property that may prove to affect the rights of the owner. When there is a cloud on the title to a property, the cloud may present a problem for the owner if he or she decides to transfer the property to someone else. A cloud may be a mistake on the legal description, the misspelling of a person's name, or an illegal transfer dating back many years.
- Condominium: A multifamily structure in which units are individually owned and each owner share undivided rights in common areas.
- Deed: A written document that conveys ownership of property from one person to another.
There are different types of deeds used in different types of title transfers.
- Default: Failure to pay an obligation such as a monthly mortgage payment.
If a default isn't cured, it could lead to foreclosure.
- Deposit: Money given by a buyer as a show of good faith when an offer to purchase property is made.
- Down Payment: Money paid from a buyers own funds as opposed to that which is being financed.
- Equity: The market value or the sales price of property, less liens and other encumbrances that are attached to it.
- Escrow: A third party acting as a neutral agent or employee in the sale of property. The escrow is entrusted with delivering any written instrument, money, evidence of title, and instructions as to the use of such instruments.
- Escrow Instructions: Written instructions that grants permission to the escrow officer to carry out the wishes of both the buyer and the seller of a property or business.
- Good Faith: And act of good intentions done without fraud or harm. When buying real estate, or any other property, both the buyer and seller is expected to perform in a manner that is not detrimental to the other party.
- Homeowners Insurance: A policy of insurance that includes the coverage of hazards such as fire, theft, personal liability, theft away from home, and other specified coverage.
- Interest Rates: The percentage of costs applied to an amount of money borrowed for the use of the money for a specific time.
- Joint Tenancy: An undivided interest in real property taken by two or more people with equal interest, under the same conveyance at the same time. Under joint tenancy, if one of the participants dies, his or her interest passes to the surviving joint tenants rather than to his or her heirs.
Knowing all you can about the ends and outs of buying real estate will help you immensely when you begin the home buying process. Although you may use the services of a realtor, the final decisions will land squarely on you.