Proliferation of online real estate listings means everyone feels like a realtor after just a few hours of home searches. However, there's more to understanding the world of real estate than what you'll learn from flipping through photographs of your dream home.
Approaching real estate like a hobby you can enjoy in your spare time is the best way to get saddled with the house of your nightmares instead of the home of your dreams. Learn the following common real estate terms before diving into your first home search.
Essential Terms in Real Estate
The U.S Department of Housing and Urban Development (HUD) cites hundreds of terms used by realtors, but you don't need to know every single definition. Study these common real estate terms before you jump into the housing market:
- Escape Clause: This term shows up in purchase agreements and allows the buyer or seller to cancel the transaction under certain conditions.
- Property Lien: When an owner runs into tax problems or payment issues, a bank or the government might place a lien on a home. A lien may prevent a sale or require a certain amount of the sale price be paid directly to a creditor.
- REO Property: During foreclosure, the house may become a "real estate owned" property if the bank can't sell the property at auction. The "Great Recession" created thousands of bank-owned homes and a whole new class of real estate terms.
Vital Mortgage Terms
Finding the home of your dreams or a terrific investment opportunity is only the beginning. You'll also need to dip your toes into the waters of banking and mortgages. These are a few of the most important terms you'll see:
- Adjustable-Rate Mortgage (ARM): An ARM is a mortgage with a variable interest rate that changes after an initial term.
- Closing Costs: These costs are fees above and beyond the price of the home. Costs might include escrow fees, loan origination costs, title insurance, and the cost of an attorney.
- Fixed-Rate Mortgage: This type of mortgage usually has a higher interest rate than an ARM, but the interest rate won't change over the lifetime of the loan.
- Private Mortgage Insurance: You'll need to secure insurance if you finance more than 80 percent of the home's value. Banks require this insurance so they can get their money back if you default.
- Title Insurance: Sometimes a home wasn't transferred properly in the past, which could require legal fees to rectify the situation. Title insurance pays for the cost to solve any legal issues with the sale.
A Few Advanced Terms to Know
In addition to common terms used in real estate, there are some words that might fall under the advanced category, but which may impact your home search.
- Multiple Listing Service (MLS): Real estate agents have access to this wealth of data and statistics on current homes for sale that's not available to the general public.
- Unincorporated Area: Properties in unincorporated areas are governed by the county and aren't under city control. Freedom from zoning laws is a perk; however, drawbacks include lack of access to services like city water and trash removal.
Remember that you'll run into other common real estate terms if your venture includes commercial properties. You'll see many of the same terms with commercial real estate as you would see with residential real estate, but know that the environment is different.
You don't need to go back to school to understand everything you need to know to buy a house, but treat the search and purchase as an educational experience that's full of new things to learn.
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DISCLAIMER: All information on this website are provided for informational purposes only and are not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein, or any actions taken in reliance thereon.