| Term | Definition | |||
| 1031 Exchange | Also known as a like-kind exchange, this allows investors to defer capital gains taxes by selling one property and buying a similar one within a specific timeframe. | |||
| 2-1 Buydown | A concession or incentive negotiated with a seller or builder that temporarily reduces a buyer’s mortgage interest rate by 2 percentage points in the first year and 1 percentage point in the second year of the mortgage. In the third year, the interest rate returns to the fixed rate obtained from the lender. | |||
| Acceleration Clause | If your client spots this in their mortgage contract, explain that it allows the lender to demand full loan repayment if they default. | |||
| Active Contingent | When a property is active contingent, it means a buyer has made an offer, but the sale won’t finalize until certain conditions (contingencies) are met. These could include repairs, inspections, or selling their current home. | |||
| Active with Contract | If a property is active with contract (also called “active under contract”), potential buyers can still view it. However, there’s an offer in place with pending contingencies4. | |||
| Adjustable-rate mortgage (ARM) | A mortgage with an introductory interest rate that lasts for a set period (e.g., 5 years) and then adjusts periodically (usually every six months) for the remaining loan term. | |||
| Affordability | Refers to the amount of money you can comfortably afford to spend on a home. Typically, a home is considered affordable if the mortgage consumes no more than 30% of your household income. | |||
| American Society of Home Inspectors (ASHI) | A not-for-profit professional association that sets and promotes standards for property inspections. Look for this accreditation when choosing a home inspector. | |||
| Amortization | The process of repaying a mortgage over the loan term through regular monthly installments of principal and interest, based on an amortization schedule. At the end of the loan term, you’ll own your home if you’ve made all required payments. | |||
| Amortization | Amortization refers to a payment schedule outlining what goes toward principal and interest balances. | |||
| Appreciation | Appreciation is a home’s increased value over time. Historically, real estate appreciates from 3% – 5% each year nationally | |||
| Assessed value | The value that a taxing authority places upon real or personal property for the purpose of taxation | |||
| Back-end ratio | One of two debt-to-income ratios that lenders analyze to determine a borrower’s eligibility for a home loan. It compares the borrower’s monthly debt payments to gross income. | |||
| Backup offer | An offer made on a home where the seller has already accepted another offer. The backup offer allows the buyer to purchase the home if the accepted offer falls through. | |||
| Broker | A broker is a person who or entity which arranges transactions between a buyer and a seller. This may be done for a commission when the deal is executed. | |||
| Bumpable buyer | A buyer whose purchase agreement includes a contingency allowing the seller to continue marketing the home to other prospective buyers. If a better offer comes along, the original buyer can be “bumped.” | |||
| Buyer’s agency fee | The fee or commission paid to a buyer’s agent or brokerage for finding and managing a home purchase on behalf of the buyer. | |||
| Closing | The final step in the real estate transaction process where the deed is transferred from seller to buyer, documents are signed | |||
Closing costs | Closing costs are the cost of making the transaction of buying or selling a home happen. They can include real estate agent commissions, lending fees, mortgage discount points, property taxes and title fees. | |||
| Comparables | Homes in the area of interest that have recently sold of which have similar features. This is done to give you an idea of the value of a home | |||
| Deed | A deed is a legal, written document detailing ownership of a piece of property. When a property is sold, the deed is transferred from the seller to the new buyer | |||
| Earnest money | Earnest money is part of your down payment paid before closing to show you are serious about purchasing a home. It is also known as a good faith deposit. | |||
| Escrow | A neutral third party or account that holds funds, documents, or property until the specified contractual conditions are met. | |||
| Home Inspection | A home inspection is carried out by a qualified third party to determine the state of the property and identify if there are any major defects with the structure, safety, heating and cooling systems, and more. Most lenders will require a home inspection before granting mortgages to prospective buyers to make sure it’s a sound investment. | |||
| Mortgage | A loan obtained from a bank or lender to finance the purchase of a property, typically repaid over a specified period with interest. | |||
| Real Estate | Real estate refers to land and anything permanently attached to it or built on it. This includes both natural features (like trees or rivers) and man-made structures (such as houses, office buildings, or warehouses). Essentially, it’s the tangible stuff you can touch and the ground it stands on123. | |||
| Real estate appraisal | An appraisal on your home is an unbiased estimate of how much a home is worth. When buying a home, the lender requires an appraisal by a third party. | |||
| Title | A legal document that proves ownership of a property. It is typically reviewed by a title company to ensure there are no liens or encumbrances on the property. | |||
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