Hey, we get it! There's some confusing terms when it comes to real estate. But don't be dismayed! At The Monaghan Group, we're here to explain and help you understand things every step of the way! Here a list of terms we commonly get questions about.

Acceptance: Agreeing to the terms of an offer, thereby creating a contract. As soon as the seller signs on to your purchase offer, you're in contract for the sale of the house, and neither of you can back out without facing consequences -- in your case, losing your earnest money deposit and, in the seller's case, a potential lawsuit.

Adjustable rate mortgage (ARM): A mortgage loan with an interest rate that fluctuates in accordance with a designated market indicator -- such as the weekly average of one-year U.S. Treasury Bills -- over the life of the loan. To avoid constant and drastic fluctuations, ARMs typically limit how often and by how much the interest rate can vary.

Annual percentage rate (APR): A yearly interest rate that includes upfront fees and costs paid to acquire the loan, calculated by taking the average compound interest rate over the term of the loan. Mortgage lenders are required to disclose the APR so that borrowers can more accurately compare the actual cost of different loans with different fees.

Appraisal: A determination of the value of something, such as jewelry, stock, or, in this case, the house you plan to buy. A professional appraiser -- who should be a qualified, disinterested specialist in real estate appraisals, with expertise in the local geographic area -- makes an estimate by examining the property, looking at the initial purchase price, and comparing it with recent sales of similar property. Your bank or other lender will require the appraisal in order to ascertain the worth of the house for lending purposes. And, unfortunately, the lender may refuse to fund the loan if the appraisal comes in lower than the loan amount. In such situations, if you can't come up with additional down payment money or a better appraisal, deals have been known to fall through.

Appreciation: An increase in the value or worth of an asset or piece of property that's caused by external economic factors occurring over time, rather than by the owner having made improvements or additions. For example, increased market demand or inflation can cause property to appreciate. The term is commonly used in the context of real estate. The seller is probably hoping to cash in on any appreciation in the home's value since buying it -- but the opposite (called depreciation, defined below) is also possible.

Closing costs: All settlement or transaction charges (above and beyond the actual cost of the property) that home buyers (or sellers, depending on tradition in your area and what you negotiate with the seller) need to pay at the close of escrow when the property is transferred. These typically include lender's fees and points or prepaid interest, a prorated share of the property taxes, transfer taxes, credit check fees, homeowners' and title insurance premiums, deed filing fees, real estate agent commissions, inspection and appraisal fees, and attorneys' fees. Some closing costs are tax-deductible.

Contingency: A provision in a contract stating that some or all of the terms of the contract will be altered or voided by the occurrence of a specific event, usually by specific dates leading up to the closing. For example, a contingency in your home purchase contract might state that, if the buyer does not approve the inspection report of the physical condition of the property, the buyer does not have to complete the purchase. Or the seller might include a contingency asking for proof that the buyer is financially able to close the deal or for closing to be held off until the seller successfully finds another house to buy.

Counteroffer: The rejection of an offer to enter into a contract, where the rejecting party includes a different offer that changes the terms of the original offer in some way. For example, if you offer $350,000 for a house, and the seller replies that he wants $375,000, the seller has rejected your offer and has made a counteroffer. The legal significance of a counteroffer is that it completely voids the original offer.

Earnest money deposit (EMD): A partial payment (deposit) demonstrating commitment in a contractual relationship, and commonly made in real estate transactions at the time of making the purchase offer. The remainder of the payment is due on the closing date. The seller keeps the earnest money if the buyer fails to make timely payment in full (or if there is a similar breach of the agreement).

Escrow: The holding of funds or documents by a neutral third party prior to closing your home sale.

Escrow agent: A person (often an attorney) or a company that handles escrow arrangements for a fee usually paid as part of the closing costs. Also sometimes called a title agent.

Fixed rate mortgage: A mortgage loan that has an interest rate that remains constant throughout the life of the loan, usually 15 or 30 years.

Hazard insurance: A type of insurance found in homeowners' policies, which protects against physical damage to the property caused by unexpected and sudden events such as fires, storms, and vandalism. Your mortgage lender will no doubt require you to purchase hazard insurance, in order to protect its collateral from decreases in value.

House closing: The final transfer of the ownership of a house from the seller to the buyer, which occurs after both have met all the terms of their contract and the deed has been recorded.

MLS or Multiple listing service: A computer-based service, commonly referred to as MLS, that provides real estate professionals with detailed listings of most homes currently on the market. The public can now access much of this kind of information through websites like www.realtor.com.

Nonrecurring closing costs: Those costs of closing a home purchase that need to be paid only once -- such as the appraisal fee, title insurance, and transfer taxes. (Compare with recurring closing costs, defined below.)

PITI: Abbreviation for the major expenses that make up a mortgage payment: principal (the amount borrowed), interest, (property) taxes, and (homeowners') insurance.

Private mortgage insurance: Insurance that reimburses a mortgage lender if the buyer defaults on the loan and the foreclosure sale price is less than the amount owed the lender (the mortgage plus the costs of the sale). A home buyer who makes less than a 20% down payment will most likely have to purchase private mortgage insurance, commonly referred to as PMI.

Recurring closing costs: Those costs of closing a home purchase that represent the first of a series of payments that will recur over time -- such as homeowners' insurance and property taxes. (Compare with nonrecurring closing costs, defined above.)

 

Title: Ownership of real estate or personal property. With real estate, title is evidenced by a deed (or other document) recorded in the county land records office.