The real estate industry can be extremely confusing to those who aren’t immersed in it on a daily basis. In order to provide clarity and context to an otherwise overwhelming experience, I’ve created this glossary of related terms. Reference it any time you have a question about industry jargon!
BD/BA- This is the indicator for the number of bedrooms and bathrooms in a particular residence. It is typically preceded by a number. You may see it written as 3BD/2BA for example, which would indicate a 3-bedroom, 2-bath home.
Adjustable-Rate Mortgage (ARM) – Also known as a variable-rate mortgage, an ARM is a type of mortgage that is characterized by a fluctuating interest rate over the course of the loan. Mortgagees with Adjustable-Rate Mortgages are not locked-in to a single, low interest rate.
Annual Percentage Rate (APR) – An annualized interest rate for a loan or investment that takes into account the additional costs of securing a loan.
Appraisal– An estimation of the market value of a particular property based on the value of similar properties in the same vicinity. Appraisals are always conducted by licensed professionals.
Arm’s Length Transaction– A real estate transaction characterized by each party acting in their own best interest, meaning they buyers aren’t being influenced by the sellers and vice versa.
Closing costs– Additional fees, not included in the listed purchase price of the building, that need to be paid prior to taking possession of the property. They most often include taxes, title fees, appraisal fees, and lender fees.
Closing disclosure– Formerly known as the Hud-1, a closing disclosure is a recorded statement of the real estate transaction. It includes all property and closing costs and is broken down by paying party.
Commission– The percentage of the home sale that is allocated to the real estate agent for his services.
Contingency– A condition that must be met before the transfer of property can take place.
Debt-to-Income (DTI) ratio– The total amount of a buyer’s income divided by the total amount of his/her debt. Used to calculate how much a buyer can reasonably afford to spend.
Deed– The official document, recorded with the correct governing authority, that legally transfers the property.
Down payment– A percentage of the total cost of the property most often paid by the buyer in order to secure adequate financing for the purchase. Down payments typically range from 3.5 – 20% but can go as low as 0%.
Earnest Money Deposit– Money paid by the buyer at the beginning of a proposed real estate transaction to demonstrate their serious intent to complete the purchase. In most cases, the earnest deposit is subtracted from closing costs at the time of closing.
Equity– it is the value of an asset or property after deduction of liabilities such as loans. In mathematical form, it is the value of the assets minus the value of any liens, loans, or liabilities.
Fixed-Rate Mortgage– A type of mortgage loan characterized by an interest rate that does not change over the term of the loan (as opposed to Adjustable-Rate Mortgage)
Loan-To-Value (LTV) – A ratio calculating the total amount of a particular loan in relation to the total value of the property for which the loan is to secure. This number is extremely important in determining whether a lender will approve or deny a particular application.