Key Highlights

  • It is agents’ jobs to help clients become real estate literate.
  • Understanding and using this glossary of terms will help make clients more savvy buyers, sellers and investors.

InmanNews prepared this glossary of financial terms used in real estate transactions. You might want to pass it along to your clients to help them become more savvy and confident in their real estate buying, selling and investing dealings.

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Amortization is basically a monthly schedule that shows clients how much of their monthly mortgage payments go to paying off the interest on their loan and how much go to paying off the principal of their loan. In the beginning, most of the monthly mortgage payment goes towards paying off the interest on the loan. During the middle and end of paying off the mortgage loan, most of the monthly payments goes towards paying off how much the property actually cost.

Default happens when a borrower stops making the monthly mortgage payments on the home loan. Risks of defaulting or falling behind on a mortgage loan payments can include losing the property to the loan holder or lender if the lender initiates a foreclosure filing against the borrower and/or negative impacting the borrower’s credit score.

Down Payment is the amount of money a buyer offers as a percentage of the home’s total purchase price. A common down payment is 20% of the home’s total purchase price but the majority of buyers is now “putting down” 15%. There are loan financing services available that require as little as 3.5% down payments.

Equity is the market value of a house or real property less the amount of any liens or debts owed on the house/property that may exist. Equity is the homeowner’s financial interest in the property or the percentage of the home the homeowner actually owns.

Escrow comes into play when a buyer and seller agree to make a deal and a third party is hired to handle the transaction.

Fiduciary is a signed, legal and confidential agreement or relationship between two parties. One party is given the right to represent or act on the behalf of the other. In real estate, the real estate agent or broker and the buyer/seller/investor (the client) agree that the agent is to work on behalf of the client’s best interests.

Foreclosure is a legal process that can begin when the homeowner stops making mortgage loan payments on the house/property to the lender and the right of homeownership is transferred from the homeowner to the lender.

Interest is the cost of borrowing money. Mortgage loans come with interest rates. The lower the interest rate on the mortgage loan, the lower the monthly mortgage payment and vice versa.

Lien is the legal term for collateral on debts owed. A house or property can be held as collateral by a lender until the homeowner pays off a debt or debts to the lender. It is nearly impossible to sell a house/property with a lien until that lien is cleared with the lender.

Per Diem means per day in Latin. In real estate, per diem charges can happen if a loan is not approved by the date the loan is scheduled to be completed.

Real Estate Owned (REO) refers to a house or property that has been foreclosed on by a lender.

Refinance is a process that involves obtaining a new loan to pay off a currently existing loan. Homeowners will refinance an existing loan if/when they are able to get a better (lower) interest rate and/or better terms than they have on their current loan.

Short Sale happens when a house is sold for an amount less than what is owed on the seller’s mortgage loan (plus closing costs, taxes and agent’s commissions.) A short sale often happens in the process of foreclosure.

Thanks to InmanNews.

Also read: Buyers Flocking to 4 Cities with Affordable Land & Growing Salaries, Nearly 50% of Homeowners Expected to Move This Decade – Will 50% of Those Moving Use Updater?, Podcast: Top 10 Reasons You Didn’t Get the Listing (+Secrets to Getting it Signed!)