If you are looking to invest in residential real estate, it is important to keep on top of the terminology used in the industry. Gaining knowledge of key terms in residential real estate can help you as you decide to buy.
Appraisal. this is the value of a property as it is determined by an independent survey that has been conducted by a lender. It assesses the condition of the property and then comes up with comparable listings in the area to validate the purchase price.
Inspection. While the appraisal deals more with the value of a home, the inspection deals more with the home’s condition. The inspector will educate the buyer about the current condition of the home and its major components.
As-Is. This is the condition of the home and typically indicates that the seller is not going to perform the repairs that may be needed. It can also mean that this particular home is priced lower than others in the area.
Closing. This is when a home sale is finalized. It is when all signatures are gathered on the documents, the money is conveyed, and property access is granted to the buyer.
Closing Costs. These are the fees that come along with the closing of the home. These fees can include charges from the lender, title company, attorneys, insurance companies, taxing authorities, and real estate agents.
Debt-to-Income Ratio. Also known as DTI, this is the number that many mortgage lenders use. It is the total of your debt expenses and your monthly housing payment divided by your gross monthly income and then multiplied by 100.
Comps. This is a real estate appraisal term that refers to properties with similar characteristics in an area, including the size of the home, the condition, and features. It helps determine the value of the property you are selling or buying.
Good Credit Score. When it comes to residential real estate, a good credit score should be around the 620 mark. However, a very good score is around 720. You want to have a higher credit score because it can help secure better financing.
Earnest Money. This is a good faith deposit and includes the initial funds that the buyer is asked to put down when the seller accepts their offer.
Equity. This refers to the investment made into a home. It is the market value minus mortgages or liens against the property.
Short Sale. This is when a property is being sold for less than the debt that is secured by the property.
Underwriting. This is when the eligibility of a borrower is determined.