When it comes to real estate transactions, it’s important that you understand the basic terms and phrases that are used. Not knowing what a term means can mean the difference between a solid transaction and unnecessary legal disputes. You should therefore familiarize yourself with real estate terminology before engaging in any transactions.
Learning how to understand important real estate terminology is made easier by classifying them into different categories. Some major real estate categories include Purchases and Transactions, Mortgages, and Titles.
For example, some commonly used terms for Purchases and Transactions may include:
- Earnest Money: This is basically a deposit to ensure that the purchaser and seller are serious about the transaction. The buyer deposits about 2% of the sale price, which goes towards the down payment if the sale is finalized. The money is returned if the sale doesn’t go through.
- Escape Clause or Termination Clause: This is a clause in the sale agreement that allows the parties to back out of the contract if certain conditions aren’t met.
- Contingency: This is a provision in a contract that states that something must occur (such as a repair or installation) before the contract can become legally binding.
Some terms related to the different types of Mortgages include:
- Fixed-Rate Mortgage: This is where the monthly interest rates stay the same for the duration of the mortgage. May be beneficial for persons with steady monthly income.
- Adjustable-rate Mortgage: Interest rates may change according to economic market conditions. This may be of advantage to some purchasers
- Assumable Mortgage: This is a mortgage that you take over (assume) from a previous owner.
- Balloon-type Mortgage: Here a minimal amount is devoted to down payments, and monthly payments involve little to no interest. At the end, the purchaser must make a lump sum payment, called the “balloon payment”.
Important real estate terminology involving Titles may include:
- Liens: In the event that the purchaser can’t keep up with mortgage payments, the bank, lender, or court may place a “lien” on the property. This allows them to seize the property, sell it, and use the proceeds towards the outstanding debt amounts.
- Defects/Clouds: Clouds or defects on a title may hinder the sale or transaction since titles must be free of defects before transfer. A lien is usually considered a type of “cloud” on the title.
There may be several other important real estate terms you should be familiarized with. If you need any assistance in understanding important real estate terminology, you should contact a real estate lawyer right away. Your attorney can explain the various real estate definitions, and can also represent you in court if a lawsuit or court hearing becomes necessary.