A Real Estate Glossary Primer
So let’s say you are told that by amortizing over 25 years at Prime -1% you’ll be in position to make a conditional offer just below asking.
If you’ve had the experience buying a home, you’ll likely recognize several or all of these terms, but the real estate world can be overwhelming for those who are stepping in to it for the first time.
As an agent who lives and breathes real estate, it is sometimes important for me to take a step back to view the real estate world with a fresh set of eyes, from the perspective of someone experiencing it for the first time. From the nuances of financing to specific property terms, this month’s post is intended to provide a primer for the most popularly used real estate and financing terms. Keep this page bookmarked as a handy reference!
The length of time, set by agreement between yourself and the bank, that the mortgage will be schedule to be paid off in full.
An evaluation of the likely market value of your home. Please keep in mind banks will often appraise a home’s market value more conservatively than an agent typically will.
Institutions accredited by the federal government, who can legally offer CMHC (Canada Mortgage and Housing Corporation) insured loans.
A legally binding agreement that transfers the existing mortgage amount and terms to the home purchaser.
This refers to the ratio of interest vs. principal (your personal equity stake) being paid on a mortgage. Early on, mortgage payments are typically mostly interest. Towards the end of the life of the mortgage, payments are typically mostly principal.
A mortgage with fixed terms that cannot be renegotiated without financial penalty for the duration of the agreement.
The costs associated with the completion of the ownership transaction. These include legal fees, sales commission fees, land transfer fees, and other potential disbursements.
The date in which the property legally changes ownership.
A buyer may choose to place certain conditions when they submit an offer for a property. These can range greatly, but generally include a satisfactory home inspection and obtaining financing.
After a buyer submits an offer, the seller can accept, reject, or make a counteroffer. The counteroffer can include amending the proposed sale price as well as the closing date and other conditions.
This refers to the first impressions of a property, imagined by prospective buyers driving past your home. Does the home appear to be in good condition? Is the yard well maintained? What other features or potential liabilities jump out in the first few seconds of examining a property for the first time?
The actual legal document demonstration property transfer and new ownership.
Failure to meet the obligations of your mortgage agreement. This can result in legal action and even possession of a property by the bank.
This refers to a ‘good faith’ amount provided by the buyer to the seller indicating the seriousness of the offer. Deposit are held in trust by the real estate brokerage or a lawyer.
The sum of funds a buyer provides to the bank to secure a mortgage. This total is applied against the final sale price of the home, and thus deducted from the mortgage. Depending on the loan type and your credit history, banks will require a minimum deposit based on a percentage of the total sale price of the property.
After a home owner has defaulted with the bank, a bank can ‘foreclose’ on a property, and enter a legal process to take possession of the property away from the owner.
A trained professional who will walk through your potential purchase, and create a report based on the overall condition of the home, and the specific conditions of each home system (electrical, roof, heating/cooling etc.). Typically, home inspectors provide reports with the estimated costs of repairing any deficiencies.
The percentage of a loan that forms the base cost for money lending. A 3% interest rate would mean a cost of $3000/year for borrowing $100000.
Lawyer / Notary:
An accredited professional who is hired to complete legal real estate transactions according to your best interests.
Different from amortization, a mortgage term refers to the length of the agreement you have with a lender. For example, you can amortize a mortgage over 25 years, but have an agreed term of only 5 years, meaning that after 5 years the mortgage will require renegotiation with the lender (and be subject to the current rates at time of renegotiation).
A professional who will ‘shop’ your financing application to several lending institutions to obtain the best rate.
The amount you borrow from a lending institution to complete the purchasing transaction, typically paid back over time according to certain conditions and costs.
Insurance that protects again the death of an owner and/or default on the mortgage payment. Mortgage insurance can be a requirement of a mortgage depending on the percentage of your down payment.
A net summary of your total financial worth, calculated by adding up all of your assets and subtracting your debts.
The submission of a proposal to a property seller, stipulating a price and an optional set of conditions. The seller can accept or reject the offer, and also make a counter-offer.
Typically more expensive than a closed mortgage, open mortgages offer the flexibility to be paid off or renegotiated without financial penalty.
Defined as a preferred lending rate that each institution sets differently.
This refers to the actual amount borrowed on a mortgage. Paying off interest does not reduce the principal, but your monthly mortgage payments typically include paying off interest as well as some of the principal, depending on your maturity date and amortization schedule.
Typically required by any lender, property insurance protects the owner from catastrophic events such as a fire, by providing an agreed upon sum for rebuilding (or repairing) the property.
A realtor, or real estate agent, is a trained professional who will help you negotiate the purchase or sale of your home according to your goals and existing marketing conditions. Sales agents are also typically responsible for marketing your property to attract as many buyers as is reasonably possible.
A legal document, provided by a trained professional, that describes and delineates the exact ownership dimensions of a property and the locations of any buildings present on it.
We hope that you find this glossary useful! The terms described reflect the complicated nature of the buying and selling process. Especially for first time buyers, the process can be confusing and even overwhelming. This is why an experienced and effective realtor is such an important part of the real estate transaction process. If you have any questions about the glossary above, or would like to explore buying or selling your property, contact me today, I’d be happy to help!