Real Estate Word of the Day: Equity Loan

An equity loan, often referred to as a home equity loan or second mortgage, allows homeowners to borrow money against the equity they have built up in their property. Equity is the difference between the current market value of your home and the outstanding balance on your mortgage. Essentially, it's the portion of your home that you truly own. For example, if your home is valued at $400,000 and you owe $250,000 on your mortgage, you have $150,000 in equity. An equity loan enables you to tap into this $150,000 for various financial needs.

An equity loan provides a lump sum of money that is repaid over a fixed term, typically with a fixed interest rate. The amount you can borrow depends on several factors,…

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Real Estate Word of the Day: Depreciation

Depreciation is an accounting method that allows investors to spread out the cost of an asset over its useful life. For real estate, this typically means spreading out the cost of a building (excluding the land) over a specified period. Depreciation is crucial for property owners because it can provide significant tax advantages by reducing taxable income.

In real estate, depreciation applies primarily to income-producing properties, such as rental buildings, commercial properties, and other structures used for business purposes. The land itself is not depreciable because it does not wear out or become obsolete. However, buildings, improvements, and certain property components do. The Internal Revenue…

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Real Estate Word of the Day: Conventional Loan

A conventional loan is a type of mortgage that is not insured or guaranteed by any government agency, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the USDA Rural Housing Service. Instead, these loans are backed by private lenders, and their guidelines are established by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy and guarantee mortgages.

Conventional loans typically require a down payment of at least 3% to 20% of the home's purchase price. A larger down payment can often lead to better loan terms and a lower interest rate. If your down payment is less than 20%, you will typically need to pay for PMI. This insurance protects…

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Real Estate Word of the Day: Contingency

A contingency is a condition or requirement that must be met for a real estate contract to become binding. Think of it as a safety net, allowing either the buyer or the seller to back out of the deal without penalty if certain conditions aren't satisfied. Contingencies protect both parties by ensuring that specific criteria are met before finalizing the sale.

Contingencies are a vital part of the real estate process because they provide security and flexibility for both buyers and sellers. For buyers, contingencies offer peace of mind, ensuring they are protected if something goes wrong. For sellers, while contingencies might seem like potential obstacles, they actually help in moving serious and qualified…

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Real Estate Word of the Day: Closing Costs

Closing costs are the fees and expenses that buyers (and sometimes sellers) incur during the finalization of a real estate transaction. These costs are typically paid at the closing of the transaction, which is when the title of the property is transferred from the seller to the buyer. Closing costs can vary significantly depending on various factors, including the property's location, purchase price, and the specifics of the loan.

These costs typically include loan origination fees, appraisal fees, inspection fees, title insurance, attorney fees, escrow fees, recording fees, prepaid fees, transfer taxes, and more.

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Real Estate Word of the Day: Certificate of Title

A Certificate of Title is an official document that serves as proof of ownership for a property. It details the legal owner's name, describes the property, and lists any encumbrances or liens against it. Think of it as the property's identification card, establishing who holds the rights to the property and any legal interests or restrictions that might affect it.

The Certificate of Title is the ultimate proof that you are the legal owner of the property. Without it, establishing ownership can become a complex and contentious issue. This document provides a clear history of the property's ownership. It includes details of previous owners and any transfers of ownership, ensuring transparency and…

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Real Estate Word of the Day: Capitalization Rate

The capitalization rate (also referred to as "cap rate") is a metric used to estimate the potential return on an investment property. It is expressed as a percentage and provides a snapshot of an investment's profitability, making it easier for investors to compare different properties. The cap rate is calculated by dividing the net operating income (NOI) of the property by its current market value or purchase price.

The cap rate allows investors to compare the profitability of different real estate investments. A higher cap rate generally indicates a higher potential return, but it can also imply higher risk. Cap rates can help assess the health of the real estate market. Lower cap rates typically…

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Real Estate Word of the Day: Balloon Payment

A balloon payment is a large, lump-sum payment scheduled at the end of a loan term. It is significantly larger than the regular monthly payments made during the life of the loan. Balloon payments are common in both commercial and residential real estate financing, and they are typically associated with short-term loan agreements, often ranging from 5 to 7 years, though the term length can vary.

In a loan with a balloon payment, the borrower makes relatively small, consistent monthly payments for a set period. These payments typically cover only interest or a portion of the principal and interest. At the end of the loan term, the borrower is required to pay off the remaining balance in one substantial lump…

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Real Estate Word of the Day: Assessed Value

Assessed value is a valuation placed on a property by a public tax assessor for the purposes of taxation. Unlike market value, which is determined by what a buyer is willing to pay for a property on the open market, assessed value is used by local governments to calculate property taxes. Each municipality has its own methods and standards for determining the assessed value, which can involve various factors such as the property's size, location, and improvements, as well as broader market trends.

The process of calculating assessed value typically involves several steps:


  1. Property Inspection - Assessors often start with a physical inspection of the property. This includes measuring the property's…

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Real Estate Word of the Day: Adjustable-Rate Mortgage

An Adjustable-Rate Mortgage (ARM) is a type of home loan with an interest rate that can change periodically. Unlike fixed-rate mortgages, where the interest rate remains constant throughout the loan term, ARMs have an interest rate that adjusts based on market conditions.

Typically, an ARM starts with a lower interest rate for a set initial period (ranging from a few months to several years), after which the rate can adjust at pre-determined intervals. These adjustments are usually tied to a specific financial index, such as the U.S. Treasury bill rate.

Advantages of ARMs in Real Estate

One of the most attractive features of ARMs is their lower initial interest rates. This can make…

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