The ABC’s of Real Estate Lingo (Part 3)
Have you found yourself searching real estate phrases like, “what’s fair market value?” “how do I build equity?” or “what’s a bully offer?” so many times even Google is sick of you?
While the internet is (obviously) an amazing source of inspiration, it can get very overwhelming. Which is why I’ve compiled the most common real estate terms in this series – to save you random searching, and put all of your quiries in one place. So, if you’re still Googling, “adjustable-rate mortgage vs. fixed rate mortgage,” “what’s a home appraisal?” or “what’s the difference between a real estate agent and a broker?” then you’ve come to the right place!
Welcome to the third and final part of your crash course in real estate lingo! Continuing where we left off, I’m going to wrap up all the need-to-know terms – don’t forget to check out Part 1 and Part 2 of this series.
Now let’s dive in!
What does a home inspection involve?
A home inspection involves a third party visiting a property, and, well, inspecting it! They’ll look at technical aspects of a home, like water pipes, wiring, heating and cooling, foundations, roofs, etc., and determine what kind of shape a home is in. The aim is to identify any major items that could affect the price of a home, or anything that could mean problems for you after a purchase.
Some offers are put in conditional on a home inspection – meaning if there’s something major identified with the property after the inspection, like poor wiring, or faulty plumbing, the buyer gets an out from purchasing it (although more commonly, we try to find a middle-ground solution – it’s good to have an experienced realtor negotiate this!). If there are multiple offers on a property, an offer could be made more appealing by withdrawing this clause, but there’s definitely risk involved. It’s worth noting that some sellers will have an inspection done ahead of time, particularly in properties they want to move quickly – but you may want to have an inspector of your own take a look as well.
What’s Homeowner’s Insurance?
Like all great investments, your home needs to be protected, and that’s where homeowner’s insurance comes in. The good thing about homeowner’s insurance is that it doesn’t just cover the physical home, it also covers you for any liabilities that may take place in your home or on your property. So, if there’s a tornado that happens to hit Ontario, your home happens to flood, or you’re victim of a break-in, you’ll be taken care of.
When you purchase homeowner’s insurance, you’ll have peace of mind knowing your home is covered for any damages or losses that may occur.
Who/What is the lender?
The name says it all! The lender is the entity (usually an individual, or bank) that loans you or the buyer money to purchase a home or property. Of course, this isn’t free money – the loan is to be paid back to the lender with interest, by a fixed date.
What’s a property lien?
A lien is placed on your home or property when you owe someone money (your lender, contractor, condo corporation, etc.), and you’re unable to pay it. If a lien’s been placed on your home or property, you won’t be able to sell until that debt is paid. At this stage of the buying or selling process, the lender has the right to hold your property as their own personal asset until the debt has been paid off.
What is a loan-to-value ratio?
The loan-to-value (LTV) ratio is used to calculate your borrowing amount as a percentage of your home’s appraised value. It’s calculated by dividing the mortgage loan balance by the home’s value. The higher your LTV ratio, the riskier you’ll seem during the loan underwriting process, so remember to keep this ratio as low as you can.
What’s mortgage insurance?
Mortgage insurance is usually required for down payments that are less than 20% of the home or property value. This provides a safety net for the lender in the event that the buyer is unable to go through with the purchase. Mortgage insurance increases the cost of the loan, but it also lowers the risk to the lender. They make it possible for people without a 20% downpayment to be able to purchase in the current market.
What does it mean if the property is sold conditionally?
This is when the buyers and sellers have agreed on the terms, but a condition needs to be satisfied, usually by the buyer. It could be something like their own home has to sell, or they get the required financing. Once that condition is met, the home is officially sold, and it’s time to celebrate!
What does PITI mean?
PITI stands for principal, interest, taxes and insurance. WHen you put all these variables together, you can calculate an estimate of your monthly homeowner’s expense. PITI is used to compare a borrower’s monthly income with the expected expense to determine if the borrower will be approved for a loan.
What’s the difference between a pre-approval and a pre-qualification?
There are three steps in the financial world of buying a home: pre-qualification, pre-approval, and final approval (as they relate to mortgages).
Pre-qualification is meeting with a mortgage broker, permitting a credit check to be performed, and sharing your overall financial picture. Once all this information has been submitted, the mortgage broker will provide you with a purchase range. They should also give you an idea of what the monthly payments will be like.
Pre-approval happens when all your paperwork (T-4’s, pay stubs, etc.) has been given to the mortgage broker. This confirms the bank’s willingness to provide a mortgage.
Lastly, final approval. Once we’ve found a property that we want to put an offer in on, we need to get the bank’s approval. The mortgage broker will submit our offer to the bank, and they’ll confirm the amount of the mortgage they’d like to provide you. In today’s market, we’ll often ask for this in advance of puttin in an offer. In other instances, this is done after we have an accepted offer.
What’s a purchase agreement, or the APS?
The APS is the “Agreement of Purchase and Sale:” the legal document used (in Ontario) to purchase a home. This document is signed by the buyer and the seller. Once signed, this document legally binds the seller and buyer to the sales transaction.
What’s a rate lock?
Found an appealing interest rate, but you’re not yet ready to close your deal? Rate lock is a unique way for borrowing to lock in interest rates (for a specific time) even if they aren’t ready to close on their sale. Rate lock is a great way to mitigate inflation, and when purchasing a house every dollar saved is a lot.
What is refinancing?
Out with the old in with the new – refinancing happens when a new loan replaces an existing old. However, this doesn’t mean that your old loan is gone. Instead, it means that you’l probably receive a new term with different perks, like a lower monthly payment or interest rate. It can also be a good way to secure extra funds if you’ve made good headway with your mortgage, and want to do a renovation.
What’s a schedule? (e.g. Schedule A)
When we talk about a schedule in real estate, we aren’t speaking about something that keeps you organized and ensures you meet your deadlines. Consider the real estate schedule as the fine print of a contract where the buyer or the seller can request changes and additions.
What’s a closing date, or completion date?
A completion date is worth celebrating because it means that the deal has finally been closed, and the rights and ownership to the property have been transferred from the seller to the new owner. Nice!
What are land transfer taxes?
Two things are certain in life; death and taxes. The government will always find ways to get a piece of the pie, and that’s why they have a transfer tax. Land transfer taxes in Ontario are paid by the buyer. If you live in Toronto, there’s two sets to pay. If you’re a first-time buyer though, you’ll received a rebate. your real estate lawyer and mortgage broker will be able to tell you the exact amounts.
That brings us to the end of our real estate lingo series! The terms outlined in parts 1, 2, and now 3 are common terminology, and what was shared here is just a starting point. If you have other terms you find confsing, leave me a comment and I’ll give you the real deal.