Real estate can get complicated quickly if you don’t understand the terminology. Whether you are selling or purchasing a home, it’s hard to keep up with the vocabulary if you don’t work in the industry.
We shared some common terms people should know in our last Understanding Real Estate Terms blog, but that only scratches the surface. There is plenty more to learn!
To start simple, let’s talk about a mortgage. A mortgage is a loan used to purchase or refinance a home or property. The borrower agrees to pay the lender the amount of money owed over a scheduled period of time.
A home’s equity is how much of the home’s value belongs to the homeowner. In other words, the difference between the market value and how much is owed to the mortgage lender. To make it simple, if you sell your home at $300,000 but still owe $200,000 to your lender, the equity is $100,000.
If mortgage payments are not made to the lender, the lender has the right to take possession of the home and then sell the property to compensate for the lack of payments. This legal process usually occurs after missed payments, public notice, and a pre-foreclosure process where the borrower can potentially work out an agreement with the lender in a specific amount of time. If this doesn’t happen, the lender moves forward with selling the property.
A homeowners insurance policy protects your home from potential damages to the interior and exterior of your home. It’s important to know homeowners insurance is a mandatory requirement from mortgage lenders. Also, not all policies are created equal, so be aware of what is and definitely what is not included when comparing quotes.
A second mortgage is an additional loan taken out while using the home with an existing mortgage as collateral and is paid after the original loan is paid completely. A common type of second mortgage is a HELOC – a home equity line of credit.
Fannie Mae (The Federal National Mortgage Association) is a government-sponsored organization that assists with affordable housing. They will purchase a mortgage loan from the bank or credit union and sell them to investors who can guarantee the mortgage to a lower-income buyer.