From time to time I will be working with home buyers and be struck by the confusion in their eyes when I talked about escrow or earnest money. These can easily be confused with other real estate and mortgage terms like down payment or cash to close. This confusion is a reminder that simple terms I use everyday as a REALTOR® might be unknown to others. It is totally understandable because most homebuyers do not buy houses everyday.
There are so many terms that could possibly confuse a first time home buyers and repeat home buyers alike, that I thought an online glossary of real estate terms might
be helpful. From time to time, I have written about these essential terms. It is a series of
posts for the first time home buyers where I explain some of the most often
used (and sometimes confusing) real estate terms. This way you can skip
buying that big “how to buy a house” book and have a quick resource at your fingertips. Today’s Real Estate Term is:
amount of ownership one has in a property is the equity. This means if a
home is appraised at $200,000 and the homeowner owes the bank $150,000,
he would have $50,000 in equity.
An FHA buyer initially has very
little equity because of the very low down payment required for the
loan (usually 3.5%). Whereas a conventional buyer, who puts down 20% or
more on the home, will have a greater percentage of equity.
important for a first time buyer to understand this term because it can
be used in property descriptions. A home that is in a “negative equity"
position is a short sale. This means the homeowner owes more to the
bank than the home is worth in the current real estate market.
Other real estate ads will describe homes as an “equity builder”.
This is where a buyer can build equity in the home faster by making
improvements like finishing a basement so the home increases in value
more quickly than if nothing is done on the home.
Another term used by REALTORS® in advertisements is “sweat equity”.
This is similar to an equity builder but often describes a home that
could need significant work to bring the property to its full value.
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