At Chang Legal, we’re here to help you get through the often confusing process of legal real estate transactions, but we’re also here to help you learn more about how real estate law works. As is true of any industry, real estate law has its own set of terms that may not make sense to someone not well-versed in the field. Listening to a banker, real estate lawyer, and sometimes even a realtor can make some people feel like they are speaking another language. So with that in mind, here’s a list of the top 10 most important real estate law terms that you should know.
Closing
The closing is the end of the selling / buying process of a piece of real estate. If the real estate in question is a house or condo, the closing is when the old owners turn over the keys to the new owners.
Comparables
Comparables are pieces of real estate in the vicinity of the real estate being sold or purchased that are roughly comparable in size, condition, and other features that help determine selling cost. If relatively comparable pieces of real estate have been sold fairly recently, both your realtor and the bank will use these selling prices as a basis for the selling price of your property.
Contingency
In real estate transactions, contingencies are certain events, stated in legal documents, that must occur before the sale is finalized / before closing. One common contingency is that a closing will only happen if the buyer has sold their old home prior to the scheduled closing on a new home, but contingencies can be a range of different things.
Closing Cost
There are generally certain costs due, from the buyer, at the closing. They are most often fees related to the buyer’s loan.
Escrow
To “put something in escrow” is to give it to a trusted third party so that when both the buyer and seller have fulfilled all necessary requirements, the third part will turn over the item in escrow to the buyer. If the guidelines are not met, the third party returns the item to the seller.
FHA (Federal Housing Administration)
The FHA was created as part of the New Deal policies under President Franklin D. Roosevelt. The FHA serves many purposes, but one of the most important to home-buyers is that the FHA insures first mortgages, which allows lenders to loan a high percentage of the selling price of property to a buyer. Prior to the creation of the FHA, mortgages were generally five to ten years and offered only at high interest rates. This meant it was very difficult for even middle class families to own their own homes. The FHA allows mortgages of a much longer term – commonly 25 to 30 years – at much lower interest rates. This makes monthly payments much more achievable for many Americans and has raised the level of home-ownership in the U.S. substantially since the 1930s.
Foreclosure
Foreclosure is the process by which a lender can take over the title of a piece of property from an owner who has defaulted on their mortgage payments. Foreclosure does not begin after one missed or late mortgage payment, but can be difficult to stop once the process has begun.
Mortgage
The mortgage is the agreement between a home owner and a lender that dictates how much the home owner will pay, including the original amount of the loan, plus interest and any fees, and over what time the loan will be paid. Mortgages are legally binding documents that are generally entered in county land records.
Origination Fee
An origination fee is the amount that a lender charges to prepare and process a proposed mortgage loan. It is generally around 1% of the loan.
Points
Points are fees paid by borrowers to lenders. One point equals 1% of the loan amount. One way to reduce the interest rate of a loan is to pay more points up front.
These are some of the more basic terms that we use in real estate transactions – you’ll probably hear almost all of them at one point or another if you’re involved with the purchase or sale of real estate. However, there are a lot more complex terms that we use so keep an eye out for future email blasts with more real estate law terminology. And, of course, if there is anything you need clarified about an upcoming real estate transaction, we’re here to help.
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