and other must-know real estate terms
Condominium or Cooperative
Although they look similar in a real estate listings, there are very important differences in condominium ownership and ownership in a cooperative. Because of the special considerations and requirements in cooperative ownership, co-ops are often considered to be “less liquid” than condominiums.

Condominium
A condominium (condo) is real estate in which each unit owner has title to a unit in a building/project, an undivided interest in the common areas of the building/project, and sometimes the exclusive use of certain limited common areas. The unit also has a percentage of ownership value assigned to it to be used for assigning assessments or other divisible costs.

Cooperative
A cooperative (co-op) is a type of multiple ownership in which the residents of a multi-unit real estate building/project own shares in the cooperative corporation that owns the building/project. Each resident has the right to occupy a specific apartment or unit. Cooperative ownership of an apartment unit means that the apartment owner has purchased shares in a corporation which holds title to the entire apartment building.

A short list of must-know real estate terms

Adjustable Rate Mortgage (ARM)
Also referred to as a Variable Rate Mortgage. A mortgage in which the interest rate is adjusted periodically based on a pre-selected index.

Annual Percentage Rate (APR)
An interest rate that reflects the cost of a mortgage as a yearly rate. This rate takes into account any points and fees and is based on the loan going to it’s full-term.

Assumption
An agreement between buyer and seller in which the buyer assumes responsibility for the seller’s existing mortgage. This agreement usually saves the buyer money because closing costs and the current interest rate, possibly higher, do not apply.

Buy-down
A method of lowering the buyer’s monthly payment for a short period of time. The lender or home-builder subsidizes the mortgage by lowering the interest rate for the first few years of a loan.

Caps
A limit in the amount the interest rate or monthly payments for an adjustable rate mortgage that may change.

Closing
Also referred to as settlement. The meeting at the conclusion of a real estate sale in which the property and funds are exchanged between the two parties involved.

Condominium or Cooperative
Although they look similar in a real estate listings, there are very important differences in condominium ownership and ownership in a cooperative. Because of the special considerations and requirements in cooperative ownership, co-ops are often considered to be “less liquid” than condominiums.

Condominium
A condominium (condo) is real estate in which each unit owner has title to a unit in a building/project, an undivided interest in the common areas of the building/project, and sometimes the exclusive use of certain limited common areas. The unit also has a percentage of ownership value assigned to it to be used for assigning assessments or other divisble costs.

Cooperative
A cooperative (co-op) is a type of multiple ownership in which the residents of a multi-unit real estate building/project own shares in the cooperative corporation that owns the building/project. Each resident has the right to occupy a specific apartment or unit. Cooperative ownership of an apartment unit means that the apartment owner has purchased shares in a corporation which holds title to the entire apartment building.

Debt-to-Income Ratio
The ratio, expressed as a percentage, which results from dividing a borrower’s monthly payment obligation on long-term debts by the borrower’s gross monthly income.

Discount Points
Prepaid interest assessed at closing by the lender. A point is equal to 1 percent of the loan amount.

Down Payment
Cash paid by the buyer at closing that makes up the difference between purchase price and the mortgage amount.

Earnest Money
Money given by a buyer to a seller as a deposit to commit the buyer to the future transaction. Earnest money is subtracted from closing costs.

Equity
The value an owner has in real estate over and above the obligation against the property. Equity is fair market value minus the current indebtedness.

Escrow
Funds given to a third party which will be held to cover payments such as tax or insurance payments and earnest money deposits.

Fixed Rate Mortgage
A mortgage in which the interest rate remains constant throughout the life of the loan.

Foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage.

Loan-to-Value Ratio
The ratio between the amount of the mortgage loan and the appraised value of the property.

Market Value
The price that a property could possibly bring in the marketplace.

Mortgage Insurance
Insurance that protects lenders against loss if a borrower defaults. This is required when the loan-to-value ratio is greater than 80 percent.

Origination Fee
A fee charged by a lender for processing a loan application; usually computed as a percentage of the loan.

PITI
Refers to Principal, Interest, Taxes, and Insurance.

REO – Real Estate Owned
Property owned by a lender – usually a bank – after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank: the minimum bid in most foreclosure auctions equal the outstanding loan amount, the accrued interest and any fees associated with the foreclosure sale. If the property is real estate owned, the bank will then go through the process of trying to sell the property on its own. It will try to remove some of the liens and other expenses on the home, and then try to sell it on the market. Real estate investors will often go after these properties as banks are not in the business of owning homes and, in some cases, the house can be bought at a discount to its market value.

Short Sale
Any sale of real estate that generates proceeds that are less than the amount owed on the property. A real estate short sale occurs when the lender and borrower decide that selling the property and absorbing a moderate loss is preferable to having the borrower default on the loan. It is therefore an alternative to foreclosure. Real estate short sales can be done only by mutual consent of borrower and lender. Both parties can benefit greatly from this type of transaction. Borrowers can avoid having a foreclosure appear on their credit report, while lenders can avoid substantial fees associated with foreclosure.

Sheriff Sale of a Home
Homes auctioned by a sheriff following a court order to seize and liquidate in order to satisfy the non-payment of a debt or other obligation of the owners.

Sheriff Sale Process
The process starts with advertisements in the local newspapers and other media to notify the public of the impending sheriff’s auction and to provide the address of the property, auction date, place and other relevant information. On the day of the auction, interested buyers are asked to bid on the property being auctioned and the highest bidder wins the right to buy it. A deposit, called “hand money” has to be paid in cash or certified check by the winning bidder, in order to secure the purchase. Closing will be scheduled for a future date, when the winning bidder has to present him or herself in order to sign ownership documents and pay the balance of the price owed. In the event the winning bidder refuses to close as required, the property will again go up for auction and all costs associated with re-auctioning the property and any shortfall in the price will have to be paid.

Advantages and Disadvantages of Buying Sheriff Sale Homes
The main advantage in buying sheriff sale homes is the big discount in price that can be achieve, depending on the number of competing bidders and flexibility of the foreclosing lender. There are a number of disadvantages to also consider prior to bidding at a sheriff’s sale. Buyers have to conduct their own title searches and confirm details on the real estate being considered prior to bidding at the auction. Buyers in most cases have to buy the properties being auctioned without proper inspections. If any sheriff sale homes happen to be occupied by a tenant or previous owner, it is the responsibility of a buyer to remove the occupant.

Variable Rate Mortgage
Also referred to as Adjustable Rate Mortgage. A mortgage in which the interest rate is adjusted periodically based on a pre-selected index.