Real Estate: Serving Mint Hill, NC and the Greater Charlotte Region
Why Understanding Real Estate Terms Is Essential
If you’re looking at real estate for sale in the Charlotte region, chances are you’re seeing terminology that you’re not quite sure how to interpret. You know that not understanding real estate terminology can create roadblocks. From navigating a VA loan to reviewing a comparative market analysis, it pays to know the lingo. We want you to feel empowered as you embark on your home buying or selling journey. So we’ve put together the ultimate guide to real estate terminology, just for you. Want to be in the know? Read on.
This guide explains real estate terms used in the real estate industry so you can search with confidence, whether you’re a first-time buyer, investor, or seasoned homeowner.
The Big Idea – What Is Real Estate?
Real estate refers to land and anything permanently attached to it, including buildings, homes, and commercial real estate structures. So when you buy a house, your real estate purchase specifically refers to not just your house, but the land, detached garage etc. attached to it.
We’ll break down these terms by category. Ready? Set. Go!
Agent vs. Realtor vs. Broker
- A real estate agent is a licensed professional who assists in buying or selling property. They must be at least 18 years of age, complete 75 hours of pre-licensing education, and pass the licensing exam. According to Kaplan, testers must pass with a 75% or higher to obtain their real estate agent license.
- A buyer’s agent helps the buyer in a real estate transaction.
- A seller’s agent represents the seller in a real estate transaction.
- A Realtor is a real estate agent who has met all the requirements to become a real estate agent, plus some. They also pay dues to be a member of the National Association of Realtors, which gives further credibility. They are held to higher accountability, having to abide by a strict moral code and are required to complete continuing education in ethics training.
Types of Properties in Charlotte
- Stick-built homes: This refers to the traditional custom of building a new home on-site. In the current Charlotte market, about 60% of the inventory is resold homes and 40% is new home builds.
- Manufactured homes: A home that is built in a factory. Around 40% of these homes are placed on rented land.
- Modular homes: A home that has portions built elsewhere but then is delivered and assembled on site.
- Long-term rentals: Properties leased for at least 12 months
- Short-term rentals: Properties leased for less than 12 months
- Commercial real estate: Real estate used for business purposes, like retail or office space
- Investment property: Any property bought to generate rental income or capital appreciation
Home Financing Terms
- Pre-qualification letter: A general estimate from a lender saying of how much you may be able to borrow
- Pre-approval letter: A deeper dive than a pre-qualification letter. This document is created by a lender after verifying the financial documents you submit. It gives a more accurate estimate of how much you can borrow. It also shows sellers you’re serious and financially ready to buy a home. Some real estate agents will require a pre-approval before they will start showing you properties.
- Conventional Loans: Generally require as little as 3%- 5% down for qualified buyers, with the 3% generally being reserved for first time home buyers. When a down payment of less than 20% is paid, PMI is generally required. This Private Mortgage Insurance protects the lender in case of loan default.. Debt to income ratio usually needs to be below 43%. Typically requires a 620 credit score or higher.
- FHA Loans: Usually requires 3.5% down. Can be ideal for first-time homebuyers or those with lower credit scores. Typically requires a 580 credit score or higher for the 3.5% down. If lower, the down payment required usually jumps up to 10%. Debt to income ratio usually needs to be below 43%
- VA Loans: Reserved for service members, veterans, and some surviving spouses. Requires 0% down and brings zero PMI fee. Credit score usually needs to be 600 at a minimum. Debt to income ratio usually needs to be below 41%.
- USDA Loans: For rural residents in qualifying areas. Requires 0% down with zero PMI fee. Minimum credit score tends to range between 580 – 620. Minimum debt to income ratio usually sits between 41% – 44%.
- Jumbo Loans: For homes exceeding the typical maximum loan limits. On average requires a credit score of 700 or more. Typically you must have a debt to income ratio 45% or lower. Usually requires a minimum down payment of 20%. This can range from as low as 10% to up to 30%.
- Fannie Mae and Freddie Mac: Government-sponsored entities that help lenders fund many home loans and stabilize the housing market.
- Loan payment: Your monthly mortgage payment, which includes principal and interest.
- Interest rate: The cost of borrowing money, expressed as a percentage of the loan.
- Interest-only mortgage: A loan where you pay only the interest for a set period of time. This results in lower upfront payments. However, the principal remains outstanding and once this interest only period ends, payments increase significantly.
- Private mortgage insurance (PMI): Required when the down payment is less than 20%. This is included as an extra fee on your monthly mortgage payments. It protects the lender in case of default.
- Mortgage insurance: A broader term that includes PMI and government-backed insurance programs
- Home equity line of credit (HELOC): A revolving credit line based on the available equity in your home
- Reverse mortgage: A loan for homeowners aged 62+ that allows them to take a portion of their home equity into cash. This is usually repaid when the home is sold.
- Hard money loan: A loan used for hard money assets. It is a high-interest, short-term loan used mainly for property flips or fix and flip strategies. The investment is used as collateral.
Purchase and Sale Terms
- Offer to purchase: The buyer’s initial proposal to buy a property
- Purchase agreement: A signed contract detailing the terms and price of a home sale
- Comparative market analysis (CMA): A report comparing similar homes. It is used to help price a listing or judge a fair offer. This is usually prepared by your real estate agent.
- Fair market value (FMV): The price a home would sell for under normal conditions, without pressure, multiple offers, etc.
- Appraisal fee: A charge for the professional estimate of a home’s market value, which is required by lenders.
- Closing cost: Fees paid at the end of a transaction including loan origination, title insurance, and taxes
- Earnest money: This is a deposit to show the buyer’s intent. It is a negotiated price, but often falls around 1% of the purchase price. It is held in escrow and is usually applied toward closing costs or down payment.
- Due diligence money: A non-refundable amount paid directly to the seller to show good faith intent. It is meant to compensate the seller, should the buyer walk away from the deal (since they pulled the house off of the market to start the buying process). This is also a negotiated amount and is credited towards the purchase price.
- Due diligence period: This is a negotiated period of usually 2 weeks to a month where the seller takes the home off of the market. The due diligence period starts once both parties sign the contract, deeming the property “under contract.” This period of time is when the buyers should be doing inspection, appraisal, and any further negotiations that arise in response to those things.
- Title insurance: Protects buyers and lenders against claims from past owners or legal issues
- Title search: A check of public records to verify ownership and find any existing liens or legal problems
- Deed of trust: A document that secures the loan using the property as collateral
- Purchase sale agreement: Your final legal document that confirms your home’s transfer of ownership
Rental & Investment Terms
- Cash flow: The profit that remains after paying all your expenses. Positive cash flow means you’re earning on your investment.
- Net operating income (NOI): The income you bring in after you deduct operating expenses from the rent money you received. It’s key to evaluating profitability.
- Rental income: Your monthly or yearly income earned from leasing a property
- Cap rate: This is a calculated estimate of the potential return on your investment properties. To calculate this you’ll take the annual net operating income (NOI) and divide it by the current market value, then multiply that by 100. This is a tool to help you see how quickly you’ll earn back your investment.
- Cash on cash return: Your annual cash earnings divided by how much cash you invested.
- Absorption rate: This is simply a term to describe how quickly homes sell in a given area. A low rate means properties are sitting longer. A high rate means properties are moving faster.
- Occupancy rate: Percentage of units or rooms rented out
- Vacancy rate: Opposite to the term ‘occupancy’, vacancy rate shows how many units are empty
- Exit yield: The return expected when an investment property is sold
- Yield compression: When increasing prices lower expected returns
- Rental property calculator: A tool that helps you estimate expenses, rent, and ROI for rental homes
- Break clause: This clause allows tenants or landlords to end their lease early under agreed upon conditions
Legal and Tax Terms
- Eminent domain: The government’s right to acquire private property for public projects, with fair compensation
- Property lien: A legal hold on a property due to unpaid debt or taxes
- Joint tenancy: When two or more people own a property and rights go to the surviving owner(s)
- Tenancy in common: Co-ownership where each owner can pass their share to heirs
- Capital gains tax: The tax on the profit from an investment property sale
- Property tax: An annual fee paid to the local government based on your home’s value
- Homeowner’s insurance: Protects against damage from fire, theft or other weather events. Coverage differs upon policy.
- Homeowners association (HOA): A group of members that govern rules, fees, and maintenance inside their residential community
- Land use: Zoning laws that define how land can be developed
- Days on market (DOM): Specifies how long a listing has been on the market without selling
Real Estate Trends and Tools
- Buyer’s market: This simply means that there are more homes for sale than there are buyers. This tends to mean better deals for buyers.
- Seller’s market: Converse to a buyer’s market, a seller’s market is one where there are more buyers than there are homes for sale. This often leads to multiple offer scenarios, higher sale prices and lower days on market.
- Multiple Listing Service (MLS): A database of homes listed by agents, used to share properties among Realtors. Only real estate agents, part of the MLS, can give people access to the MLS listings (there is no open access to the public like Zillow or Realtor.com).
- For Sale By Owner (FSBO): A property listed directly by the owner, not through an agent
- Off-market property: A home that’s not listed publicly but may be available for sale
- Home building: The process of constructing a new residential property
- Grade A space: High-quality commercial real estate with premium amenities and locations
FAQ: Real Estate Questions Answered
What does a real estate agent do?
A real estate agent helps buyers and sellers navigate home transactions. They advise you on market prices, show properties, write contracts, negotiate deals, give expert guidance, and more. Every agent is different so it may be worth interviewing multiple agents.
How do I calculate closing costs?
Closing costs typically range from 2% to 5% of the home’s price. These include loan fees, title insurance, appraisal fees, and more. If you get a pre-approval from a lender, they can give you a closing worksheet to give you a breakdown of the costs to expect.
What’s the difference between a title and a deed?
Title refers to ownership rights. The deed is the physical document that proves that ownership.
What’s included in a purchase agreement?
A purchase agreement lays out the sale price, closing date, contingencies, earnest money amount, diligence money amount, and other key items. This refers to the document that has signatures by all parties.
How is rental income taxed?
Rental income is reported as personal income. The great thing is, you can deduct expenses like repairs, mortgage interest, and property taxes. Talk to your cpa or accountant for your specific details.
How do I get a pre-approval letter?
You’ll need to contact a lender. You will need to submit various financial documents typically online. They’ll review things like your credit history, income, and debts to determine how much you can borrow. From there, you can decide what fits your budget needs.
What’s the difference between joint tenancy and tenancy in common?
Joint tenancy includes survivorship rights. Tenancy in common lets you will your share to someone else. In order to understand this better, it would be worth chatting with your attorney about the different aspects of this for your specific situation. In North Carolina, there is also a definition for married couples called Tenants by Entirety and this means you both own the property fully or completely even if the other spouse is not on the deed.
Did You Know?
Charlotte’s housing market is one of the fastest growing in the country, with some homes going under contract in under 7 days. Knowing the terminology will help you act quickly and negotiate effectively.
Need help navigating your home buying or selling journey in Charlotte?
Call us here at Stalwart & Wise Real Estate Group today for a custom property strategy session.
We’ll guide you through every term, form, and negotiation step. We know this isn’t just a transaction, this is a life event, and we look forward to supporting you every step of the way.