As with any industry, Real Estate is full of abbreviations, acronyms, complex concepts, and jargon that can be confusing. Don’t worry! With the help of this glossary and the knowledge of your Fazendin agent, you can and will successfully navigate through the real estate market.
- ACQUISITION DEBT
Acquisition debt is the amount of money a homeowner owes a lender for the purchase or substantial improvement of a property, i.e. mortgage loan. The new tax law has lowered the maximum amount a homeowner can deduct from interest charged on a loan. The new maximum threshold is $750,000. Meaning, the homeowner can only deduct interest on the first $750,000 of indebtedness. This new rule is effective for loans arising after December 15, 2017. Older mortgages are grandfathered in for the previous $1 million threshold. As a reference point, in 2018 less than 3 percent of sales in the Twin Cities exceeded $750,000. As a result, this tax change will not negatively impact the vast majority of the residential real estate market. - APPRAISAL
A home appraisal is an unbiased evaluation report of a property’s market value. Typically, home appraisals are used by lenders to determine the value of the asset (home) on which they are being asked to lend. Appraisers must follow set criteria and processes which rely heavily upon data to determine value. The primary source of this data is recent sales of equivalent homes in the subject home’s immediate area. - CONTINGENCY
In short, a contingent property is under contract with another buyer, but the final sale of the home is dependent (contingent) on a specific set of criteria that must be met. If the property falls short of those expectations, the buyer is able to rescind their offer. - DOWN PAYMENT
As buyers begin to weigh their loan options, it is important for them to understand that a 20% down payment may not be necessary to get them into a home. With today’s rising home values the ability to reach that 20% threshold has been slowly diminishing. While a 20% down payment is a great goal, for many buyers it is not a possibility or a preference. Buying a home that is affordable with a lower down payment is an option that many buyers choose. - ESCALATION CLAUSE
An escalation clause is when a buyer offers to pay a specified amount over the next highest offer. For example, buyer Brenda’s agent would write an offer with an addendum stating that Brenda will pay $5000 more than the highest competing offer. Talk to your agent about how to use an escalation clause to your advantage in today’s competitive market. - HOME EQUITY LOANS
In general, home equity loan interest is no longer deductible. However, you may still be able to deduct the interest depending on how you originally used the proceeds from the loan. If a home equity loan otherwise qualifies as acquisition debt (see above), then the interest will continue to be deductible as mortgage interest. Further, if the loan was used to acquire a business or for other investment purposes, the interest may still be deductible elsewhere on the tax return. You’ll need to be careful; just because the bank titles it a home equity loan, doesn’t mean it’s not deductible. - WIRE FRAUD
Over the last few years, wire fraud has become one of the leading sources of fraud in the residential real estate industry. Scammers are posing as mortgage and/or title insurance company employees in order to steal down payments, mortgage payoffs and proceeds from homeowners. According to the Federal Bureau of Investigation & International Law Enforcement reports, there have been over 40,000 cases of wire fraud over the last 5 years resulting in over $5 billion in financial losses.