We’re back with more Real Estate Jargon and hopefully we can help you out with a few more terms you’ve heard, but may be confused about. Remember, let us know if there are any words you’d like decoding, and we’ll be sure to cover them in our next Decoding post!
1) Balloon Mortgage: This is something more commonly used in commercial real estate, but it’s still a term that gets “floated” about quite a bit (what a pun!).
What it means: A balloon mortgage works the same as a regular mortgage except that, with this style of payment, the mortgage doesn’t fully amortize. Instead, you pay standard payments until a designated time, and then pay the rest of the balance in one lump sum at that date.
Where you’d see it: Like stated above, you see this more in commercial real estate, and it usually goes something like a Fannie Mae 7 year balloon mortgage, in which the buyer makes payments as if they were paying a standard 30 year amortization, but at the 7 year mark, whatever is left is due at one time.
2) Escrow: This is a tricky term you hear about all the time, and it’s definitely one worth knowing off the top of your head.
What it means: Imagine there are three parties. Party A and Party B go into a contract together. Escrow is when Party C (an essentially uninvolved third party) holds funds or documents from Party A and releases them to Party B when certain contractual obligations or conditions have been met.
Where you’d see it: When you buy or sell a house, escrow is very important. It makes sure that no one gets an upper hand that isn’t fair to them. For example, if you’re buying a house, you want an escrow to serve as the middle during the transaction, giving them your money and the seller giving them the ownership documents of the home. This makes sure that no one gets their end result without giving up their own sacrifice.
3) Fixture: What actually constitutes as a fixture is constantly debated, despite the fact that it’s a pretty simple definition.
What it means: When something is attached to a piece of real estate, and essentially becomes real property itself, it is said to be a fixture.
Where you’d see it: Most times, people consider all landscaping, dishwashers, and usually window treatments to be fixtures. Where’s the line between personal property and a fixture? Think about it this way: if you remove it from the house, will it be noticeable and take away from the property itself? Removing the drapes is one thing- taking the rod off the wall and leaving holes is entirely another!
Keep giving us your real estate jargon questions, and we’ll keep answering!