Common terms associated with buying a home
If you’re in the market to buy a home in New Zealand, whether it’s to live in or even as an investment property, the process involves a number of legal terms. Understanding the language of real estate could make the buying process easier and protect you from making the wrong decisions. Many terms are used frequently, while some terms are rare. No matter, taking the time to learn some of the more common terms associated with buying a home is to your benefit.
* Cash Flow – This term can be used positively or negatively for the net amount of money an investor would earn or need to spend.
* Conditional Offer – This offer is made to a supplier who may be subject to one or more conditions that must be set before the offer is accepted. Unfortunately, conditional offers have a negative impact on a homebuyer’s bargaining power, which could end up costing them more money before a deal with the seller is finalized.
* Default: When a homeowner does not pay the house payments on the mortgage loan for three to four months, the property goes into default
* Equity: This term represents the current value of the property minus the amount owed on the mortgage loan. For example, if a home in Herne Bay was purchased for $500,000 and the current value is $550,000, but the mortgage loan balance was $400,000, the equity in that property would be $150,000 ($550,000 value minus the loan balance of $400,000).
* Fixed Rate Mortgage – Also known as an FRM, this type of loan has interest that stays the same for the life of the mortgage loan.
* Floating Rate Mortgage: For this mortgage loan, the interest rate would change relative to market variables
* Foreclosure: When a homeowner falls behind on loan payments, after three to four months, depending on the lender, the property goes into default. At that point, the bank, Mortgage Company, or other lending institution would put the house into foreclosure as a means of gaining control so they could sell the house to reduce the financial loss.
* Freehold – In this case, the title to the property is clear, meaning the person has full ownership of the property which includes the structure, land, and outbuildings.
* Interest Only Loan – This type of home loan is set up so that only interest is paid and the homeowner pays the full amount when the loan is due or chooses to refinance both principal and interest with a different type of loan.
* Lease – For this, you would buy the right to occupy a specific house, although ownership would be held by someone else but for a specific period of time. In New Zealand, some of Auckland Property’s leases include Kohimaramara, One Tree Hill and most of the viaduct.
* Mortgage: A loan guaranteed by a bank, mortgage company, or some other type of lending institution that finances the purchase of real estate.
* Negative Leverage – This describes the investor’s position when the incoming income from an investment is not enough to cover the full amount of the mortgage interest payment, plus other expenses. For example, if an investor has a rental house in Auckland with $400 a month coming from tenants and the interest payments are $450 a month, then the $50 is negatively biased.
* Passive Income – This is the money an investor would receive from a tenant occupying the home.
* Valuation: This term is the current market value of the property as judged by a certified professional
* Yield – This is the amount of money earned on a specific property, which would be referred to as a percentage of investment (the equation involves interest earned and amount of investment)
Again, each of these property terms is commonly used when buying a home in New Zealand. When used by real estate agents or brokers, buyers are often too nervous or uncomfortable to ask what it means. Therefore, this list could be used when buying a new house.