Real Estate Blog for the North & East Twin Cities

Last week a friend mentioned a new company had opened in the Minneapolis/St. Paul area but later realized it was just Fair Isaac had changed its name to FICO. Most people living in the Twin Cities north metro are aware the business analytics company, Fair Isaac Corporation, has been located in Shoreview for decades. But I hadn't realized that few outside the real estate and mortgage industry have made the leap that FICO is an acronym for the Fair Isaac Corporation. Once again, I was a bit surprised that such a simple term I use everyday as a REALTOR® would be unknown to others. But then it got me thinking of all the times a glazed look came over a buyer’s eyes when I talked about escrow or earnest money. These can easily be confused with other real estate and mortgage terms like down payment or cash to close. It is totally understandable because most homebuyers do not buy houses everyday.

There are so many terms that could possibly confuse a First Time Homebuyer that I thought an online glossary of real estate terms might be helpful. So over the next few weeks I am going to have a series of posts for the first time homebuyer with explanations of the most often used (and sometimes confusing) real estate terms. This way you can skip buying that big “how to buy a house” book or attending that First Time Homebuyer Class and have a quick resource at your fingertips. Today’s Real Estate Term is:

EQUITY—The amount of ownership one has in a property is the equity. This means if a home is appraised at $200,000 and the homeowner owes the bank $150,000, he would have $50,000 in equity. An FHA buyer initially has very little equity because of the very low down payment required for the loan (usually 3.5%). Whereas a conventional buyer, who puts down 20% or more on the home, will have a greater percentage of equity.

It is important for a first time buyer to understand this term because it can be used in property descriptions. A home that is in a “negative equity" position is a short sale. This means the homeowner owes more to the bank than the home is worth in the current real estate market.

Other real estate ads will describe homes as an “equity builder”. This is where a buyer can build equity in the home faster by making improvements like finishing a basement so the home increases in value more quickly than if nothing is done on the home.

Another term used by REALTORS® in advertisements is “sweat equity”. This is similar to an equity builder but often describes a home that could need significant work to bring the property to its full value.

Additional Real Estate Glossary Term Posts:

• ESCROW
• EARNEST MONEY