Yes, I admit it! At times, I can be a word snob when it comes to the proper use of real estate and financing terms. For goodness sakes, I still find it difficult just to end a sentence with a preposition, even though the “grammar police” is more accepting of where you put the preposition at. Oh, the irony!
Even the Pros Get It Wrong!
Is your loan Conforming or Conventional? Is your document an Offer or a Contract? There are so many terms that are often interchangeable and so similar in meaning that even the pros use them incorrectly.
When I hear another agent misuse a common real estate term, although cringe-worthy, it does give me excellent insight of that agent’s true knowledge and experience. This is especially fascinating when that agent is trying to impress me or my customer with his or her expertise.
Here are some of the most confusing and misused real estate and financing terms:
Realtor vs Real-a-tor
Yes, I even have family and friends that add that extra “a” in the middle of the word Realtor. But, they can be forgiven for this minor pronunciation faux pas. Now, when another real estate professional pronounces it incorrectly, it makes me go nuc-u-lar!
Offer vs Contract
An offer and a contract are the same document. However, the term offer is used when the buyer presents the written document to the seller and it is negotiated. The offer grows up and becomes a contract only when negotiations have been finalized by all parties, all terms have been agreed upon, and all signatures have been affixed on to the document.
Executed Contract vs Executory Contract
Executed Contract is probably one of the most misused terms in the industry, especially by real estate agents. A fully signed or effective contract is NOT an executed contract. Instead, it can be considered or called several things, including fully signed, effective, or executory, which is the correct legal term. Personally, I use the term fully signed. This simply means the terms of the contract are in the process of being fulfilled.
The only time a contract becomes fully executed is once the transaction has closed and all terms and conditions have been, well…executed.
Conventional Loan vs. Conforming Loan
Both terms are used loosely. However, a Conventional Loan includes just about everything that is NOT a government backed (FHA) or government guaranteed (VA) loan. Fannie Mae, Freddie Mac, subprime loans, and jumbo loans are all considered Conventional Loans. A loan is “conforming” if it conforms to Fannie and Freddie standards in loan limits and guidelines. Therefore, a loan can be both conventional and conforming.
Currently, the conforming loan limit is $417,000 for a single-family residence, although it is higher in certain areas like Hawaii and Alaska. Anything above $417,000 is considered a jumbo loan, which is still conventional, but NOT conforming.
By the way, any changes in loan limits are announced at the end of every year and take effect in January. Due to the housing crisis, loan limits have changed little in the past few years.
Loan vs. Mortgage
This is simple to misunderstand, but let’s clear it up now. The mortgage is NOT the loan. They are two different documents.
The mortgage is a pledge of collateral. It’s an I.O.U. that you give the lender, and could be as simple as one page. The property is still yours, and the deed is still in your name.
With the mortgage in hand, the lender is able to place a lien on the property (collateral) in order to secure the mortgage. You cannot sell the property without first paying off the lien to the lender.
The actual loan encompasses the note/agreement you signed with your lender explaining how the funds they lent to you will be repaid. Keep in mind that the note is usually not recorded with the mortgage document, since it is simply the repayment agreement between you and your bank, and may contain a lot of personal information that you and your lender would not want disclosed in a public forum.
Now you’re ready to take on the pros!