Home buyers glossary – the essentials
There are certain words you need to know when buying or building a new home. This is not about getting lost in semantics, these are words you should know when you enter the world of property ownership.
Here’s a break down:
Appraisal: Is basically the valuation of the market value of the property. The market value will be determined by a number of factors including, its location, proximity to amenities and road access. The appraiser usually provides a written report on this value to their client.
Appreciation: Appreciation is when the property increases in value. This could be due to inflation, an increase in supply and demand or capital improvement.
Assets: Assets are the tangible things a individual has accumulated that account for some value. This could be in terms of property, savings, cars, possessions, superannuation, shares, etc.
Builder: A builder is a licensed person or company that builds homes. A good builder will take care of everything from pointing you to the right financial institution, helping you source land, providing you with a plethora of flexible design options and keeping you involved every step of the way. Find your local builder.
Capital gain: The dollar amount your property has increased considering what you paid for it initially. For example, if you bought a property at $350,000 and it’s now worth $450,000, you’ve made a capital gain of $100,000.
Caveat: Literally means beware. It’s a note on a Title warning that a third party has an interest in the land and can affect the ability to transfer the title of a property from one party to another.
Covenant: A note or set of conditions put on the Title that creates an obligation or restriction on the owner to do or not to do certain things.
Compound interest: Interest calculated on both the principal and the accrued interest.
Conditional offer: A purchase offer that is subject to a certain condition, i.e. finance. There is usually a time frame in which the condition must be met.
Conveyancing: Is the legal transfer of property from one entity to another. Read: ‘What is conveyancing.’
Credit history: A comprehensive report to determine whether or not you have a good credit rating. It includes information about your ability to handle debt obligations and your current financial obligations.
Cooling-off period: A period of time given to the purchaser to legally withdraw from buying a property. The time varies from state to state.
Deed: A legal document that transfers ownership of the property to the purchaser. It also doubles as evidence of ownership.
Deposit: The first instalment of money placed in trust by the buyer when an offer of purchase is made.
Depreciation: The decrease of a property’s value, compared to the time it was purchased.
Duplex: A duplex is a dwelling containing two or more homes that are attached to one another. Read: Consider the benefits of building a duplex.
Easement: An easement is a section of land registered on your property title which gives someone the right to use the land for a specific purpose even though they are not the land owner.
Equity: Equity is the difference between your mortgage and your property’s value. If your home is worth $800,000 and you owe $500,000, then you have equity of $300,000.
First home buyers grants: Each state government offer a financial grant to those building buying or building their first home.
- VICTORIA – First Home Owner Grant
- NEW SOUTH WALES – First Home Owner Grant (New Homes Scheme)
- QUEENSLAND – Great Start Grant
- SOUTH AUSTRALIA – First Home Owner Grant
- NORTHERN TERRITORY – First Home Owner Grant
- AUSTRALIAN CAPITAL TERRITORY – First Home Owner Grant
Fixed interest rates: A fixed home loan is a locked-in rate that is fixed for a specific term, usually one to five years.
House and land packages: A house and land packaged together and sold as one. Land developers, real estate agents and home builders work together to match the appropriate home with the appropriate block. They are cost efficient and save on stamp duty.
Interest only loans: This is when you only have to pay interest on the loan without touching the principal.
Joint tenants: Each property owner has an equal share and right to the property.
Land surveyor: A qualified professional who surveys a property in order to provide a certificate of location.
Lawyer: A person who practices law. They represent and assist people with legal matters.
Line of credit: Financial institutions offer a credit limit that you can draw on at any time. It’s similar to a credit card, except you don’t have to make set repayments off the principal.
Mortgage: A mortgage is a legal agreement with a bank or lender and the purchaser. Essentially the bank or lender lends the principal amount with interest in exchange for taking the title of the property. This is on the condition that the conveyance of the title becomes void upon the payment of the debt.
Mortgage Broker: A mortgage broker liaises between the borrower and the lender, who negotiates the loan on the buyer’s behalf.
Mortgage Repayments: A regular payment to the bank or lender that includes both the principal and interest.
New Home Warranty Insurance: Covers you financially in the event that something is damaged and needs repairing. This varies in each state. Visit the HIA website.
Negative gearing: This is when an investor borrows money, but the gross income taken from the investment is less than the cost of owning and managing the investment. The investment generates a negative cash flow until the income covers the costs. At this point there is a potential taxable profit to be made if the capital gain on the property is above what is lost.
Off the plan: When you buy off the plan you are buying a property before it has been built, having only seen the plans. This is quite a regular practice when it comes to apartments or units under construction or a house and land package.
Positive Gearing: Happens when you receive income off your rental. This means that rental income is more than the costs associated with having an investment property. The climate for positive gearing tends to be more favourable when rents are high and interest rates are low.
Principal: The principal is the amount borrowed. Interest is calculated on the principal.
Real estate agent: A person who acts as the middle man between the seller and the purchaser or the property.
Refinance: Is when you require new finance for something. This typically involves paying off an existing loan with a new, more affordable loan.
Rental yields: Are a measure of how much your investment is generating each year as a percentage of the property’s value.
Stamp Duty/Duties: A duty is a tax that is levied on certain legal documents.
Subdivision: A piece of land that has been divided into individual blocks.
Term: Mortgage term is the length of time (usually years) that a mortgage contract is legally binding. At the end of the term the mortgage must be refinanced, renewed or paid off.
Title: A title is an interest in land that gives the holder exclusive ownership of the land and right to build.
Vendor: The seller of the property.
Variable interest rate: Variable or adjustable interest rates may go up and down over the time you have a mortgage loan. It changes because it’s indexed, which means it changes periodically with the market.