Congratulations! You’ve decided to make your first real estate investment.
Whether it’s a home in Joo Chiat or a small unit in Jurong, the experience of going through the process of buying your own property can be a bit scary and stressful. To say the least, it’s not for the faint of heart, so we admire you for your courage and tenacity.
Now that you are ready to take a leap of faith, let us help you weave through the numerous intimidating and downright confusing terminologies that get thrown in your way. Trust us. It’s simpler than most people think.
FAIR MARKET VALUE (FMV)
This is probably the first ever real estate term that a new home buyer or seller will encounter.
Simply put, Fair Market Value (FMV) is an estimated price at which the property would change hands that a buyer is willing to pay the seller, neither being under any compulsion to buy or to sell or in short under normal selling conditions.
This will drive your budget and other financial preparations.
If a property is well above your budget, what will be your next step to take in order to reach your goal?
Also, the FMV protects you from overpaying for a property or to be wary of underpriced or undervalued assets as there may be undisclosed problems that go along with its purchase.
EQUITY
Equity can have various meanings. It can be the degree of ownership of assets.
In other words, the amount of equity in the property constitutes how much of it is owned by the owner. To show the inverse relationship: as the life of the loan goes longer, the owner’s equity in the property increases as well.
PRINCIPAL
The principal represents the amount of money borrowed to buy the property. And in a very competitive buying environment or a highly sought after property, the principal amount is reflected minus the down payment that is commonly required to reserve it.
As a common practice of presenting the loan statement, you will see the principal balance in one column and the interest in another. The total of both wills is deducted from your total loan amount and establishes your loan balance for the next scheduled payment.
And what I am describing now brings us to our next term…
AMORTIZATION
If you have encountered this word in any type of loan initiative, then welcome to the world of adulthood. I recall using this word for the first time in a conversation, and it made me sound so mature! This way you see another inverse relationship of the interest decreasing as your principal increases at the end of the loan term.
Now that you’ve had your first bout with real estate terminologies, you have also gained more confidence in making the right decisions toward making your real estate purchase.
Remember that the more you know, the less likely you’ll make a mistake. And in real estate, any mistake can be costly, so be sure to keep these four basic terms in mind.
Want more real estate hacks?
Psh, who doesn’t?! 
Be sure to check out our second installment of Basics of Real Estate: What Every First Time Singaporean Buyer Needs To Know for more terms and tips for your real estate experience.
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