Home Buying GLOSSARY
As you begin the process of buying your home, we encourage you to take advantage of this online Buyer's Guide to help you through the process.
Having a basic understanding of important real estate concepts before you start the home buying process will give you peace of mind now and could save you a fortune in the future. Here are real estate terms you should know before you start looking for a home. If you still have questions or are ready to start touring homes
give me a call at 619.777.9092.
Acceptance: the date when both parties, seller and buyer, have agreed to and completed signing and/or initialing the contract.
APPRAISAL FIXED RATE VS ADJUSTABLE MORTGAGES: conventional loans include “fixed rate” and “adjustable rate” mortgages. A fixed rate mortgage has a predetermined interest rate throughout the life of the loan; the most common are for 30 years. An adjustable rate mortgage has a variable interest rate; the most common are for 5, 7, or 10 years.
Money saving tip: Adjustable rate mortgages can make financial sense if you’re planning to sell or refinance your home before the introductory period ends; but if you’re planning to own your home longer than five years, it’s less risky to choose a fixed rate loan. Make sure to shop around so you can get the best mortgage possible, which will save you a lot of money in the long run.
Amortized Loan: a loan that is paid in equal installments during its term.
Appraisal: an appraisal is the estimation of a home's market value by a licensed appraiser based on comparable recent sales of homes in the neighborhood. Appraisals are ordered on behalf of a home buyer's lender to protect the interests of the lender. The lender's underwriter will compare the appraisal price to the final sale price of the home to ensure the value of the home is equal to or greater than the loan amount. If the home appraises lower than the final sale price, the home buyer may be able to renegotiate a lower price with the seller. If the seller won't lower the price, the buyer's lender may ask that the buyer put more money toward their down payment in order to make up the difference.
Appreciation: an increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.
Assumable Mortgage: purchaser takes ownership to real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage.
Bill of Sale: document used to transfer title (ownership) of PERSONAL property.
Buyers Agent Vs Listing Agent: there are usually two agents involved when you buy a home; the “buyer’s agent,” who represents you, and the “listing agent,” who represents the home seller. Dual agency is when there is only one agent representing both sides of the transaction, and it is something you want to avoid at all costs!
Money saving tip: When buying a home, you don’t pay your real estate agent - they’ll get a commission from the home seller.
Closing Costs: be prepared to pay a lot of fees when you purchase a home. Typically, closing costs will amount to 2-5% of the purchase price of the home, and that doesn’t include the down payment. Common fees include excise tax, loan-processing costs and title insurance. For more information on how much money closing costs will take out of your wallet, click here.Money saving tip: Ask your lender about every fee involved in the Good Faith Estimate, and see if you can shop around for a better price for those services or negotiate down. Examples include homeowner’s insurance, wire transfers, underwriting and settlement fees.
Cloud on Title: any condition that affects the clear title to real property.
COMPARATIVE MARKET ANALYSIS (CMA): a comparative market analysis (CMA) is an evaluation of similar, recently sold homes (called comparables) that are near a home intended to be bought or sold. Comparative market analyses establish the current market value of the home and are prepared by real estate agents. A comparative market analysis is not the same as an appraisal, which is performed by a licensed appraiser.
Condo INsurance (HO-6): HO-6 condominium insurance covers the interior walls, fixtures, and personal property inside a condominium. It is distinct from the master policy held by a condo homeowners association, which covers common areas — such as the roof, hallways, and elevator — that are jointly owned by condo owners.
Consideration: anything of value to induce another to enter into a contract, i.e., money, services, a promise.
Contingencies: When you put in an offer on a home, you can specify certain conditions that must be met before the deal will go through – these are called contingencies. You have to make sure you can actually get the loan (a financing contingency), that the inspection doesn’t show anything too crazy (inspection contingency), and that the appraised value is close to what you’re offering to pay (appraisal contingency). Those are just a few common examples; there are several other types of contingencies, which you should discuss with your agent.
Money saving tip: If you’re in a bidding war on a home, sometimes it can help to shorten contingency periods or waive them altogether. You may not necessarily have to pay more money, just be more flexible.
CONVENANTS, CONDITIONS & RESTRICTIONS (CC&Rs): Limits and rules placed on a group of homes by a builder, developer, neighborhood association or Homeowners Association; when living in a building, a buyer gives up certain freedoms to be part of a shared community. For example, most condo building associations have smoking restrictions, certain guidelines for parking and noise-level rules; as well as aesthetic guidelines for paint color, height restrictions, and minimum and maximum square footage requirements. Buyers get a complete list of a building's guidelines before 7 days of offer acceptance.
Deed: a written instrument, which when properly executed and delivered, conveys title to real property.
Discount Points: a loan fee charged by a lender of FHA, VA or conventional loans to increase the yield on the investment. One point = 1% of the loan amount.
Downpayment: the amount of money a buyer pays at closing to fund a home purchase, usually expressed as a percentage of the total home price. With FHA loans, buyers are required to pay at least a 3.5% down payment. With conventional loans, they should pay at least 20% of the home's price. Mortgage insurance is required for borrowers with a down payment of less than 20%. Down payments are paid via cashier's check or wire transfer and must be paid at closing.
Easement: the right to use the land of another.
Encumbrance: anything that burdens (limits) the title to property, such as a lien, easement, or restriction of any kind.
Equity: the value of real estate over and above the liens against it. It is obtained by subtracting the total liens from the value.
Escrow: a neutral third party that handles the exchange of money and documents once mutual acceptance is reached on an offer. Escrow handles the transfer of the buyer's loan documents and property taxes and works with a buyer's lender and real estate agent to make sure that the title of the home is clear of liens before the transfer of ownership.
Escrow Payment: that portion of a mortgagor’s monthly payment held in trust by the lender to pay for taxes, hazard insurance and other items as they become due.
Fannie Mae: nickname for Federal National Mortgage Corporation (FNMA), a tax-paying corporation created by congress to support the secondary mortgages insured by FHA or guaranteed by VA, as well as conventional loans.
Federal Housing Administration (FHA): an agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
FHA Insured Mortgage: a mortgage under which the Federal Housing Administration insures loans made, according to its regulations.
Fixed Rate Mortgage: a loan that fixes the interest rate at a prescribed rate for the duration of the loan.
Foreclosure: procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default.
Freddie Mac: nickname for Federal Home Loan Mortgage Corporation (FHLMC), a federally controlled and operated corporation to support the secondary mortgage market. It purchases and sells residential conventional home mortgages.
Graduated Payment Mortgage: any loan where the borrower pays a portion of the interest due each month during the first few years of the loan. The payment increases gradually during the first few years to the amount necessary to fully amortize the loan during its life.
Lease Purchase Agreement: buyer makes a deposit for future purchases of a property with the right to lease property in the interim.
Lease with Option: a contract, which gives one the right to lease property at a certain sum with the option to purchase at a future date.
Listings: real estate agents frequently refer to homes for sale as “listings.” A “listing” on a website shows information about the home, like the price and number of bedrooms. You can browse listings on here in San Diego.
Money saving tip: For the most up-to-date listings, use sites from real estate brokers, rather than real estate portals like Zillow or Redfin. Brokers have access to the multiple listing service, which real estate agents are required to update, so the information is more accurate than sites who aren’t affiliated with a brokerage. In a competitive real estate market, you can miss out on a good deal if you use sites that don’t show all the homes for sale.
Loan to Value Ratio (LTV): the ratio of the mortgage loan principal (amount borrowed) to the property’s appraised value (selling price). Example – on a $100,000 home, with a mortgage loan principal of $80,000 the loan to value ratio is 80%.
Mortgage: a legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Insurance Premium (MIP): the amount paid by a mortgagor for mortgage insurance. This insurance protects the investor from possible loss in the event of a borrower’s default on a loan.
Note: a written promise to pay a certain amount of money.
Origination Fee: a fee paid to a lender for services provided when granting a loan, usually a percentage of the face amount of the loan.
Private Mortgage Insurance (PMI): see Mortgage Insurance Premium.
Second Mortgage / Second Deed of Trust / Junior Mortgage / Junior Lien: an additional loan imposed on a property with a first mortgage. Generally, a higher interest rate and shorter term than a “first” mortgage.
Settlement Statement (HUD-1): a financial statement rendered to the buyer and seller at the time of transfer of ownership, giving an account of all funds received or expended.
Severalty Ownership: ownership by one person only. Sole ownership.
Tenancy In Common: ownership by two or more persons who hold an undivided interest without right of survivorship. (In event of the death of one owner, his/her share will pass to his/her heirs.
Title Insurance: an insurance policy that protects the insured (buyer or lender) against loss arising from defects in the title. After all the negotiations are done and the seller has accepted your offer, you should receive a home title report within a week. Most mortgage lenders require you to pay title insurance as part of the closing costs; title insurers search the public records to make sure the home seller actually had rights to the title and that there are no liens on the home (like an unpaid contractor or unpaid taxes).
Money saving tip: Ask your agent for recommendations, and shop around to find the best title insurance rates. You may also be able to negotiate some fees the insurance provider charges.