Common Terms

AGENT: A Real Estate Agent is a licensed person who is a representative of his employing broker.  Real estate agents are the people you deal with online or in person when buying or selling property.

AMERICAN SOCIETY OF HOME INSPECTORS (ASHI): A not-for-profit professional association that sets and promotes standards for property inspections. Look for this accreditation or something similar when shopping for a home inspector.

APPRAISAL: Compares a home to recent closed sales of similar properties to figure out what it is worth at that time.

APPRAISED VALUE: The amount calculated by the appraiser. It usually matches the contract price, but it can be higher or lower.

APPRAISER: Hired by the lender to check if the contract price is fair and check to see if the property meets the lenders guidelines for safe occupancy.

APPROVED FOR SHORT SALE: A term that indicates that a homeowner’s bank has approved a reduced listing price on a home, and the home is ready for resale.

ASSESSED VALUE: The amount used to calculate real estate tax by the county recorder. A property value is re-assessed every time it is sold, based upon the contract price and any adjustments noted on the contract. Depending upon financial conditions, property values are adjusted for cost of living annually. Once an owner reaches the age of 55, they are permitted a one-time transfer of their existing tax rate to a new property, if the sale and purchase meet the County guidelines. This can save a person a lot of money, if they have been in the house for many years. The most common rule is that new property must be the same or less cost than the old one.

BACK-END RATIO: One of two debt-to-income ratios that a lender analyzes to determine a borrower’s eligibility for a home loan. The ratio compares the borrower’s monthly debt payments to gross income.

BROKER: The person or company that arranges real estate transactions between a buyer and seller, and is paid a commission by the seller. When you are working with a real estate agent or Realtor®, their broker is actually the person responsible.

BUYERS MARKET: Market conditions that exist when homes for sale outnumber buyers. Homes sit on the market a long time, and prices drop

CASH-OUT REFINANCE: When a new loan is for a higher amount than the old loan’s payoff, the extra money is paid to the property owner.

CASH-VALUE POLICY: A homeowners insurance policy that pays the replacement cost of a home, minus depreciation, should damage occur.

CLEAR TITLE: When the owner of a property owns it free and clear of loans and liens.

CLOSING COSTS: Fees associated with the purchase of a home that are due at the end of the sales transaction. Fees may include the appraisal, the home inspection, a title search, a pest inspection and more. Buyers should budget for an amount that is 1% to 3% of the home’s purchase price.

CLOSING: Escrow closing is the day when home ownership is recorded under the new owner and possession is transferred to the buyer.

COMMON AREA ASSESSMENTS: Homeowners' Association (HOA): dues paid by each homeowner in their community for maintenance and management.

COMPARATIVE MARKET ANALYSIS (CMA): An in-depth analysis, prepared by a real estate agent, that determines the estimated value of a home based on recently sold homes of similar condition, size, features and age that are located in the same area.

COMPS: Or comparable sales, are homes in a given area that have sold within the past six months that a real estate agent uses to determine a home’s value.

CONTINGENCIES: Conditions written into a home purchase contract that protect the buyer should issues arise with financing, the home inspection, etc.

CONTINGENCY: When the buyer or seller need to complete something before a home sale can go through. Every home is California is sold on some type of contingency today, whether it’s a home inspection, loan approval, etc. It is becoming more unusual, but sometimes a sale may be contingent on the sale or purchase another home.

CONVENTIONAL LOAN: A home loan not guaranteed by a government agency, such as the FHA or the VA.

CONVENTIONAL MORTGAGE: A mortgage for $625,000 or less that is not insured or guaranteed by the FHA or VA.

Days on market (DOM): The number of days a property listing is considered active.

DEBT RATIO: Your total expected housing costs, including mortgage, insurance, real estate taxes, HOA dues; divided by your total family earnings. Most loan programs today require a debt ratio under 45% to qualify a buyer for a loan amount.

DEBT-TO-INCOME RATIO (DTI): A ratio that compares a home buyer’s expenses to gross income.

DEED: Conveys ownership from the old owner (the grantor) to the new owner (the grantee).

DEFAULT: Default occurs when a borrower does not make their monthly payment(s) on time.

DELINQUENCY: When the owner of a property does not pay their Real Estate Taxes or Homeowners' Association Dues on time.

DEPOSIT: An Earnest Money Deposit is given to escrow by the buyer, usually within three days of their offer’s acceptance. In residential real estate transactions, this remains the buyer’s property until all contingencies are released. 

DEPOSITORY INSTITUTIONS: Banks, savings and loans, and credit unions. These institutions underwrite as well as set home loan pricing in-house.

DISCOUNT POINTS: Payment to a lender that reduces the interest rate on a loan, lowering the monthly payment, but increasing the upfront cost. 

DOWN PAYMENT:  A certain portion of the home’s purchase price that a buyer must pay. A minimum requirement is often dictated by the loan type. On a 30-year loan, a down payment of at least 20% is typically required to avoid payment of mortgage insurance.

EARNEST MONEY DEPOSIT: See DEPOSIT, above.

EARNEST MONEY: A security deposit made by the buyer to assure the seller of his or her intent to purchase.

EASEMENT: The right to use a portion of someone else’s property without possessing it, such as when a driveway crosses a neighbor’s land.

ENCROACHMENT: Using a portion of someone else’s property without legal easement rights.

ENCUMBRANCE: Something that lowers a property’s value but does not stop its sale.

EQUITY: A percentage of the home’s value owned by the homeowner.

ESCROW ACCOUNT: An account required by a lender and funded by a buyer’s mortgage payment to pay the buyer’s homeowners insurance and property taxes.

ESCROW: An independent trusted third party that receives and disburses money and/or documents for buyers and sellers and their brokers, then records the sale after closing. In many cases, they also provide the notary services to verify signatures.

ESCROW STATE: A state in which an escrow agent is responsible for closing.

EVICTION:  Removing a tenant from rental property or removing prior owners or squatters after a foreclosure.

FAIR MARKET VALUE: What a buyer is willing to pay and a seller is willing to accept at a specific time if there are no outside forces affecting the their decisions.

FANNIE MAE (FNMA): A government-sponsored enterprise chartered in 1938 to help ensure a reliable and affordable supply of mortgage funds throughout the country through guarantees and/or purchase of conventional loans from lenders.

FEDERAL HOUSING ADMINISTRATION (FHA): A government agency created by the National Housing Act of 1934 that insures loans made by private lenders.

FEE SIMPLE: Complete property ownership of home and land (with no land lease) that is limited only by government powers and deed conditions.

FHA 203(k): A rehabilitation loan backed by the federal government that permits home buyers to finance money into a mortgage to repair, improve or upgrade a home.

FHA MORTGAGE: A mortgage, currently up to $729,000 in higher priced areas such as LA and Orange Counties, insured against loss by the Federal Housing Administration, with the borrower paying an upfront and monthly mortgage insurance premium.

FIRST MORTGAGE: The first mortgage placed on a property and usually the largest that has priority over all other mortgages and liens except those imposed by law.

FLOOD INSURANCE:  Optional specific insurance coverage against property loss from ground water or overflowing rivers and drains.

FORECLOSURE: The process of taking possession of a mortgaged property as a result of someone's failure to make timely mortgage payments.

FORECLOSURE: A property repossessed by a bank when the owner fails to make mortgage payments.

FREDDIE MAC: A government agency chartered by Congress in 1970 to provide a constant source of mortgage funding for the nation’s housing markets.

GOVERNMENT LOAN: A loan subsidized and/or guaranteed by the government, which protects lenders against defaults on payments, usually offering borrowers lower interest rates or easier credit guidelines.

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GINNIE MAE): The government national mortgage association guarantee investors the timely payment of principal and interest on mortgages backed by federally insured or guaranteed loans.

HOME INSPECTION: This is a non-invasive, non-destructive physical examination of interior and exterior of a home. Inspectors must limit their activities to readily accessible areas only.

HOME INSPECTION: A nondestructive visual look at the systems in a building. Inspection occurs when the home is under contract or in escrow.

HOMEOWNER’S ASSOCIATION: A corporation formed by a real estate developer for the purpose of managing a group of homes, townhomes, or condominiums in a residential subdivision. Their role varies from one tract to the next, depending upon the Covenants, Conditions and Restrictions (CC&Rs), which are the rules that should be followed in the community.

HOMEOWNER’S INSURANCE: Also called Fire Insurance, this is property and liability insurance that covers any loss relating to real estate.

HOMEOWNER’S WARRANTY: This protects the homeowner against defects for (usually) the first year of home ownership. The company sends out a technician to investigate your problem upon payment of a deductible (about $50-$60). They will repair or replace any appliance, plumbing, or electrical issue covered by the warranty. Most of these may be extended for additional years and I advise all homeowners to pay this. There are optional coverages for pools, air conditioners, refrigerators, roofs, etc. which may be added to the policy.

HOMEOWNERS ASSOCIATION (HOA): The governing body of a housing development, condo or townhome complex that sets rules and regulations. They charge dues used to maintain common areas.

HOMEOWNERS INSURANCE: A policy that protects the structure of the home, its contents, injury to others and living expenses should damage occur.

HOUSING RATIO: One of two debt-to-income ratios that a lender analyzes to determine a borrower’s eligibility for a home loan. The ratio compares total housing cost (principal, homeowners insurance, taxes and private mortgage insurance) to gross income.

HUD-1 SETTLEMENT STATEMENT: This is used to inform a buyer about their expected total lender and closing costs to purchase or refinance a property.

IN ESCROW: A period of time (30 days or longer) after a buyer has made an offer on a home and a seller has accepted. During this time, the home is inspected and appraised, and the title searched for liens, etc.

JUDICIAL FORECLOSURE: A specific legal process in which a lender attempts to recover the balance of a loan from a borrower in default, by forcing the sale of the asset used as the collateral (security) for the loan.

JUMBO LOAN:  Any mortgage loan that is higher than conventional conforming loan limits.

LATE CHARGE: A charge that occurs when a payment that is either made late, or is not made. Loans usually have a 10-day grace period and leases (rents) usually have a 5-day grace period. 

LEASE: An agreement to pay rent for use of a asset.

LEASE OPTION: This agreement between a property owner and tenant specifies that during or at the end of rental period, the renter has the option of purchasing the property at an agreed price and terms.

LIEN: A legal claim that can be placed upon property to secure the payment of a debt.

LISTING PRICE: The price of a home, as set by the seller.

LOAN ESTIMATE: A three-page document sent to an applicant three days after they apply for a home loan. The document includes loan terms, monthly payment and closing costs.

LOAN MODIFICATION: A modification of interest rate, principal, and/or term of an existing loan made by a lender in response to a borrower's request. This is usually due to verified long-term inability to repay the loan under the current terms. The loan may be modified for a short term or occasionally a permanent change can be made.

LOAN ORIGINATION FEE: The fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan.

LOAN-TO-VALUE (LTV): The amount borrowed divided by a property’s purchase price or appraised value.

LOAN-TO-VALUE RATIO (LTV): The amount of the loan divided by the price of the house. Lenders reward lower LTV ratios.

LOCK-IN PERIOD: The time during escrow that the buyer has to accept the current interest rate.

MORTGAGE: A loan obtained using real estate as security.

MORTGAGE BROKER: A licensed professional who works on behalf of the buyer to secure financing through a bank or other lending institution.

MORTGAGE INSURANCE PREMIUM (MIP) The fee paid for Mortgage Insurance.

MORTGAGE INTEREST RATE: The price of borrowing money. The base rate is set by the Federal Reserve and then customized per borrower, based on credit score, down payment, property type and points the buyer pays to lower the rate.

MULTIPLE LISTING SERVICE (MLS): A database where real estate agents list properties for sale.

NO CASH-OUT REFINANCE: Refinancing an existing mortgage for an amount equal to or less than the existing outstanding loan balance plus settlement costs.

NO-COST LOAN: A lender pays the borrower's loan settlement costs in extending a new mortgage loan.

NOTICE OF DEFAULT:: A notification given to a borrower stating that he or she has not made their payments by the predetermined deadline, or is otherwise in default on the mortgage contract.

ORIGINAL PRINCIPAL BALANCE The total amount of principal owed on a mortgage before any payments are made.

ORIGINATION FEE: A fee, charged by a broker or lender, to initiate and complete the home loan application process.

OWNER FINANCING: A seller lends a buyer some or all of the money required to purchase their property.

PERSONAL PROPERTY: Items owned by an individual or business, which is movable and is not affixed to or associated with the land. In the case of residential real estate, things that are screwed or nailed to the house are real property, while things that are free standing or hanging from a hook are personal property, which can be taken by the seller when they leave.

PIGGYBACK LOAN: A combination of loans bundled to avoid private mortgage insurance. One loan covers 80% of the home’s value, another loan covers 10% to 15% of the home’s value, and the buyer contributes the remainder.

PITI RESERVES A mul:tiple of the PITI payment amount, used as the minimum amount of seasoned (existing cash) assets a borrower must use as a reserve when qualifying for a mortgage.

PITI: The sum of monthly principal, interest, taxes, and insurance.

PLANNED UNIT DEVELOPMENT (PUD): A zoning method used to diversify zones such that housing, recreation, commercial centers, and industrial parks, are all within a contained development or subdivision.

POINTS: Prepaid interest owed at closing, with one point representing 1% of the loan. Paying points, which are tax deductible, will lower the monthly mortgage payment.

POWER OF ATTORNEY: Gives a person the power to act for another person in legal, financial, or health matters.

PRE-APPROVAL: A letter provided by a lender who has reviewed a buyer’s credit worthiness to provide assurances that the borrower would be able to qualify for a loan up to a certain amount.

PRE-APPROVAL: A thorough assessment of a borrower’s income, assets and other data to determine a loan amount they would qualify for. A real estate agent will request a pre-approval or pre-qualification letter before showing a buyer a home.

PRELIMINARY TITLE SEARCH: During escrow, the Title Company verifies that the seller owns the property that he or she is selling and that all liens will be satisfied during the escrow period.

PREPAYMENT: Early repayment of a loan by a borrower.

PREPAYMENT PENALTY: This would be the cost to repay a loan early, but it is rarely used in residential loans.

PRE-QUALIFICATION:  A letter provided by a lender that provide assurances that the borrower should be able to qualify for a loan up to a certain amount.

PRE-QUALIFICATION: A basic assessment of income, assets and credit score to determine what, if any, loan programs a borrower might qualify for. A real estate agent will request a pre-approval or pre-qualification letter before showing a buyer a home.

PRINCIPAL, INTEREST, PROPERTY TAXES AND HOMEOWNERS INSURANCE (PITI): The components of a monthly mortgage payment.

PRIVATE MORTGAGE INSURANCE (PMI): An insurance policy that compensates lenders or investors for losses due to the default of a mortgage loan. A conventional loan of 30 years with 20% down will usually not require PMI.

PRIVATE MORTGAGE INSURANCE (PMI): A fee charged to borrowers who make a down payment that is less than 20% of the home’s value. The fee, 0.3% to 1.5% of the yearly loan amount, can be canceled in certain circumstances when the borrower reaches 20% equity.

PROPERTY TAX EXEMPTION: A reduction in taxes based on specific criteria, such as installation of a renewable energy system or rehabilitation of a historic home.

QUALIFYING RATIOS: The set of ratios used by lenders to approve borrowers for mortgages.

QUITCLAIM DEED: A method of transferring property ownership directly to another.

RATE LOCK: The moment during escrow that the buyer accepts the current interest rate.

REAL ESTATE AGENT: A Real Estate Agent is a licensed person who is a representative of his employing broker.  Real estate agents are the people you deal with face to face when buying or selling property.

RECORDER: A Recorder is a public official who keeps records of documents concerning real property.

RECORDING: Recording is the act of entering in a book of public records something that affects the title to real property.

RENT LOSS INSURANCE: Rent Loss Insurance is an insurance that protects a rental property owner from loss in rental value due to damage.

RESIDENTIAL PURCHASE AGREEMENT: The most common contract used to make an offer for real estate.

RIGHT OF FIRST REFUSAL: The right of a person or company to purchase real estate, usually at a specified price and terms, before the seller can accept another offer.

RIGHT OF INGRESS OR EGRESS: Egress is the right to leave a property and Ingress is the right to enter a property.

RIGHT OF SURVIVORSHIP: A deceased owner's share of the property automatically passes to the surviving owners.

SALE-LEASEBACK: After a sale, the old owner leases it back, continuing to use the asset but no longer owning it.

SELLER CARRY-BACK: A seller lends a buyer some or all of the money required to purchase their property.

SELLERS MARKET: Market conditions that exist when buyers outnumber homes for sale. Bidding wars are common.

SETTLEMENT STATEMENT: A summary of all fees and charges that both the homebuyer and seller have incurred, provided after close of escrow.

SHORT SALE: The sale of a home by an owner who owes more on the home than it’s worth. The owner’s bank must approve a lower listing price before the home can be sold.

TAX LIEN: The government’s legal claim against property when the homeowner neglects or fails to pay a tax debt.

TENANCY IN COMMON: Two or more people own an undivided share of a property with no Right of Survivorship.

TITLE: A legal document indicating who owns a property.

TITLE COMPANY: These firms research a property during escrow and ensure that all liens are clear before title is transferred to the new owner. 

TITLE INSURANCE: Protects an owner against financial losses that can occur from disputes of ownership.

TITLE INSURANCE: Insurance that protects the buyer and lender should an individual or entity step forward with a claim that was attached to the property before the seller transferred legal ownership of the property or “title” to the buyer.

TRANSFER TAX: Various taxes imposed by cities, counties and states that may be applicable when there is a Transfer of Ownership.

TRANSFER TAXES: Fees imposed by the state, county or municipality on transfer of title.

TRUTH-IN-LENDING: A federal law requiring lenders to fully disclose in writing the terms and conditions of a mortgage, including the annual percentage rate and other charges. 

UNDER CONTRACT: A period of time (30 days or longer) after a buyer has made an offer on a home and a seller has accepted. During this time, the home is inspected and appraised, and the title is searched for liens, etc.

UNDERWRITING: A process a lender follows to assess a home loan applicant’s income, assets and credit, and the risk involved in offering the applicant a mortgage.

VESTING: There are many different ways to hold title to real estate.  The owners’ and their beneficiaries’ rights are affected by the choices made in vesting. Escrow will provide a buyer with options and their consequences during the escrow period.

WALKTHROUGH: A buyer’s final inspection of a home before closing.