Real Estate Glossary
Congratulations! You’re almost a homeowner! You’ve passed many obstacles and hurdles – finding the right agent, the house hunt, open houses, multiple offers, financing, and escrow. Before you sit at the closing table and take possession of the keys to your home, take a few moments to review some of the terms that you may encounter on the real estate contract.
Acceleration Clause: This gives the lender the right to demand immediate full repayment of a loan if the terms of the loan are not met.
Ad Valorem Tax: Tax that is based on a property’s assessed value.
Agency Disclosure: Requires real estate agents who act on behalf of buyers or sellers to disclose who represents whom in a real estate transaction.
Amortization: When a loan is repaid in equal payments at consistent intervals over the full term of the loan. This results in the complete payoff of the loan by the end of its term.
APR or Annual Percentage Rate: This is simply your effective interest rate, calculated by taking your actual interest rate and accounting for all the loan-related closing costs, as expressed over the full term of your loan (i.e., 30 years). It was created to help borrowers better compare interest rates offered by lenders.
Arbitration: A process in which an impartial third party listens to both sides of a dispute and typically issues a binding decision.
As-Is Condition: The purchase or sale of a property in its existing condition.
Balloon Mortgage: A home loan, although typically set up on a 30-year repayment schedule, requires the remaining balance – called the balloon payment – be paid in the future at a specific time, typically after the first five or seven years.
Closing Costs: The various expenses above the cost of the property that buyers and sellers incur in a real estate transaction.
Closing Statement (also known as the Settlement Statement): A document that provides an item-by-item breakdown of all costs, as well as the source of funds associated with every real estate transaction. Also called a HUD-1, the name of the standard form created by the Department of Housing and Urban Development, it is required for the completion of every real estate transaction.
Contingency Clause: These are terms in a contract that give a party to the contract a legal excuse for not performing (i.e., buyer does not have to buy the property if the buyer does not approve of an inspection of the property or the buyer is not able to obtain a loan). Contingency clauses typically have a set number of days in which the contingency must be removed from the contract or the decision made not to proceed with the sale.
Conventional Mortgage: A home loan that is not insured or guaranteed by an agency of the federal government.
Covenants, Conditions and Restrictions (CC&Rs): This document establishes the rights and responsibilities of owners typically within a subdivision, often enforced by an association of owners organized to maintain common areas owned by all owners within the subdivision.
Days on Market (DOM): The number of days that a property is listed as available for sale before being sold or removed from the marketplace.
Earnest Money or Earnest Deposit: Money a buyer provides as a deposit when an offer is made to purchase a property.
Easement: Access given to a third party to use a portion of one’s property for a specific purpose, such as for utilities or a driveway.
Encroachment: Any structure, such as a fence, that extends into a property owned by someone else.
Encumbrance: A claim or lien that appears on the title that, unless resolved, can interfere with the transfer of the property.
Escrow Agent or Closing Agent: A person who is impartially responsible to both the buyer and seller (or borrower and lender) to make certain that all of the terms and conditions of the real estate transaction (or loan) are completed. Also known as a Settlement Agent.
Fee Simple: A type of ownership of property, it entitles the owner to use their property as they see fit, in accordance with state and local laws.
Insurance Binder: Proof of coverage required by a lender to show that a sufficient hazard insurance policy exists on a property. This document must be provided to a lender by an insurance agent before the lender will agree to loan money for the purchase of the property.
Liquidated Damages: The buyer and the seller determine in advance a set amount of money to be paid should one of the parties fail to meet the terms of their Purchase and Sales Agreement.
Mediation: A process in which an impartial third party helps try to resolve a dispute by facilitating communication between a buyer and a seller in an attempt to reach a mutually acceptable agreement.
Negative Amortization: When a mortgage payment does not cover all of the interest that is due, the unpaid amount is added to the principal balance, causing the loan balance to increase instead of decrease.
Non-Conforming Loan (known as a Jumbo Loan): Any loan that is too large to be purchased by the secondary marketing firms, Fannie Mae (FNMA) or Freddie Mac (FHLMC).
PITI (Principal, Interest, Taxes and Insurance): The total monthly payment for a property with an amortizing loan that includes the principal, interest, taxes and insurance.
PMI (Private Mortgage Insurance) or MI (Mortgage Insurance): If the first mortgage loan-to-value ratio is greater than 80%, a special insurance is required – typically paid monthly or annually – to protect the lender should the loan go into default.
Prepaids: Distinct from Closing Costs, these include recurring expenses a buyer would normally pay over time, but pays in advance at closing to set up an escrow or impound account to pay monthly for taxes and insurance. Prepaids will also include any interest due on the loan from the day of closing until the end of the month.
Quitclaim Deed: A document that releases an owner from any interest in a property.
Sale-Leaseback or Sale-Rentback: The buyer rents back the property they are purchasing to the seller for a specific period of time after the close of escrow.
Sales Concession: A cost that is typically paid by the buyer at closing is paid by the seller instead.
Table Funding: The ability of a lender to provide loan funds on the same day the transaction is signed by all parties, usually one day prior to the close of escrow.
Title Insurance: Insurance that protects your home purchase should a title problem that existed prior to the purchase be discovered after your transaction closes. There are two types of title insurance: a fee title policy insures you, the owner; a mortgage title policy protects the lender.
Walk-Through: A buyer does a final inspection of the home prior to the closing to confirm that all conditions in the purchase agreement have been satisfied. This is also the time when the seller provides the buyer with instructions on the use of security systems, A/C, sprinklers, etc.
What’s Really Going on Out There? And How Will This Affect Me?
A few years back I read former Speaker of the House, Tip O’Neill’s, autobiography “Man of the House” and found it very entertaining. The master politician had, throughout his career, made observations about life and human nature that had served him well in achieving his goals. His political savvy came to my mind this week as I watched some of the unprecedented negotiations going on in Washington. In my opinion, his famous quote “All politics is local” rang truer than ever. I might paraphrase that today and say, “All economics is local.
I received several calls this week, asking the question, “what’s really going on out there?” and many asked “how will this affect me?”
As I have repeated in the past, we just don’t have all the answers. That being said, in an attempt to try and answer, factually, a very small portion of the questions in many of our minds, I want to recap some of the mortgage industry’s current circumstances.
Fact #1: As an industry, lenders have returned to more traditional underwriting standards. Many of those standards are the same ones that were in place when I started in this business 23 years ago. At this time, with good credit, a reasonable down payment and verifiable income, you can get a loan at pretty remarkable rates. Without those items, it’s tough.
Fact #2: Lenders are scared. They may not verbalize it to you that way but the reality is, they are scared. That is not a criticism, heck most days I am scared. Everyone is looking over their shoulders, questioning every move they make. The affect of that fear is that they scrutinize every loan and ask questions to the point we often say “you’re kidding, right? But they are not, and answer we must.
Fact #3: Every one is treated the same. What I mean by that is, because “all economics is local” and there is nothing more local than our own households, we tend to take it personal when an lender asks us to dig a little deeper with an answer or verify a particular circumstance. You should see my face turn red with frustration and I wish I could tell you that will change soon. I do not think it will.
Fact #4: What can change is our preparation and our ability to take a “can do” approach. We must know that it is not us personally being challenged but an industry, attempting to right the wrongs of the recent past and we are all caught in the current. No need to fight the current, it is stronger than us as individuals and it will only wear us out. Swim with the current, like it or not, and look for the opportunity and we will make it through. A bit tired, somewhat bruised but make it we will!
I hope this information is useful this week. I wish I could offer more but truth be known, I know little more than most, supplemented by what I read in the industry news, and of course what I experience in my small world. All economics is local, even at BWA.
All the Best!
Floyd Walters
BWA Mortgage
1035 Foothill Blvd
La Canada, CA 91011
818 952-2726
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You Will Benefit From My Experience
When you make the decision to buy or sell a home, you want the quickest, trouble-free transaction at the most favorable price. Your search starts in earnest when an expert real estate professional represents you exclusively. Here is why I will do the best job for you:
- My recommendation for a selling price will be “on the money” to save time in the sale. Often a Seller will realize more on the sale than he/she would trying without professional representation. For a Buyer, I also can advise on the reasonable price for each home available on the market.
- In addition to value of properties, I can answer any questions about taxes, costs and services that can affect your transaction.
- My experience with many Buyers and Sellers can help a buyer determine how much home can be purchased with existing resources and can show some financing that might be unique.
- When I represent you, your precious time is saved. Instead of spending hours or days doing research, as me. I will have instant answers to many of your questions, plus know where the answers are to any others.
- I’ll soak up the stress that comes with a purchase or sale. Instead of you being overwhelmed with details, I’ll take care of them.
- When you are a Seller, I’ll show your home to its best advantage. Prospects will be advised of all aspects of the property, protecting you from any later objections.
- For a Buyer, I’ll show a variety of homes suited to your needs and can suggest simple changes that could make a certain home a good choice.
- I know and cooperate closely with all of the other real estate professionals in our market area. These contacts with friends “in the business” can often produce a Buyer or Seller for us in record time.