Glossary of Terms l The VA Lady l Active Duty and Military Veteran Homebuyers

Glossary of
Terms

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Adjustable-rate mortgage (ARM)

With ARM loans, interest rates can change after an initial fixed rate period as they adjust based on the interest rate index the ARM is tied to (e.g., LIBOR, COFI, etc.). This loan type is less predictable than a traditional fixed-rate mortgage, but it can potentially yield lower interest rates during certain periods.

Appraisal

An appraisal is required to gather the estimated value of a piece of real estate. During the home sale, the mortgage lender sends out an appraiser to get a professional opinion of the value of the property. This helps the lender decide if the property is worth the amount of the loan the potential buyer is seeking.

Appraisal contingency

An appraisal contingency is a clause that allows a buyer to dissolve a purchase agreement if a home’s appraised value is less than the sale price. An appraiser hired by the buyer’s lender evaluates the value of the home to ensure that the loan is secured by an appropriate home value. Lenders want to ensure they are not “over-paying” for a property.

As-is

A property marketed in “as is” condition usually indicates that the seller is unwilling to perform most if not all repairs. It could also mean that it is priced “as is”, which is typically lower than market pricing in the area.

Finally, “as is” is in the condition at the time the offer was written, and should something happen to the property from the time the offer was written to the closing time which alters that condition, then that property is no longer “as is”, as it was, and should be brought back to its original “as is” condition at the time of offer, at the cost of seller. Or in the alternative, the seller should release the buyer from their obligation to purchase and refund the monies spent by the buyer, such as earnest money.

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Backup offer

When a buyer is interested in purchasing a property that is already under contract with someone else, that buyer has an opportunity to submit a “backup offer”, in case the first transaction falls apart. A backup offer must still be negotiated and any monies, such as earnest money, submitted, to confirm it is the next offer in line. There can only be one backup offer legally, as you cannot have a backup to the backup.

Blind offer

When a buyer makes an offer on a property they haven’t seen, even when it was possible to see it, that offer is considered a “blind offer”. It is most commonly used in a highly competitive area and/or circumstance, and used as an attempt to be first and win quickly.

Buyer’s agent/Listing agent

A buyer’s agent, also known as a selling agent, is a licensed real estate professional whose job is to locate a buyer’s next property, represent their interests by negotiating on behalf of that buyer to obtain the best price and purchasing scenario for that buyer as possible. This agent is a fiduciary for the buyer.

The listing agent, also known as the seller’s agent, is a licensed real estate professional whose job is to market the seller’s property, and to represent the seller’s best interest by negotiating on behalf of the seller to secure the best price and selling scenario as possible. This agent is a fiduciary for the seller.

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Charge-off

A debt that a company believes it will no longer collect after becoming delinquent on payments. Charged-off debt does not mean repay is not required anymore. After a lender has charged off a debt, it could sell the debt to a third-party collections agency that would attempt to collect on the delinquent account.

Closing

Closing is when the home sale is considered final, which typically includes all parties’ signatures on all required documents, all monies conveyed, and when a lender is involved, with full lender’s approval. For some markets across the nation, recording the deed with the county clerk’s office is the ultimate and final step of closing. Once all of these items are completed, then a buyer’s access to the property is then provided, and the buyer is considered the new homeowner.

Closing costs

Closing costs are an assortment of fees, including fees charged by: a lender, the title company, attorneys, insurance companies, taxing authorities, homeowner’s associations, real estate agents, and other closing settlement related companies. These closing costs are typically paid at the time of closing a real estate transaction.

Collection

An unpaid debt a lender or creditor may transfer to a collection agency or sell it to a debt buyer. This generally occurs a few months after becoming delinquent, the date of begin missing payments, or not paying the full minimum payment.

Contingency

A home sale contingency is for a buyer to indicate to a seller that part of their condition to purchase the seller’s property relies on the buyer’s ability to finalize a close on their current property. This is often negotiated with a clause in a contract or with an addendum to a contract. An example of how such a contingency can be used would be if a buyer needs to sell their property in order to have the down payment required on the purchase of the new property, or would rather use their sale proceeds instead of their savings to make the down payment. Depending on the market, it could hamper negotiations with a seller when a contingency is part of the picture.

Conventional loan

A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration FHA, Department of Veterans Affairs VA, or Department of Agriculture lUSDA oan programs). Conventional loans can be conforming or non-conforming.

Conventional sale

A conventional sale is when the property is owned outright (has no mortgage remaining) or the owner owes less on their mortgage than what the market indicates the owner could sell their property for. Such conventional sales are often smoother transactions than non-conventional sales, such as foreclosures, probate related sales and short sales.

Covenants, conditions & restrictions (CC&Rs)

Usually, these are the rules and regulations placed on real property by a homeowner’s association (HOA), a neighborhood association, a developer, or a builder that sets forth any requirements and limitations of what a homeowner is allowed to do with the property. It may also include monthly and/or annual fees or special assessments.

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Days on market (DOM)

DOM is defined as the number of days from the date on which the property is listed for sale on the local real estate brokers’ multiple listing service (MLS) to the date when the seller has signed a contract for the sale of the property with the buyer.

Debt-to-income ratio

Debt-to-income, or DTI, ratio is a number used by mortgage lenders which is determined by the total of your debt expenses, plus your monthly housing payment, divided by your gross monthly income, and multiplied by 100. This helps lenders determine affordability based off of their available loan programs, and allows them to estimate how much you can afford to pay monthly for a mortgage.

Lenders typically look for borrowers who pay 28 percent, or less, of their total monthly income on housing, and less than 36 percent of their income on debt payments, according to Investopedia. If either percentage is on the higher side, and you want to buy a home, you might need to adjust your budget.

Deed/Mortgage Deed

A mortgage is a loan extended to someone in order to purchase a property. A mortgage deed is a legally binding document outlining the terms of a mortgage that puts a lien on the house until the lender repays the loan in full.

Due diligence

A due diligence period of time might be available in the purchase agreement, which is a time frame provided to a buyer to fully examine a property, often by hiring experts to inspect the property, perform tests, etc., so that a buyer may decide on how to proceed. A buyer might also be afforded an opportunity to renegotiate the contract based off of their findings or possibly even to terminate within a specified time period, in order to not be considered in default of the contract. Due diligence allows a buyer to fully understand what they are buying.

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Earnest money deposit (EMD)

An earnest money deposit (EMD), sometimes referred to a “good faith deposit”, is the initial funds that a buyer is asked to put down once a seller accepts the buyer’s offer. It shows not only that the buyer is serious about buying, but that they are also willing to put their money where their mouth is. The amount of the EMD varies and is often held by an escrow company, or as otherwise provided for under the purchase and sale agreement (PSA).

Escrow holder

The escrow holder is the agent and depositary (impartial third-party) who collects the money, written instruments, documents, personal property, or other things of value to be held until the happening of specified events or the performance of described conditions, usually set forth in mutual, written instructions from the parties.

Equity

This is the investment a homeowner has in their home. To calculate equity, take the market value of the home and subtract any mortgages or liens against the property. The amount leftover is the amount of equity you have in the home.

If you buy a home worth $250,000 for $240,000, you gain what is known as instant equity, because there is a $10,000 difference between the value and the cost. When you sell a home you bought for $250,000 for $260,000, you’ll get to keep the equity in the home after the close, once all the expenses are paid. It’s important to build equity as homeowners can leverage this financial asset to obtain loans to help finance items such as home repairs, or to pay off higher interest debt.

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FHA loans

FHA loans are part of a group of loans that are insured by the federal government. This means that instead of actually lending money, the FHA insures banks and private lenders that they will cover losses they might incur in the event that the borrower does not repay the loan in full or timely. Read our blog post for more detailed information on how FHA loans work.

FHA 203k rehab loan

This is a “fixer-upper” loan, which combines the mortgage loan with a loan to help pay for repairs or updates, such as structural repairs, or energy-related updates. It is not intended to lend based off of luxury upgrades such as adding a swimming pool or tennis courts.

Fixed rate mortgage

With fixed rate mortgages, your interest rate stays the same for the duration of the loan. They are often available as 10, 15, 20 & 30-year loans. The 15- and 30-year loan are by far the most popular type of home loans, accounting for about 75% of all U.S. residential mortgages.

Foreclosure

The process that begins when a borrower fails to make their mortgage payments. When a home is foreclosed upon, the lender typically repossesses the property and attempts to sell the house to the general public.

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Gift funds

Monies given to a borrower to help with a home purchase. For FHA loan approval, borrowers can use the gift funds for a down payment, closing costs, or reserves needed for approval.

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Hard money loan

Hard money loans are a way to borrow without using traditional lenders. Hard money lenders finance the loan based on the property in question, not on your credit score, and typically require a large down payment and short repayment schedule.

Homeowner’s association (HOA)

A homeowner’s association is a private association that manages a planned community or condominium. When you purchase a property that is managed by an HOA, you agree to abide by the HOA’s rules and pay its monthly or annually HOA dues. If you fail to pay and/or comply, they often have the ability to file a lien against the property and/or foreclose on the property.

Home sale contingency

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iBuyer

An iBuyer is a company that uses technology to make an offer on your home quickly or “instantly” as the term implies. iBuyers take on the burden of owning, marketing, and reselling your home. Depending on the service chosen, the benefit is the certainty of an all-cash offer and more control over when you move.

Inspection

An inspection happens when buyers pay a licensed professional inspector to visit the home and prepare a report on its condition and any needed repairs. The inspection often happens as part of the due diligence period, so buyers can fully assess if they want to buy a particular home as is, or ask the seller to either complete or pay for certain repairs.

Inspection contingency

Also known as a “due diligence contingency,” the inspection contingency is a clause sometimes offered in a purchase agreement that grants buyers a predetermined amount of time during escrow to perform any necessary inspections.

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Joint tenants

Joint tenants are also co-owners of real property, but there are some distinctions. Joint tenants must all take title simultaneously from the same deed while tenants in common can come into ownership at different times.

Joint tenants all own equal shares of the property, proportionate to the number of joint tenants involved. So if there are two joint tenants, for example, each owns 50 percent, while three joint tenants would each own a third, and so on. (Also see tenants in common)

Joint tenants with the right of survivorship (JTWROS)

JTWROS are two or more people who own an equal interest in a property. When one person dies their interest passes automatically to the surviving joint tenant(s). (Also see tenants in common)

Judgment

A court order that is the decision in a lawsuit. If a judgment is entered against you, a debt collector will have stronger tools, like garnishment, to collect the debt.

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Land lease

Traditionally, when you purchase a home, you own the home and the land the property is built on. There are some circumstances that involve a land lease, which means you would own the home while paying rent to the landowner for the land.

Lien

A claim or legal right against assets that are typically used as collateral to satisfy a debt. A creditor or a legal judgment could establish a lien. A lien serves to guarantee an underlying obligation, such as the repayment of a loan.

Loan contingency

A loan contingency is a clause or addendum (also known as a mortgage contingency) in an offer contract that allows a buyer to back out of a deal and keep their deposit if they are unable to secure a mortgage with specified terms during a fixed period of time.

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Mortgage

A mortgage is an agreement between you and a lender that gives the lender the right to take your property if you fail to repay the money you've borrowed plus interest. Mortgage loans are used to buy a home or to borrow money against the value of a home you already own.

Seven things to look for in a mortgage

The size of the loan
The interest rate and any associated points
The closing costs of the loan, including the lender's fees
The Annual Percentage Rate (APR)
The type of interest rate and whether it can change (is it fixed or adjustable?)
The loan term, or how long you have to repay the loan
Whether the loan has other risky features, such as a pre-payment penalty, a balloon clause, an interest-only feature, or negative amortization

Mortgage Deed

Mortgagee

A mortgagee is a lender, specifically, an entity that lends money to a borrower for the purpose of purchasing real estate. In a mortgage transaction, the lender serves as the mortgagee and the borrower is known as the mortgagor.

Mortgagor

The mortgagor is the borrower of a mortgage loan, and the mortgagee is the lender. The mortgagor makes regular payments on the loan and agrees to a lien on the mortgaged property as collateral for the mortgagee.

Multiple listing service (or MLS)

An MLS is a database that allows real estate agent and broker members to access and add information about properties for sale in an area. When a home is listed for sale, it gets logged into the local MLS by a listing agent. Buyer’s agents often check the MLS to see what’s on the market and what similar homes have sold for.

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Natural hazards disclosure (NHD) report

A report required by most states that discloses if a property is located in an area that has a higher risk of natural hazards. The report is typically paid for by the seller and given to the buyer during escrow.

The following natural hazard zones are covered in a NHD report:

Special flood hazard area
Area of potential flooding
Very high fire hazard severity zone
Wildland area that may contain substantial forest fire risk and hazards
Earthquake fault zone
Seismic hazard zone

Note

A note or mortgage note is a legal record of the borrower's promise to repay the loan. It spells out the terms of the mortgage, including the monthly payment and interest rate and consequences for late or missed payments.

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Offer/counter offer

Buyers make a formal offer on the home they want to purchase. The offer can be the full list price, or what you and your agent deem a fair market value. The buyer’s agent puts the offer in writing, asks you to sign it, and then submits it to the seller’s agent. The seller might immediately accept it, in which case it becomes the parties’ purchase contract, or may make what’s known as a counter offer. It’s the art of negotiation, recorded in paperwork.

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Pre-approval/pre-qualification letter

Getting a mortgage pre-approval/pre-qualification letter is important because it gives home buyers an idea of what they can afford. A mortgage pre-approval/pre-qualification letter is issued by the lender and identifies the terms, loan type and loan amount the buyer qualifies for after checking the buyer’s debt-to-income ratios along with cash on hand and credit history. Many sellers or their agents require a mortgage letter with any home offer that isn’t all-cash, since it acts as proof the buyer has been qualified to get financing.

Preliminary report

A preliminary report reveals any issues with a title that need to be dealt with by the seller in order to deliver a clear title. It gives details such as ownership history, liens, and easements. The title company gathers this report by searching existing property records at the county recorder’s office. This report is required for a title insurance company to issue a title insurance policy. Most lenders require borrowers to purchase title insurance coverage to protect their interest in a property. It’s customary in many areas for a seller to pay for this policy, although it is a negotiable item.

Pre-qualification

A pre-qualification is a lender’ estimate of the amount a home buyer can expect to be approved for during the loan process. Getting pre-qualified is a quick assessment by a lender of the buyer’s financial situation based solely off of what a buyer tells a lender, and not based with any proof or verifications.

Principal

The principal balance of a mortgage loan is the amount of money owed to the lender, not including interest. Say you borrow $300,000. That’s the principal of the loan, or what you borrowed to buy the home. Buyers pay the principal plus interest each month, although calculated on a daily basis for most loan type. Payments nearly always go toward interest first, then toward paying down the principal. After all, the interest is the reason the bank agrees to make the loan.

Probate sale

A probate sale happens when a homeowner dies without writing a will or leaving a property to someone. In such situations, the probate court would authorize an estate attorney, or other representative, to hire a real estate agent to sell the home. The total process will usually be a bit more complicated and therefore will take more time than a conventional sale.

Proof of funds

When you make an offer, sellers will require you to submit proof of funds. If you’re buying a house with a mortgage, it shows them that you have the cash available for your down payment and closing costs. If you’re paying all cash, your proof of funds shows you actually have the money.

The following documents qualify as proof of funds:

Original or online bank statements with bank letterhead
Copy of a money market account balance with bank’s logo or letterhead
Certified financial statements, such as an income or cash flow statement that’s been signed off on by an accountant
An open equity line of credit

Purchase agreement/sale agreement

A purchase and sale agreement is commonly referred to a written contract between the buyer and seller, which outlines the terms of the parties to sell and purchase real property. When a home is “under contract” it usually signifies that the Buyer and Seller have formalized their commitment to sell and purchase the real property.

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Quitclaim deed

A quitclaim deed transfers the title of a property from one person to another, with little to no buyer protection. The grantor, the person giving away the property, gives their current deed to the grantee, the person receiving the property. The title is transferred without any amendments or additions.

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Real-estate owned (REO)

Real-estate owned is a designation given to properties which are owned by a lender due to an unsuccessful foreclosure sale at auction. REO properties can sometimes present an opportunity for a buyer to be purchased for below market value as most banks would prefer to reinvest the proceeds, rather than waste time marketing the property for an extended period. Additionally, the bank will often market the property “as-is” meaning they are unwilling to make any repairs to the property, which can make financing tricky.

REALTOR®

An actively licensed real estate agent and REALTOR® are often used interchangeably, although not every real estate agent is a REALTOR®. A REALTOR® is a member of the National Association of REALTORS® (NAR). A REALTOR® promises to uphold the Code of Ethics of the association and to hold each other accountable for when serving the public, customers, clients and each other, with a high standard of practice and care.

Rent-back

Rent-back, or leaseback, refers to an arrangement whereby the buyer, who is now the new homeowner, agrees to allow the seller, the now-tenant, to stay in the house beyond the close of escrow. The terms are negotiated prior to the situation occurring and will often involve a lease deposit, a daily rental rate, and a length of time allowable. The rate can sometimes be determined by looking at the new homeowner’s monthly out-of-pocket for the mortgage as well as the possible inconvenience this may cause them in delaying their own move, all factoring into a daily rate.

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Seller concession

Sellers may offer concessions to incentivize buyers to purchase the home, or sweeten the deal. Concessions are most readily seen as a contribution towards the buyer’s closing costs, up to certain limitations and approvals by a buyer’s lender, which ultimately leaves more money in a buyer’s pocket when all is said and done.

Seller disclosure

A seller’s disclosure is a disclosure by the seller of information about the property, or which could affect a buyer’s decision to purchase the property, all of which to the best of the seller’s knowledge. A seller must also indicate items which are not specific to the property itself but related to a person’s enjoyment of the property, such as pest problems, property line disputes, knowledge of major construction projects in the area, military base related noises or activities, association related assessments or legal issues, unusual odors caused by a nearby factory, or even recent deaths on the property as permitted by law.

Short sale

In a short sale, the property is being sold for less than the debt secured by the property. Short sales will require the approval of the seller’s lender(s) as the proceeds of the sale will be just “short” of the amount owed; most lenders’ processes of approving short sales are long and drawn out, requiring more time to close than a traditional sale.

'Subject to' inspection

Subject to inspection, or “submit offers subject to inspection”, means that the seller is not allowing the property to be viewed without an accepted offer. Some common reasons for this are privacy concerns of the occupants or uncooperative tenants. The thought of buying a property sight unseen can be daunting for the traditional buyer, which can be used to your advantage as this will inevitably drive overall interest down. It’s also not as bad as it seems as, under the standard purchase contract, you will have an inspection period, during which you can cancel the sale with no penalty.

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Tenants in common

Tenants in common can own unequal shares in a property and have no right of survivorship. If one owner dies, their interest in the property is distributed according to their Last Will and doesn’t automatically transfer to the other owners of the property. Tenants in common can transfer their interest in the property to an heir after their passing. (Also see joint tenants and joint tenants with right of survivorship)

Termite report (CL-100)

Termites are small, pale, soft-bodied insects that feed on wood, and can be highly destructive. The WDI (wood-destroying insect) report, also known as the Termite Report, includes a diagram of the property and the location of active and/or previous WDI activity. The report can also and sometimes include what may be necessary to resolve such possible infestations such as spraying or tenting. The WDI report will rarely if ever include the cost for such items, as that may be considered a conflict of interest.

Title search

A title search examines public records for the history of the home, including sales, purchases, and tax and other types of liens. Generally, a title examiner will conduct a search using title plants, and sometimes the county records, to see who is listed as the record owner of the property. Such information, along with any liens or encumbrances that are recorded against the property, will be listed in the Preliminary Report for the parties to review prior to the close of escrow.

Trust sale/Trustee sale

A trust sale means that the home is being sold by a trustee of a living trust – and not a private party. More often than not this is because the original homeowner has passed away, or has placed their assets in a living trust. The trustee may not be as emotionally attached to the property as a traditional owner, which could translate to them accepting a less attractive offer as the trustee may prefer to offload the property.

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USDA

A home loan is a mortgage either made or guaranteed by the United States Department of Agriculture's Rural Housing Service agency to help households with very low to moderate incomes purchase safe and affordable homes in rural areas.

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VA loan

A VA loan is a loan guaranteed by the government (Department of Veteran Affairs) and available to the military, active and retired, and even for some eligible spouses, at low-to-no-down payment scenarios with competitive rates and fees.

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Warranty deed

A warranty deed is a legal real estate document that protects the buyer and ensures that the seller holds a clear title to the property, has no outstanding liens or mortgages, and there will be no future claim to the title of the property.

The two parties involved in a warranty deed are the seller, known as the grantor, and the buyer, or the grantee, and either party can be an individual or a business.

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Zoning

The zoning ordinance divides the city or county into land use districts or "zones", represented on zoning maps, and specifies the allowable uses within each of those zones. It establishes development standards for each zone, such as minimum lot size, maximum height of structures, building setbacks, and yard size.