Sometimes I feel like the real estate instructor I was–and have decided at last to put up a San Diego real estate glossary of terms that we Realtors in San Diego banter about all the time.
Brush up on these and impress the daylights out of your agent, your lender–and yourself!
ABR: Accredited Buyer’s Representative. A designation offered by the National Association of Realtors and its Real Estate Buyer’s Council. Requires specified real estate education requirements.
Adjustable Rate Mortgage (ARM): This type of mortgage has an interest rate that changes over time in step with movements from whatever index the mortgage is strapped to such as the LIBOR (see also Negative Amortization).
Adjustment Period: Here we go with ARM’s again. This is the length of time between interest rate changes on an Adjustable Rate Mortgage. We might call an ARM with an adjustment period of one year a one-year ARM. In other words, we have an one year ARM which means the interest rate can adjust every year. In theory and reality, variable mortgage rates might go down one year and up the next. Many San Diego real estate buyers and refinancers took on these type of loans a few years ago.
Amortization: This refers to a mortgage loan that is repaid in equal installments of principle and interest, as compared to an interest-only loan which leaves the borrowed amount intact and the borrower makes interest payments only.
Annual Percentage Rate (APR): This is the total lender finance charge which includes charges such as interest, loan fees and points expressed as a percentage of the loan amount.
Appraisal: In San Diego real estate, the act of estimating value of a given property. Banks and lenders will usually require that this be done by a certified appraisal professional.
Appreciation: What real estate owners want: An increase in value of real estate.
Assumption of Mortgage: Rarely done, at least in San Diego: A buyer’s agreement to assume the liability under an existing note,which has been secured by a mortgage or deed of trust. This usually must be lender-approved in order for the loan to be assumed–and for the original borrower to be released from the liability.
Balloon Payment: A borrower’s dread: A lump sum principle payment due at the end of certain mortgages or other loans.
Cap: A welcome limit on how much a mortgage interest rate or monthly payment can change, either at each adjustment–or over the life of the loan.
CC&R’s: So common with San Diego condos and subdivisions! Covenants, Conditions and Restrictions are contained in a document that controls the use, requirements and restrictions on the use of a property. These could limit number and size of pets, approvals needed to change exterior paint and parking of cars–among other things.
CDPE or Certified Distressed Property Expert: A real estate professional who has completed the rigorous training involved in earning this designation. These professionals are deemed competent in real estate short sales and foreclosures and have completed required educational courses.
Certificate of Reasonable Value (CRV): A document or certificate that establishes the maximum value and loan amount for a VA (Veteran’s) guaranteed mortgage. A great benefit and protection for US military veterans!
Closing: The last hurrah! It’s the final settlement of a real estate transaction between buyer and seller.
Closing Statement: A financial disclosure statement that dutifully accounts for all of the funds received, disbursed and expected at the closing. This might include deposits for San Diego property taxes, hazard insurance, mortgage insurance and other closing fees.
Condominium: A type of real estate ownership wherein the owner receives title to a particular unit or home and has a proportionate joint ownership of the common area of the structure (if applicable) as well as land interest. The unit or home itself is generally a separately-owned space whose interior walls, floors and ceilings serve as ownership boundaries. In other words and in the event of fire or other devastation, the owner is responsible for all damage from wall surfaces in–whether paint, wallpaper or other coating.
Contingency: Both buyer and seller may have contingencies that must be net before title can pass from one to the other. Seller’s contingencies would be their ability to pass clear title, provide HOA documents, and perhaps a provide termite clearance. Buyer’s contingencies frequently include loan approval, satisfactory inspections of the property, and review of the documents and disclosures provided by the seller. Hence, a real estate contingency is a condition that must be satisfied before a contract is binding and the transaction can close.
Conventional Mortgage: A “typical” mortgage offered by investors that (supposedly) does not involve governmental underwriting. In other words, it is not an FHA insured loan, or a VA guaranteed loan or a CalVet which is really a contract for deed–or something similar to vehicle financing.
Conversion Clause: A welcome clause in some ARMs that enables you to change an ARM to a fixed-rate loan, often after the first adjustment period. This new fixed rate will generally be tied to the prevailing interest rate and converts the loan to one with fixed rate and terms. A conversion clause option may come at an additional fee.
Cooperative: Common in New York and other large urban areas, this type of real estate ownership in San Diego is pretty rare. Not unlike a timeshare, a cooperative is a form of multiple ownership whereby a corporation and business entity holds title to a given property and grants occupancy rights to shareholders via proprietary leases or the like. At least in San DIego, it can be difficult to obtain financing for this type of property.
Counter-Offer: A key element in real estate negotiation between buyer and seller. The buyer may make an offer lower than list price. The seller may counter back with a higher price or a change in other terms of the offer. A counter offer is, in effect, a rejection of the offer–and is a common occurrence in San Diego real estate transactions. It’s considered to be a normal part of negotiations.
CRB: Certified Residential Broker.Must be a real estate broker with at least 5 years experience, be a member in good standing with the National Association of Realtors, and have completed five required Residential Division courses.
CRS: Certified Residential Specialist. An advanced real estate designation bestowed on certain Realtors who have completed required education and production requirements.
Deed: A written instrument which, when properly executed and delivered, conveys title to property.
Discount Points: Points, measured as a percentage of a loan, are additional charges made by a lender at the time a loan is funded. Points can be part of a lenders or brokers profit margin–and are also frequently used to help balance a loan’s rate to actual market levels. In other words, paying points might reduce mortgage interest for the borrower while paying no points or receiving a “rebate” from lender would increase interest rate.
Due-on-Sale-Clause: Uh oh. This clause requires full payment of a mortgage or deed of trust when the secured property changes hands. Once upon a time, loans were assumable, whereby a buyer could assume, or take over payments, on the seller’s mortgage financing. Very rare to find assumable loans in San Diego residential real estate offerings.
Earnest Money or Escrow Deposit: A good faith deposit. Funds delivered (rarely) to the seller, and most frequently to an escrow agent by the buyer with written offer and as evidence of good faith. Additionally, one of the criteria for a valid contract in California real estate is “consideration,” which includes the earnest money deposit.
Easement: A complicated area of real estate. An easement is generally created by grant or agreement for a specific purpose. It is a right, privilege or interest which one party has in the land of another. Consider a flag lot where two or more homeowners share a driveway. One may own the land, but has granted easement for others to use it via an easement. Red Flag: It is important to see if the San Diego property you are buying is impacted by any easements.
Equity: How much interest you or another has in real property that goes over and above the liens against the subject real estate. Example: Owner of San Diego home is valued at $400,000 and has liens totalling $300,000. Owner, therefore, has $100,000 equity.
Escrow: Almost all real estate transactions in San Diego are coordinated through an escrow company. This licensed and neutral third party acts as a “stakeholder” for both the buyer and seller and carries our both parties’ transaction instructions. The escrow agent assumes responsibility for handling all of the paperwork and distribution of funds. In other states and regions, title companies or attorneys may handle these transaction details.
(FNMA) Federal National Mortgage Association: AKA Fannie Mae: This once privately-owned and now government owned GSE created by Congress to supposedly support the secondary mortgage market. It serves to purchase residential mortgages insured by FHA as well as conventional loans.
Fee Simple: A treasured term in San Diego real estate. This is an estate in which the owner of a property has unrestricted power to dispose of said property as he or she desires–including bequeathing by will or inheritance. It is, quite simply, the highest interest one can have in a San Diego home, condo or land!
FHA Loan: Once a rarity in San Diego mortgage financing, but now commonplace. This is a home loan insured by the Insuring Office of the Department of Housing and Urban Development, the Federal Housing Administration guaranteeing its payment should the borrower default on the mortgage loan.
Finance Charge: Deserves close attention: This is the total cost a borrower must pay, directly or indirectly, to obtain credit according to the omnipresent Regulation Z. (No joke. Ask your lender.)
FMHA: This might be the ideal loan for San DIego rural property financing.. It is a loan insured by the federal government–not unlike FHA loans.
Graduated Payment Mortgage: A residential purchase loan that starts at one level and graduates at a specified time to a higher predetermined rate. It generally increases in stages.
GRI: A Graduate of the Realty Institute. Generally a year-long program offering at successful closure a GRI Designation granted by the National Association of Realtors. To earn this honor, agents must successfully complete courses in Real Estate Law, Real Estate Finance, Appraisal, Technology, Principles of Real Estate and half a dozen other subject areas.
Home Inspection Report: Something we require on almost every San Diego real estate transaction. It is a written report that follows a detailed inspection of a home, covering both its structure and mechanical operations. Cost of a San Diego home inspection range from around $250 to over $1000–depending upon size and scope of the property.
Home Warranty Plan: This is a warranty we insure is in place for all of our real estate buyers. It provides (limited) protection against breakdowns in plumbing, electrical, heating systems and installed appliances. Additional coverage may be required for refrigerators, air conditioning systems, pools and spas.
Joint Tenancy (with Right of Survivorship): This is an equal, undivided partnership in real estate by two or more persons. Upon the death of one owner, the survivor(s) will take over the interest of the deceased owner.
Land Contract (also Contract for Sale): Compare to an auto loan. In this case it is financing for a home whereby title to the property does not pass until all (or a portion) of the purchase price is paid by the borrower. With a car, title–or pink slip–is not coveyed until financing is paid in full.
Lien: A type of encumbrance or burden on a property, generally put in place as security for the payment of a debt or discharge of an obligation. Examples of liens would include mortgages, judgments, liens, deeds of trust and other items that might encumber or burden the property.
Loan Commitment: Get this from your mortgage lender! It is a written commitment to make a loan for a specified amount on specified terms within a specified amount of time.
Loan to Value Ratio: A problem in San Diego real estate valuations in the past few years. This is the relationship between the amount of mortgage loan and the appraised value of the home–expressed as a percentage of the appraised value.
Margin: Complicated. This is the number of percentage points the lender adds to the index rate to calculate the ARM (Adjustable Rate Mortgage) interest rate at each adjustment.
Marketable Title: What a San Diego home seller and buyer wants! This is title to a property that is free and clear of all objectionable liens and encumbrances.
Mortgage: This is a written instrument recognized by law through which property is secured (or hypothecated) in order to insure payment is made. Should payment not be made, there is a foreclosure procedure in place in the event the borrower defaults on the loan.
Mortgage Life Insurance (not to be confused with PMI or MIP or mortgage insurance premium). This is decreasing life insurance that pays off the declining balance of the homeowner’s mortgage in the event of the borrower’s death. Should the borrower die while the policy is in force, the mortgage debt is covered by the insurance.
Negative Amortization: Seen frequently in the once-prevalent Option ARM loans that contributed to the real estate crash because negative amortization occurs when monthly payments do not cover interest costs. The costs not covered are then added to the principle balance of the mortgage. Frequently, borrowers burdened with negative amortization end up owing more than they initially borrowed. May also be referred to as a “Neg Am” loan.
Origination Fee: A fee generally paid by the borrower to a lending institution for their work involved in preparing, evaluating, underwriting and submitting a borrower’s mortgage lending package. Origination fees are limited to one percent with VA and FHA loans.
Personal Property: Any property which is not real property (as in real estate) and would include such things as money, savings and security accounts, appliances, jewelry, cars, boats and other toys.
PITI: Generally, a monthly house payment that refers to principle, interest, taxes and insurance.
Planned Unit Development (PUD): Not a condominium development, rather a zoning designation for property or homes that are more densely sited than a conventional subdivision. There will often be improvements–such as pools, parks and other common features–situated between the homes. A PUD might also refer to a commercial development for businesses.
Point: Generally a loan fee stated as an amount equal to one percent of the loan or investment amount. The lender and borrower will usually agree on the number of points to pay on a mortgage as an offset to the interest rate that will be charged for the loan.
Prepayment Penalty: We advise our San Diego real estate clients to avoid mortgage loan prepayment penalties if at all possible. These can be hefty fees paid by a borrower if he or she pays off a loan before its due date. These penalties are not allowed with VA and FHA loans.
Private Mortgage Insurance (PMI): Insurance underwritten by a private company and which protects the lender against loss if the borrower defaults on the mortgage loan. PMI is generally required on conventional loans where down payment is less than 20 percent.
Promissory Note: Once a lender has issued a loan commitment, the borrower signs a promissory note for repayment of the loan under stipulated terms. This promissory note establishes personal liability for its repayment.
Purchase Agreement: This is a written agreement whereby the buyer of a property agrees to buy a specified parcel of real estate and the seller agrees to sell under the negotiated terms. Also referred to as a sales contract, agreement for sale, or earnest money contract. In our San Diego real estate practice, we simply refer to this document as an RPA–or Residential Purchase Agreement.
Real Property: Land and those structures affixed to it. The definition seems simple enough, until we start negotiating what is truly attached to the property and what is not. Tread carefully here!
Realtor (registered trademark): A real estate broker or associate who is active in a real estate board affiliated with the National Association of Realtors. A Realtor is bound by a set of strict ethics and can be held accountable to the Board of Realtors. For this reason, we recommend using the services of a Realtor.
Regulation Z (or Reg Z): Major protection for the real estate borrower. This is a set of regulations governing consumer lending and issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act. This is detailed and heavy-duty national regulation.
Special Assessment: These are legal charges that can be assessed by a government authority or Homeowners’ Association (HOA) against real estate and homeowners to help pay the costs of things ranging from building rehabilitation to street lights, sidewalks, street improvements and other items.
Sub-Division or Subdivision: Simply put, a parcel of land that has been legally divided into smaller parts.
Tenancy in Common: A type of ownership commonly held by two or more investors. With this type of ownership, undivided interest (which need not be equal) is held without right of survivorship. Upon death, the ownership share might be bequeathed to others.
Title Insurance Policy: Don’t buy a home without it! This is a policy that protects the purchaser, mortgagee, or other named party against losses caused by chain of title issues, undisclosed easements and other issues that could affect one’s ownership in the property.
Trust Account: This refers to a real estate broker’s physically segregated account and in which the broker must deposit all funds collected for clients.
VA Loan: A loan designated for the US military (active and retired) that is partially guaranteed by the Veteran’s Administration and made by a private lender. San Diego has a large military population and VA loans are common here.
(c) Roberta Murphy 2010-2016