First Time homebuyers | Understand what you are reading & signing

Warren Oberholser
Warren Oberholser
Published on May 6, 2021

Hi, I’m Warren Oberholser. I’m a realtor in the East Bay Tri-Valley area in Northern California. My goal is to help both buyers and sellers get maximum results for one of their biggest investments, their home.

First-time home buyers, in this BLOG, I’m going to give you 33 of the most important terms you need to know so you can successfully understand your purchase contract.

Every industry has its inside jargon, and the real estate industry is no exception. Some of the lingoes such as location, location, location, are pretty straightforward, while other terms are downright incomprehensible.

Real estate terms can be confusing to understand

Here’s the problem. Real estate agents tend to roll this stuff off their tongue like everybody follows them and understands what they’re saying. I’m going to go over a glossary of the most common real estate terms that most likely will come up in your real estate transaction.

From viewing properties on the MLS, looking at the purchase agreement, and the seller’s disclosures, you will come across a lot of new words to add to your real estate lexicon, and if you’re like the majority of new buyers who will be financing, you’ll be introduced to several new financing terms.

Now why is this important to know? As they say, power is knowledge, so let’s start adding to your vocabulary new words and terms for your real estate journey, and by the way, as noted in the beginning of the video, all the words and definitions, including additional information not discussed in this video, can be found in my blog.

Adjustable Rate Mortgage

Adjustable rate mortgage is a mortgage with a fluctuating interest rate.

ARMs tend to have lower initial interest rates for a set period of time,

and then begin adjusting according to an index. This may adjust monthly, quarterly, annually, or longer. Adjustable ARM mortgages were used extensively back in early 2003 up to 2007.

Addendum

This document is generally used to change or add something to the buyer’s purchase agreement contract. As always, anything added in an addendum should be looked at very carefully. Addendums are used for many changes such as an extension on time for the investigation, appraisal, and loan contingencies. It’s also used for extending the time of the closing date.

Appraisal

In a real estate transaction where the buyer chooses to get financing or a loan to purchase the home, the lender will order an appraisal. One of the primary functions of an appraisal is to determine the value of the home.

Certificate Of Title

The title certificate is a document that ensures that the property being sold is legally owned by the seller and that no other party owns any part of it or has any claims such as a lien against it. A certificate of title is often referred to as a chain of title. When the property is deemed to have no issues, such as liens, then it has a clear title.

The Closing

This is where the term closing table comes into play and the process is also known as “settlement”. So in the past, all parties would actually sit around a table to sign the closing documents. Today, there are a number of variants including virtual closings.

Closing Costs

Closing costs include all the additional expenses incurred in financing and purchasing the home. These expenses typically include any attorney fees, any loan origination fees, escrow impounds, and other miscellaneous charges. Now there is no set cost, but the ballpark estimate is approximately 2% of the sale price of the home.

CMA (Comparative Market Analysis)

A CMA is the evaluation of a home’s market value for the purpose of determining a fair asking price when listing a home. Real estate agents compile the CMA by comparing the subject property to other like properties that have recently sold and that are within close proximity of the subject property. Keep in mind although the CMA is similar to an appraisal, it will not replace a lender’s required appraisal.

Comps

Comps covers any properties that are comparable or similar to the subject property that is being analyzed.

Contingency

A contingency is a section in the purchase agreement that specifies certain conditions that must be met in order for the sale to proceed. The three common buyer contingencies in a purchase agreement are investigation, appraisal, and loan.

Counteroffer

CounterofferThis is a document that can be generated by either the buyer or seller to request the addition or elimination of parts that relate to the buyer’s purchase agreement.

CC&R

CC&Rs stands for covenants, conditions, and restrictions. CC&Rs are basically rules and guidelines that homeowners must abide by. Many times you’ll find the CC&Rs in the prelim, there will usually be a hyperlink for it. These documents set out the rules that homeowners must obey in a managed community.

Disclosures

Another name for disclosure is an information document. In a residential real estate transaction, there are specific documents for both buyer and seller. There are also specific disclosures the seller must complete for the buyer’s review. Now if you’ve watched any of my videos read my BLOGs you know I refer to the two main seller disclosures as the transfer disclosure statement and the seller property questionnaire which is known as the TDS and SPQ. They are very important for both the seller to complete factually and to the best of their knowledge and for the buyer to read carefully. Please keep in mind that the number and type of disclosures required for a real estate transaction will depend on the state and the county.

The Deed

The deed Is a legal document that provides proof of the transfer of ownership of real property.

Down Payment

A down payment is the percentage of the purchase price that the buyer pays in cash. Depending upon the lender and the loan program, the percentage generally will range from 3 to 20%. The down payment is a lender requirement however some loans like VA do not require them. Please ask your lender for any specific questions on this.

Due Diligence

Due Diligence is a process that includes verifying all of the seller’s representations and uncovering any other pertinent facts that have not been disclosed but could have a bearing on whether or not the buyer wants to purchase the property. So it’s important to understand that the seller has responsibilities to the buyer to provide information such as found on the TDS and SPQ. However, it is up to the buyer and it is their responsibility to determine if the property is whole for them, and this is why there is an investigation period or contingency in the purchase agreement.

Earnest Money Deposit

The earnest money deposit is the money provided by the buyer to the seller to provide earnest intent to purchase the property. The amount varies, although it’s customary to be 3% of the purchase price. If the sale of the property goes through, the earnest money deposit is applied to the down payment. If the buyer chooses to cancel the purchase agreement, and they have released all of their buyer contingencies, technically they will forfeit their earnest money deposit to the seller. The purchase agreement is a legal document. Therefore, it’s always recommended that you consult with an attorney, especially one who specializes in real estate law, so you can best be advised.

Escrow

Escrow is a legal arrangement by a non-partial third party that holds all purchase funds. The funds can only be released when both parties are in agreement or have given instructions to the title company to do so. So when the property is to close, the title company will transfer the funds accordingly, which allows the buyer to purchase or be the new owner of the property.

Escrow Impound

Escrow impound account: The lender will require a deposit as a pre-payment of taxes and insurance at the close of escrow. This deposit goes into an escrow account and protects the lender in the event the buyer’s insurance lapses or doesn’t pay their property taxes. By law, the lender can only request an amount that is equal to no more than two months’ payments. Now if the buyer’s loan is set up to pay the property taxes and the insurance on an ongoing basis, I believe the lender will require more pre-payment. This is something to discuss with your loan agent.

FHA Loan

This is a loan tendered by a traditional lender but insured by the Department of Housing and Urban Development and administered by the Federal Housing Administration. FHA offers several home loan programs, some offering low down payments, others to assist buyers of fixer-upper properties. It’s important to understand FHA does not provide loans, it provides insurance for loans.

FICO Score

Your FICO score is a copulation of information from the three major credit reporting agencies and is calculated by the Fair Isaac Corporation. Your FICO score reflects debt payment history, the amount owed, length of credit history, new credit, and the types of credit you use. The FICO score ranges between 300 and 850. The higher your FICO score, the less of the credit risk you present to the lenders.

Fiduciary Duty

Fiduciary Duty: The broker under which the real estate agent works is the buyer and seller’s fiduciary. The broker has specific duties which are outlined by state law to their principal which is the buyer and seller. Some of these duties include disclosure, confidentiality, reasonable care, diligence, and loyalty.

Final Walkthrough

Final Walkthrough The buyer, per the residential purchase agreement contract, is allowed one last time to walk through the home prior to the close of escrow. This visit or inspection is not to turn up newly discovered defects, but to ensure that the house is in the same condition as when the offer was tendered.

Fixed Rate Mortgage

Fixed Rate Mortgage: A type of loan in which the interest rate does not fluctuate over the life of the loan.

HOA Docs

This stands for Homeowner’s Association Documents. When purchasing a condo, townhome, or any home that is managed in a community, you have a right to review the HOA meeting minutes, a copy of their current budget, CC&Rs, and any other related documents.

Loan to Ratio Value

LTV is a ratio that lenders use to assess risk when providing a mortgage loan. The LTV represents the amount of the mortgage divided by the appraised value of the property. Lenders consider higher LTV ratios as high-risk loans.

Mortgage

Mortgage is a legal document that pledges the house to the lender as security for the buyer to purchase the home.

Mortgage Insurance

Mortgage Insurance: An insurance policy that compensates the lender in the event a borrower defaults on the loan.

PITI (Principal, Interest, Taxes, Insurance)

PITA In a homeowner’s monthly mortgage payment, the principal is part of the payment that pays down the loan. The interest is part of the payment that pays the lender for loaning the homeowner or the borrower the money to buy the home. Taxes and insurance are paid for typically into an escrow account each month.

PMI, (Private Mortgage Insurance)

PMI, like mortgage insurance, this policy protects the lender against the buyer’s loan if they default. A lender usually requires PMI on their high-risk loans and typically when the LTV exceeds 80%. Keep in mind if the lender allows, if a homeowner’s LTV falls below the specific rate, the PMI may be discontinued.

Point

A point is a one-time charge by a lender for originating the loan. A point is 1% of the amount of the loan.

Pre-Qualification

Pre-qualification is the process of determining if a borrower or buyer qualifies for a loan and the approximate amount of money the buyer may qualify to receive. If a buyer is using financing for their home purchase, the buyer’s agent will submit along with the buyer’s purchase agreement contract the buyer’s pre-qualification letter.

Title Insurance

Title insurance is an insurance policy from the title company that protects against any damage due to a defect in the chain of title. Now, this relates back to the certificate of title. If the title company deems the property has a clear title, in other words, no clouds or liens found on the property, and it’s determined later that there is an issue, then the title company providing it is insured will be covered for any liability that may come from this. This of course would be a legal issue so any specific questions please reach out to an attorney or a title company for clarification.

VA Loan

VA loan is a loan offered by the Department of Veterans Affairs exclusively to members of the military, and as I said earlier, VA loans don’t require any down payment. Veterans, those on active duty, and reservists are all considered eligible to apply for the VA loan.

Please refer back to my BLOG when you need to

So this is a summary of some of the most common terms you’re going to hear. Of course, you don’t need to memorize the information rather just know it’s available if need it.

I hope you enjoyed this article. Please let me know if you have any questions. Warren

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Hello…I work with both buyers and sellers in the Tri-Valley area of Northern California. The Tri-Valley is comprised of 6 cities: Pleasanton, Livermore, Dublin, San Ramon, Danville, and Alamo. To better understand what each city has to offer, I have created a Pros and Cons video and BLOG for each – (Pros & Cons for Pleasanton, Pros & Cons for Livermore, Pros & Cons for Dublin, Pros & Cons for San Ramon, Pros & Cons for Danville and Pros & Cons for Alamo). If you are thinking about purchasing or selling a home, please reach out to me by text, phone, or email. If it is convenient, I can schedule a Zoom chat so we can discuss your home goals. Wishing you all the best on your home journey. Cheers!

Warren Oberholser

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Warren Oberholser

eXp Realty

[email protected]

(925) 980-4603

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ALL MATERIAL PRESENTED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. THE INFORMATION CONTAINED HEREIN HAS BEEN OBTAINED THROUGH SOURCES DEEMED RELIABLE BUT CANNOT BE GUARANTEED AS TO ITS ACCURACY. SUBJECT MATERIAL MAY HAVE ERRORS, OMISSIONS, CHANGES OR WITHDRAWAL WITHOUT NOTICE. ANY INFORMATION OF SPECIAL INTEREST SHOULD BE OBTAINED THROUGH INDEPENDENT VERIFICATION.

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