Real Estate Terms

Commonly used terms in buying a home

• Conventional Loan – A loan not guaranteed by the federal government. Typically require a higher down payment and FICO score but offer lower interest rates in return.
• CCRs – Covenants, Codes, and Restrictions – CCRs are rules and regulations that apply to properties within a HOA, and are recorded with the County Recorder. By purchasing a property with CCRs, you are agreeing to abide by the terms and conditions of the CCRs. Take the time to read the CCRs before you buy any property with CCRs. If you do not like what you see, do not buy the property. HOAs are in charge of enforcing the CCRs, and some can be very particular about strict enforecement, where other HOAs are very lax, but you must assume that any rule can be enforced through fines. What’s contained in CCRs varies from HOA to HOA so there is no set standard. Take the time to read them before buying any home affected by CCRs.
• Condo – Short for condominium. Similar to an apartment except that you own the unit. You only own what is within the walls of your unit, unlike a town home where you own a portion of the land the town home sits on. You pay a monthly HOA fee for maintenance and management of the condo complex.
• Condo Conversion – A former apartment building that had all the units sold off to individual owners. Usually built to apartment standards vs. condo standards, which provide for more noise abatement and better general quality of construction.
• Due Diligence – In the purchase and sale contract for the home you are in escrow for, there is a specific time period where you are allowed to inspect the physical structure of the home and the property as well as the legal history of the home (such as HOA CCRs, the title, or any easements affecting the property). In the event you find any issue not to your liking you are able to negotiate a remedy with the seller or cancel the contract and have your earnest money refunded. The length of this varies and can be negotiated on a case by case basis, your Realtor will be able to offer you guidance here. If you do not object to anything you have discovered during the due diligence period, then you are agreeing to live with it and can not object later without losing your earnest money.
• Earnest Money Deposit – When you open escrow you give the escrow company a earnest money deposit (the sum of which is defined in the purchase and sale agreement and is negotiable) that can be refunded during your due diligence period in the event that you discover an issue with the property not to your liking, such as expensive repairs needed the seller is not willing to pay for. At the end of the due diligence period the earnest money usually becomes non-refundable.
• Escrow – The period of time from acceptance of the offer by the seller to the actual transfer of ownership of the home.
• FICO – Fair Issac Company is a credit agency that generates the FICO score from the information contained in your credit report maintained by the three credit agencies. The FICO score is the industry standard; all three credit agencies provide a credit score but lenders only look at FICO scores.
• FHA Loan – A loan guaranteed by the Federal Housing Authority (FHA), which have low down payment and FICO score requirements. The borrower will pay an up front fee for the loan guarantee, and will usually pay higher interest rates than they would with a conventional loan. Most first time home buyers get FHA loans.
• Home Inspection – A home inspection is performed by a licensed home inspector during the due diligence period, and the inspector will look for obvious issues with the home such as heating or air conditioning problems, if all the outlets in the home work, or if the appliances work correctly. In the event that the inspector suspects an issue, they will recommend that you hire a specialist to verify if there is a problem or not. They will not make any repairs, nor will they tell you how much it will cost to make the repairs.
• HOA – Home Owner’s Association – Condos, townhomes and many detached single family residences fall under the supervision of a HOA. The HOA is comprised of all owners of property within the boundaries of the HOA, as well as a set of CCRs that cover the use of the properties within that HOA. When you buy a home covered by a HOA, you will sign a document acknowledging the existence of the CCRs and your agreement to abide by those CCRs. If you do not want to be effected by a HOA, do not buy a home in a HOA. HOA’s collect monthly fees for maintenance and management of the area covered by the HOA, as well as asses fines against homes that do not comply with the CCRs. HOA’s have the ability to foreclose on a home to collect unpaid fees and fines.
• Mortgage – A legal document used to file a claim against a property to secure a loan that was made to finance the property. Mortgage is commonly used to describe the loan itself, however a loan and a mortgage are two separate things, with the mortgage being the legal document you sign that allows the bank to use the property as collateral in the event you do not pay for the loan.
• Purchase and Sale Agreement – The title of the contract used to buy or sell a home. Once the buyer and the seller both sign this agreement, the house is considered under contract and no longer available for sale. All of the specifics of the sale are spelled out in this document, such as the due diligence period, the earnest money deposit, when the sale is to take place, who the buyer and sellers are, who are the title and escrow companies that will be used, the type of financing the buyer is using, what happens if either party fails to perform, and how much the property is to sell for.
• Realtor – A Realtor is a licensed real estate agent who is a member of the National Association of Realtors.
• Title – When you hold title to a property, you are the owner of that property.
• Title Company – A company that creates and records the title to a property. Title companies search the local property ownership database, normally maintained by the County Recorder, for ownership information and property descriptions. When a property is changing ownership, the title company will draft a new title to the property reflecting the new ownership, and record that new title with the county recorder once the funds for the sale are received by the seller. Title companies also issue title insurance policies to guard against a claim against the property made after you get title to the property.
• Title Insurance – An insurance policy issued by the title company handling the transfer of ownership of the property to guard against future claims made against the property. For example, if a mechanics lien was filed against the property prior to your ownership, the holder of that lien could seize your property to make the claim whole. It is the job of the title company to search all public records for any claims against the property prior to you taking ownership so that any claim can be satisfied prior to the transfer of ownership. A title insurance policy is issued to prevent unknown liens from effecting the property once you take ownership.
• Townhome – Similar to Condo, in that you own a unit within a multi-unit housing complex, as well as a defined portion of the property, such as an attached yard. Like a Condo you pay a monthly HOA fee for maintenance and management of the entire complex.
• VA Loan – A loan insured by the Veterans Administration (VA). Current and former members of the military are eligible for a VA loan, and pay a fee for the VA to guarantee the loan. Typically have lower credit requirements due to the strength of the VA backing.