Having trouble with real estate jargon? No need to worry – we’ve got you covered! Our brief guide will help you understand the terms used in the industry, so you can explore the market with confidence.
Escrow
Escrow is a financial arrangement where a third party holds and regulates funds for a transaction, it is used in real estate to protect both the buyer and seller during the closing process. The escrow agent ensures that all conditions of the sale are met before the property and money change hands.
The Debt-to-income DTI Ratio
The debt-to-income (DTI) ratio, used by mortgage lenders, is calculated by adding up your monthly debt expenses and housing payment, then dividing by your gross monthly income, and multiplying by 100. This figure helps lenders assess affordability and estimate the monthly mortgage payment you can manage based on their loan programs. Lenders typically seek borrowers with housing payments at 28 percent or less of their monthly income, and total debt payments at less than 36 percent of their income. Adjusting your budget may be necessary if these percentages are higher.
Mortgage Pre-approval Letter
A mortgage pre-approval letter provides home buyers with an estimate of their affordable loan amount, terms, and type, following an assessment of their debt-to-income ratios, cash reserves, and credit history by the lender. This letter is often required by sellers or their agents as proof of the buyer’s qualified financing capability when submitting a non-cash home offer.
VA Loan
A VA loan is a government-guaranteed mortgage program available to military members, veterans, and even the eligible spouses, offering favorable terms such as low-to-no-down payment options, competitive rates, and fees. It aims to support the housing needs of those who have served in the military, providing accessible financing for home purchases.
Earnest Money Deposit (EMD)
The earnest money deposit (EMD) is the initial funds that a buyer is required to submit once a seller accepts their offer, demonstrating the buyer’s commitment to the purchase. Typically ranging from 1 to 5 percent of the sales price, the EMD is often held by an escrow company or as specified in the purchase and sale agreement (PSA).
Appraisal
An appraisal is the process of determining the estimated value of a property, typically required during a home sale when the mortgage lender sends out an appraiser to assess the property’s value. This assessment helps the lender determine if the property’s value aligns with the loan amount sought by the potential buyer.
Blind Offer
A blind offer occurs when a buyer submits an offer on a property without physically seeing it, even if they had the opportunity to do so. This strategy is often employed in highly competitive real estate markets or situations, with the aim of making a swift and preemptive bid to secure the property.
Conventional Sale
In real estate, a conventional sale refers to a property transaction where the owner either owns the property outright (no mortgage remaining) or owes less on the mortgage than the market value of the property. These sales typically involve smoother transactions compared to non-conventional sales, such as foreclosures, probate-related sales, and short sales.
Probate Sale
A probate sale occurs when a homeowner passes away without leaving a will or designating a recipient for their property. In this scenario, the probate court authorizes an estate attorney or representative to enlist a real estate agent to sell the home. This process is typically more complex and time-consuming compared to a conventional sale.
Real-Estate Owned (REO)
Real Estate Owned (REO) refers to properties owned by a lender following an unsuccessful foreclosure sale at auction. These properties may offer buyers an opportunity to purchase below market value, as banks often prioritize reinvesting proceeds over extended property marketing. Furthermore, REO properties are typically sold “as-is,” meaning the bank is unwilling to make any repairs, which can complicate financing.
Offer/Counter Offer
An offer or counter-offer in real estate occurs when a buyer makes a formal proposal to purchase a property, either at the full list price or at a value determined by the buyer and their agent. The buyer’s agent presents the offer in writing to the seller’s agent, and the seller may either accept it, leading to a purchase contract, or make a counter-offer, initiating a negotiation process documented in paperwork.
CC&Rs
Covenants, conditions, and restrictions (CC&Rs) are rules and regulations imposed on real property by entities such as homeowner’s associations, neighborhood associations, developers, or builders. They outline the requirements and limitations for property use, and may also encompass provisions for monthly or annual fees, as well as special assessments.
Natural Hazards Disclosure(NHD)
A Natural Hazards Disclosure (NHD) report is a mandated document in most states that reveals if a property is situated in an area with an elevated risk of natural disasters. Typically paid for by the seller, this report is provided to the buyer during the escrow process. The NHD report covers the following natural hazard zones:
- Area of potential flooding
- Special flood hazard area
- Earthquake fault zone
- High fire hazard severity zone
- Seismic hazard zone
- Wildland area that may contain substantial forest fire risk and hazards
Closing Costs
Closing costs refer to the fees and expenses that are due at the closing of a real estate transaction. These costs typically include loan processing fees, title insurance, appraisal fees, and taxes.
REALTOR®
A REALTOR® is a licensed real estate agent who is a member of the National Association of REALTORS® (NAR) and is committed to upholding the association’s Code of Ethics. This commitment includes providing a high standard of practice and care when serving the public, customers, clients, and fellow REALTORS®.
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Shirin Rezania Ramos | 858.345.0685 | www.shirinramos.com | Compass, DRE 0203379
