Real Estate Terms Buyers Should Know

Did you see Part 1 of this series? In this post, we continue looking at real estate terminology you should know about. This time we look at terms that are helpful for buyers!
The California Department of Real Estate has published a comprehensive glossary with the legal definitions for most terms involved in transactions. While authoritative and accurate, Mosaik Real Estate feels its clients should have access to these terms in plain language.

Here are some of the most common terms our buyer clients ask us about:

• “Fixed-Rate” vs. “Adjustable-Rate” Mortgages

Let’s start with an easy one…simply put, while the interest rate of a fixed-rate mortgage stays the same throughout the lifespan of your loan, having an adjustable-rate mortgage means your interest rate may go up or down. Because of today’s record low rates, we currently recommend fixed-rate mortgages to almost all of our buyers.

• “Prequalification vs. “Preapproval” vs. “Fully-Underwritten Preapproval”

These are three ways of showing to a seller that you can afford to buy their house. However, some give you more purchasing power than others:

• • “Prequalification”: Prequalification is based on unverified financial data you provide to a lender, resulting in a rough estimate of what you can afford.

• • “Preapproval”: Preapproval requires the additional step of having a lender verify your financial data to determine your creditworthiness and ability to borrow. This process involves filling out a mortgage application, and may be subject to additional fees.

• • “Fully-Underwritten Preapproval”: Fully-Underwritten Preapproval involves complete documentation and verification of your income, assets, as well as debts, and will often require a credit check. This form of preapproval allows the lender to put your mortgage application through a more thorough initial validating process, avoiding many of the potential obstacles on your way to final approval.

• “HOA Fees”

These are monthly dues paid to a Homeowners’ Association (HOA) — which exist between residents of a subdivision, planned community, or condominium — to cover ongoing maintenance and improvements. HOA fees can vary drastically depending on the amenities of the property, covering things like door staff, pools, etc. Also, HOA fees are considered when seeking a preapproval; as such, the higher the HOA fees for a particular property, the lower maximum list price you can afford.

• “Contingencies”

Contingencies are clauses in a real estate contract outlining certain conditions that must be met by either the buyer or the seller in order to move forward with the transaction. By waiving contingencies, buyers can make their offers more competitive in low inventory markets like the Bay Area.

• “Closing” vs. “Escrow” vs. “Title”

While some use these terms interchangeably, each reflects a distinct part of the transaction. Let’s look at what each one means:

• • “Closing”: Closing refers to the entire process between having an offer accepted and becoming the owner of the property. There are many steps in this process, and you can find a high-level overview of that process here. The normal close period is 30 days, but it can be shorter (or longer) depending on circumstances.

• • “Escrow”: As explained in Part 1 of this series, Escrow is the financial arrangement in which you and the seller enlist a neutral third party (i.e. an “Escrow Officer”) to hold money, paperwork, or other assets until both parties have met their obligations for the agreement. Those obligations often include any home inspections, disclosures, or objections that need to be completed or resolved on time.

• • “Title”: The Title to a property shows who owns it. You as a buyer can request a title report to verify the seller’s full ownership; for example, that there are no liens on the property and that no one but the seller has a claim to any part of it. We recommend all our buyer clients secure title insurance, which protects them and their lender from any legal challenges from anything missed during the title report.

The Bottom Line

Again, these definitions just scratch the surface of everything that goes into the experience of buyers. As such, please get in touch with any questions!
This series will conclude in Part 3, where we’ll be sharing terms that all sellers should know.