San Diego Real Estate Terms
Common Terms Used When Buying and Selling Homes
Buying homes in San Diego is a complicated process. The typical home buyer can be overwhelmed by the number of documents and disclosures, each filled with legal terms. There are close to 100 documents signed and exchanged in the typical San Diego real estate transaction. These include escrow documents, vesting instructions, title policies and disclosures, loan documents, disclosures from the home seller and from the real estate brokers, and the purchase agreement itself which usually includes multiple addenda and contingencies. Identifying homes for sale in San Diego is actually one of the smaller roles of the Realtor. The most important role is managing the transaction, and this requires constant education and training to stay a step ahead of always-changing real estate laws and regulations.
For a general introduction to some of the most frequently used San Diego real estate terms, read the list below. Then call your Personal Real Estate Consultants, The Schiering Team At Keller Williams Realty, for a detailed explanation: 619-200-7612
1031 Exchange: The process of using the proceeds from the sale of one property to buy a different property without paying capital gains taxes on the proceeds from the first sale. San Diego investment property includes residential homes, land, or commercial properties.
Abstract of Judgment: A court-ordered lien to cover debt payment.
Abstract of Title: Summarizes issues relating to property title, including conveyances, transfers, and other facts that may affect or “cloud title” to a property.
Adjustable Rage Mortgage: A mortgage that begins with a low interest rate and then adjusts upward over time according to movements in the specified index, such as the Federal Funds Rate. May also be called variable rate mortgages.
Adjustment Period: This is the period of time between the initial rate and the adjusted rate of an ARM. For example, a 5/1 ARM would be a 5-year loan that adjusts after the first year.
Amortized Loan: A loan is fully amortized when it is completely paid off. During the life of the loan the loan is amortized as the mortgagee makes payments of interest and principal. Contrast an interest-only or negative-amortization loan in which the principal debt can remain the same or grow over time.
Appreciation: As real estate increases in value it appreciates.
Annual Percentage Rate (APR): The “real” interest rate which includes the total cost of the loan, including interest payments, loan fees, and points amortized over the life of the loan expressed as a percentage of the loan amount.
Assumption of Mortgage: Transfer of debt to a new mortgagee who assumes liability for the loan. Assumption of a loan requires lender approval, as it typically releases the original mortgagee from responsibility under the terms of the loan.
Balloon Payment: A large lump-sum payment due on some mortgages or loans at the end of the loan term.
Binder: The terms of coverage under an insurance policy.
CAP: Limits the amount that the monthly payment or interest rate that a home mortgage loan can increase over time.
Covenants, Conditions & Restrictions (CC&R’s): An agreements between members of a home owner’s organization which contains prohibitions on certain conduct as well as responsibilities of the home owners to maintain their homes.
Closing Statement: The document which summarizes the debits and credits distributed to the parties to a real estate contract at the completion of the transaction. Amounts include taxes payments, insurance payments, mortgage payments, proceeds to the property seller, and refunds due to the home buyer.
Condominium: Joint ownership of common areas of public property shared by a group of residential home owners. The individual owns the space inside the walls, while the home owner’s association is responsible for public areas.
Contingency: Conditions that must take place before a contact becomes completely binding between the parties to the agreement.
Conversion Clause: A provision in some loans that allows the borrower to convert from one type of loan to another… typically an adjustable rate mortgage to a fixed rate… after a specified period of time.
Cooperative: Joint ownership of a property through a business trust or corporation that holds title, granting the shareholders the occupancy rights to the property according to lease or other contract terms.
Counter Offer: An offer in response to a prior offer. The Counter Offer is a formal rejection of the prior offer, presenting a completely new offer at new or slightly modified terms.
Deed: The evidence of ownership to a property, which must be in writing and property executed and recorded to convey title.
Discount Points: Fee charged by the originator of a loan to lower the interest rate at the time the loan is made. One point is the same as one percent, and half a point would be half a percent.
Due-On-Sale Clause: Requires a real estate seller to make a specified payment upon transfer of the property to a new owner.
Earnest Money: The “Good Faith Deposit” that is submitted by the buyer along with the offer to purchase the real estate. The deposit money is typically refundable during the contingency period of the purchase contract.
Easement: The right to use property for a particular purpose, granted by the property owner to third parties or to the public.
Equity: The positive difference between the amount owned on a mortgage loan and expected or actual market value of a property.
Escrow Company: The third-party intermediary that coordinates transfer of documents between the parties to a contract, making sure that all parties satisfy their obligations before “Close of Escrow”, which is the completion of the transaction.
FHA Loan: A type of loan program offered through the Federal Housing Administration’s Dept. of Housing and Urban Development.
Fannie Mae: The FNM Association is a privately owned corporation created by Congress. It acts to support the secondary mortgage market and also to originate home loans. It’s primary role is purchasing and selling residential mortgages guaranteed by the Veteran’s Administration or by FHA.
Fee Simple: A type of estate, or method of holding property, which gives the owner unrestricted power to sell or otherwise dispose of the property (including by will or trust). This is the most complete interest in real property.
Finance Charge: Fees charged to a borrower as the cost of obtaining credit, tightly regulated under Regulation Z.
Home Inspection Report: Professional inspectors provide inspections and written reports to home buyers. In California there are several trade organizations that certify property inspectors. The most well known is the California Real Estate Inspector’s Association (CREIA).
Home Warranty: An insurance policy sold to protect home buyers against mechanical systems failures within the property. Usually requires payment of a set fee for any repair call, with the balance paid by the insurance company.
Index: The measure used to determine interest rate fluctuations or changes to ARM’s interest rate over time.
Joint Tenancy: Ownership of undivided interests in the same property by two or more people. Should one owner die, the remaining owner or owners take over the deceased person’s ownership interest.
Land Contract: A form of owner financing that allows the property seller to keep title to the property until all or an agreed-upon part of the purchase price is paid.
Lien: A recorded or unrecorded instrument that evidences debt or other obligation attached to a property. An example is a mechanic’s lien that can be attached to a property by service providers who have not been paid by the property owner for work performed.
Loan Commitment: A written promise to make a loan according to particular terms over a specified period of time.
Loan-to-Value Ratio: The amount of the mortgage loan divided by the real or estimated market value of a property. Loan programs that require a 20% down payment are requiring a 80% loan-to-value ratio.
Margin: The spread between the interest rate charged on a loan and the interest rate of the index used to calculate the rate charged on the loan.
Marketable Title: Clean title as evidenced by a lack of liens, encumbrances, or other conflicting claims to ownership of a property.
Mortgage: The instrument by which property is pledged to secure a debt. A home mortgage pledges the home in return for the mortgage loan, and the deed to the home belongs to the lender until the debt it paid.
Multiple Listing Service (MLS): A catalog of homes for sale maintained by the Board of Realtors® of a particular locality, state, or country. In San Diego, the association’s members agree to share the information about homes for sale between themselves and with the public according to terms agreed upon by the Realtor association. “San Diego MLS listings” contain detailed information about houses, condos, land, and commercial property for sale in San Diego.
Negative Amortization: A mortgage payment schedule that allows the mortgagee to pay less than the amortized amount of principal plus interest. The excess amount is added to the balance due on the loan.
Origination Fee: A lender fee charged for services related to issuing a mortgage loan.
Personal Property: Any items that are not real property. In the context of a home purchase, personal property is anything that is not attached to the walls or to the structure of the dwelling.
PITI: Acronym for “Principal, interest, taxes, and insurance” used to calculate a home owner’s monthly payments.
Planned Unit Development (PUD): A real estate development that is specially zoned for higher density than the surrounding neighborhood. Such developments may be residential, industrial, or commercial.
Point: See “Discount Points”
Prepayment Penalty: A fee charged to a mortgagee who sells a property or pays off a loan prior to a specified date. Prepayment penalties are not allowed VA or FHA.
Promissory Note: Following a loan commitment from the lender, the borrower signs a note promising to repay the loan under stipulated terms. The promissory note establishes personal liability for its repayment.
Property Taxes: Amounts assessed on the value of real property. In San Diego property taxes are assessed bi-annually in the fiscal year July 1 through June 30.
Purchase Agreement: The contract, required to be in writing, which binds the purchaser and seller of real property. The California Department of Real Estate publishes the standard Residential Purchase Agreement (RPA-CA) used in San Diego real estate transactions.
Real Property: Land and the buildings that are attached to the land.
Realtor®: A member of the Board of Realtors, which is a professional trade association of real estate professionals. Not all San Diego real estate agents are Realtors. San Diego Realtors subscribe to a stringent code of ethics and are subject to discipline between members for any misconduct.
Regulation “Z”: The rules that govern consumer lending, as promulgated under the Consumer Protection Act by the Federal Reserve Board of Governors.
Special Assessment: A non-regular charge that is levied against real estate to pay for public improvements or infrastructure (such as roads and sidewalks). In California, Mello-Roos fees are a special assessment typical in newer San Diego home developments.
Subdivision: Breaking a parcel of land into smaller parts such as blocks or lots.
Tenancy in Common: Joint ownership and interest in real property by two or more persons, where the death of one person does not transfer the ownership interest to the surviving tenant(s) in common. Interests after death are transferred by will, by trust, or by probate.
Mortgage Term: The repayment period of a mortgage loan.
Trust Account: A method of separating a real estate broker’s funds from funds received from customers for down payments on purchases. By law, the broker’s personal funds or company funds cannot be co-mingled with the trust funds.
Title Policy: An insurance policy issued by a title company protecting the real property purchaser from conflicting interests in title to the property.