Frequently Asked Questions by Home Buyers

What happens to my initial deposit?
Your initial deposit is required to be deposited with the escrow company within 3 days of an accepted offer. The escrow company will deposit the funds into an escrow account until closing. At closing, the amount of the deposit is credited towards the total amount of money you will need to bring in to close the escrow. If you decide to cancel the contract per the terms of the agreement, then you will be entitled to the return of your deposit, less any costs that you incurred during the escrow. 

Can I lose my deposit if I cancel? 
Real estate contracts are complicated legal transactions. This is an area where having a knowledgable and professional agent is a necessity. Rarely does the buyer lose their deposit. Most often, if a transaction falls apart, it is due to circumstances beyond the buyer’s control. These can include property condition, low appraisal or inability to obtain financing. However if the buyers operates in bad faith or willfully decides that they no longer want to buy the house and cancels the contract with no legal reason for doing so, then the seller may have the right to retain the buyers deposit. 

What is a contingency?
A contingency is a clause in the purchase agreement that allows for the parties to back out of the contract under certain circumstances. For a buyer, there are 3 main contingencies: Inspection, Appraisal and Loan. The timeframes for each contingency are negotiated in the contract. Once a buyer actively removes the contingency, they put their deposit at risk if they subsequently cancel the contract for a reason related to that contingency. This is another reason why it is important to work with a knowledgeable Realtor that can guide you through the process. 

What if I need to sell my home before I can buy a new one?
Having a home to sell adds another layer of complexity to your transaction. In this case, it is important that we meet early in order to discuss a plan based on your timeframe and goals. It is possible to make an offer on a replacement home “contingent” on the sale of your current home. However, a buyer in this position may not have the same negotiating power as a buyer that does not have a home to sell. 

What’s in the purchase offer?
A real estate purchase offer is  legally binding contract that a homebuyer uses to make an offer on a property. The primary elements of the purchase offer include the offer price, down payment, earnest money deposit, and the contractual dates that stipulate when the transaction will close and how many days the buyer has to meet certain conditions including the property inspection, appraisal and loan periods. Within the purchase offer, the buyer will also commit to various additional details including how escrow costs, real estate transfer taxes and any local point of sale ordinances will be paid. 

What are closing costs?
Closing costs can include lender fees, title & escrow fees, transfer taxes, property tax adjustments, prepaid property taxes, pre-paid homeowner’s insurance costs and more. Some of these costs are negotiated as part of the contract, while others are not. Your lender will be able to give you an up-front “Loan Estimate” that will give you a good idea of what your overall closing costs will be.

What inspections should I get? 
Because your home is likely your biggest investment, it’s essential that you have a thorough understanding of its condition before you buy it. There are three basic inspections all home buyers should be prepared to pay for once under contract to purchase a home: a home inspection, pest inspection and roof inspection. Aside from these, there may be other inspections recommended depending on the condition, location and age of the home. Virtually all homes will have issues. The inspection period is your opportunity to learn whether you can manage the costs associated with any needed repairs. The inspection process is also an opportunity to learn about the property’s positive attributes. We regularly attend inspections and can help you choose the right inspectors and contractors for your needs. 

 

What is Title? (PDF Link)

Comparison of Title Policies (PDF Link)

Methods of Holding Title (PDF Link)

What is a Preliminary Report? (PDF Link)

The Escrow Process (PDF Link)

Understanding Closing Costs (PDF Link)

California Property Tax Guide (PDF Link)

Withholding on California Real Estate (PDF Link)

Who Pays What In Your County? (PDF Link)

 

Glossary of Terms

These definitions are to acquaint the home buyer with terms commonly used in real estate transactions. The terms are intended to be general and brief and are not complete and wholly accurate when applied to all possible uses of the term. Please consult with us for more information or questions regarding specific terms.

 

Adjustable Rate Mortgage (ARM) – A mortgage instrument with an interest rate that is periodically adjusted to follow a pre-selected published index. The interest rate is adjusted at certain intervals during the loan period.

Adjustment Period – The length of time between interest rate changes on an ARM. For example, in the case of an ARM loan with a one-year adjustment period, the interest rate may change once each year.

Agency – Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the principal. Agency involving real property should be in writing, such as listing, trust, powers of attorney, etc.

American Land Title Association (ALTA) – A national association of title insurance companies, abstractors, and agents. The association adopts standard policy forms.

Amortization – Repayment of a mortgage debt with periodic payments of both principal and interest, calculated to retire the obligation at the end of a fixed period of time.

Annual Percentage Rate (APR) – A term defined in section 106 of the Federal Truth in Lending Act (15 USC 1606), which expresses on an annualized basis the charges imposed on the borrower to obtain a loan (defined in the Act as “finance charges”), including interest, discounts and other costs.

Appraisal – An opinion or estimate of value. Also refers to the process by which a value estimate is obtained.

Assignment – The transfer of ownership, rights, or interests in property, as in a mortgage, lease, or deed of trust. Mortgages and other security instruments are regularly assigned from one investor to another and commitments by HUD/FHA to insure mortgages may be assigned by one originating lender to another before insurance.

Beneficiary – The person who is entitled to receive funds or property under the terms and provisions of a will, trust, insurance policy or security instrument. In the case of a mortgage loan, the beneficiary is the lender.

Broker, Real Estate – One who is licensed by the state to carry on the business of dealing in real estate. A broker is employed on a fee or commission basis to bring together buyers and sellers, landlord and tenant, or parties to an exchange, and assist in negotiating contracts between them.

California Land Title Association (CLTA) – A California statewide association of title insurers and underwritten title companies. The association adopts standard title policy forms.

Cap – The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

Certificate of Reasonable Value (CRV) – A document that establishes the maximum value and loan amount for a VA guaranteed loan.

Closing Costs – The costs incurred to purchase real estate. These may include loan fees, title fees, appraisal fees, etc.

Closing Statement – The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.

Commission – An agent’s compensation for negotiating a real estate or loan transaction, often expressed as a percentage of the selling price.

Community Property – A form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Contingency Clause – A provision in some ARM’s to a fixed rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed rate mortgages. This conversion feature may cost extra.

Deed – The document by which title to real property is transferred or conveyed from one party to another.

Deed of Trust – Type of security instrument in which the borrower conveys title to real property to a third party (trustee) to be held in trust as security for the lender, with the provision that the trustee shall reconvey the title upon the payment of the debt, and, conversely, will sell the land and pay the debt in the event of a default by the borrower.

Deposit – A sum of money given to (1) bind a sale of real estate, or (2) assure payment or an advance of funds in the processing of a loan. Also called Earnest Money.

Discount Points – A negotiable fee paid to the lender to secure financing for the buyer. Discount points are up front interest charges to reduce the interest rate on the loan over the life, or a portion, of the loan’s term. One discount point equals one percent of the loan amount.

Due on Sale Clause – An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.

Earnest Money Deposit (EMD) – A deposit made to bind the conditions of a sale of real estate.

Easement – A limited right of interest in land of another that entitles the holder of the right to some use, privilege or benefit over the land.

Escrow – The process in which a neutral third party holds money and documents for delivery to the respective parties in a transaction on performance or established conditions.

Federal National Mortgage Association – Commonly known as Fannie Mae. A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by VA, as well as conventional home mortgages.

Finance Charge – The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z. 

Foreclosure – The legal process by which property is sold to satisfy an unpaid debt in the event of default on terms or payments of a mortgage.

Good Faith Estimate (GFE) – A document that tells borrowers the approximate costs they will pay at or before settlement, based on common practice in the locality. Under requirements of the Real Estate Settlement Procedures Act (RESPA), the mortgage banker or mortgage broker, if any, must deliver or mail the GFE to the applicant within three business days after the application is received.

Graduated Payment Mortgage – A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate.

Grant Deed – One of many types of deeds used to transfer real property.

Hazard Insurance – Real estate insurance protecting against loss caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

Homeowner’s Association (HOA) – (1) An association of people who own homes in a given area, formed for the purpose of improving or maintaining the quality of the area. (2) An association formed by the builder of condominiums or planned developments and required by statute in some states.

Impound Account – An account held by a lender for the payment of taxes, insurance or other periodic debts against real property.

Index – A measure of interest rate changes used to determine changes in an ARM’s interest rate over the term of the loan.

Joint Tenancy – A means of ownership in which two or more persons own equal shares in real property. Upon the death of one tenant, his/her share passes to the remaining tenant(s) until title is vested in the last survivor.

Legal Description – A description by which real property can be definitely located by reference to surveys or recorded maps. Sometimes referred to simply as “the legal.”

Lien – A legal hold or claim on property as security for a debt or charge.

Loan Commitment – A written promise to make a loan for a specified amount on specific terms.

Loan to Value Ratio – The relationship between the amount of the appraised value of the property and the loan, expressed as a percentage of the appraised value.

Lock-in – A guarantee by the lender of a particular loan rate. The loan must fund before the lock expiration in order to receive the guaranteed or “locked” rate.

Margin – The number of percentage points the lender adds to the index rate to calculate the ARM’s interest rate at each adjustment.

Market Value – An appraisal term denoting the highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Mortgage Payment – A payment that is owed to the bank/lender each month toward repayment of the loan. The amount is determined by the terms of the loan: principal, interest rate, length of the loan, and periodic adjustments, if applicable.

Multiple Listing Service (MLS) – An exclusive listing, submitted to all members of an association, so that each may have the opportunity to sell the property.

Negative Amortization – Occurs when monthly payments fail to cover the interest cost. The interest that isn’t covered is added to the unpaid principal balance, which means that even after several payments you may owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren’t high enough to cover the interest.

Note – A unilateral agreement containing an express and absolute promise of the signer to pay to a named person, order, or bearer a definite sum of money at a specified date or on demand. Usually provides for interest and, concerning real property, is secured by a mortgage or trust deed.

Origination Fee – A fee made by a lender for making a real estate loan. Usually a percentage of the amount loaned, such as one percent.

PITI (Principal, Interest, Taxes and Insurance) – The four major components of a usual monthly mortgage payment.

Point – An amount equal to 1% of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.

Power of Attorney – An authority by which one person (principal) enables another (attorney-in-fact) to act for him. 
(1) General power – authorizes sale, mortgaging, etc., of all property of the principal. Invalid in some jurisdictions. (2) Special power specifies property, buyers, price and terms.

Preliminary Report – A report prepared prior to issuing a policy of title insurance that shows the ownership of a specific parcel of land, together with the liens and encumbrances thereon which will not be covered under a subsequent Title Insurance Policy.

Prepayment Penalty – A penalty under a note, mortgage, or deed of trust imposed when the loan is paid before it is due.

Pre-Qualification Letter – A letter that states a potential borrower’s financial status to determine the size and type of mortgage available to him/her.

Principal – (1) The amount of debt, not including interest. (2) The person who is served by an agent or attorney.

Private Mortgage Insurance (PMI) – Insurance written by a private mortgage insurance company protecting the mortgage lender against loss occasioned by a mortgage default and foreclosure. The premium is paid by the borrower and is included in the mortgage payment. Typically required if down payment is less than 20% of purchase price.

Processing (or Origination) Fees – Fees that cover the administrative cost of processing the loan. These charges vary from lender to lender.

Promissory Note – A promise in writing and executed by the maker to pay a specified amount during a limited time, on demand or at sight to a named person, or on order to bearer.

Proration – The method used in dividing charges into that portion which applies only to a party’s ownership up to a particular date.

Quitclaim Deed – A deed operating as a release; intended to pass any title, interest, or claim which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

Reconveyance – The conveyance to the landowner of the title, held by a trustee under deed of trust, when the performance of the debt is satisfied.

Recordation – Involves filing for record in the office of the County Recorder for the purpose of giving constructive notice of title, claim or interest in real property.

Right of Survivorship – The right of a survivor of a deceased person to the property of said deceased. A distinguishing characteristic of a joint tenancy relationship.

REO Sale – An REO sale is a property sales transaction by a lender of a property to which that lender acquired title as a result of a foreclosure. The lender/seller then takes to property into its “Real Estate-Owned” (REO) department for marketing and selling.

Short Sale – A short sale is a property sales transaction where there are not sufficient funds from the sale proceeds to pay off all secured lenders and other creditors, the lenders and creditors agree to accept less money than what is actually owed on the mortgage loan or other secured debt.

Statement of Information (SI) – A confidential form filled out by buyer and seller to help a title company determine if any liens are recorded against either party. It is necessary to differentiate between parties with similar names. Also called a Statement of Identity.

Tenancy in Common – An undivided ownership in real estate by two or more persons. The interests need not be equal. In the event of the death of one of the owners, no right of survivorship in the other owner exists.

Title Insurance Policy – A policy that protects the purchasers, mortgagee or other parties against losses.

Uniform Settlement Statement – The Standard HUD Form 1 required to be given to the borrower, lender and seller at, or prior to, settlement.

VA Loan – A loan that is guaranteed by the Veteran’s Administration and made by a private lender.

Vesting – Denotes the manner in which title is held. Examples of common vesting’s are: Community Property, Joint Tenancy, Tenancy in Common, and Community Property with Right of Survivorship.