Buying or selling your San Francisco home can be an extremely exciting time in your life, however, it can also be incredibly confusing and stressful if not equipped with the right tools to navigate this momentous life decision. Dealing with terms like Adjustable Rate Mortgage vs. Fixed-Rate Mortgage, recurring vs. nonrecurring closing costs, and Earnest Money Deposit can be daunting to even the most experienced homebuyer. That’s why it pays to have a good foundation of knowledge going into any real estate transaction. The real estate terminology guide we provided below will get you started, but the best way to ensure you have a thorough understanding of every step of your Mission Dolores, Bernal Heights or Noe Valley home buying or selling process is to have a knowledgable, reputable realtor on your side. Whether a first time home buyer in San Francisco or a seasoned pro, with my keen insight into the market and expertise in the community, I can help navigate your Bay Area real estate transaction with ease and confidence.
Some other resources that may be beneficial to read:
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Active: This means that a property is currently on the market and available for sale. It may have received offers, but none has yet been accepted, meaning you are still able to make an offer if you so wish.
Active with contract (AWC): This means that even though there’s an accepted offer on the home, the seller is looking for backup offers in case the primary buyer falls through. While any seller can entertain backup offers as a precautionary measure as long as this is made clear in the contract, this term most often crops up with short sales, since they can often fall through, and it can be helpful if a second buyer is waiting in the wings.
Adjustable-Rate Mortgage (ARM): A mortgage loan with an interest rate that fluctuates in accordance with a designated market indicator over the life of the loan (usually 1-2/year). To avoid constant and drastic fluctuations, ARMs typically limit how often and by how much the interest rate can vary.
Annual Percentage Rate (APR): A yearly interest rate that includes upfront fees and costs paid to acquire the loan, calculated by taking the average compound interest rate over the term of the loan. Mortgage lenders are required to disclose the APR so that borrowers can more accurately compare the actual cost of different loans with different fees.
Appraisal: A determination of the value of the house you plan to buy. A professional appraiser makes an estimate by examining the property, looking at the initial purchase price, and comparing it with recent sales of a similar property. Your bank or other lenders will require the appraisal in order to ascertain the worth of the house for lending purposes. The lender may refuse to fund the loan if the appraisal comes in lower than the loan amount. In this case, unfortunately, you must either come up with additional down payment money or a better appraisal.
Asking Price: The initial selling price of a property, determined by the seller.
Assumable Loan: A home mortgage which can be transferred from the previous owner to the new owner, thus allowing the buyer to take over the seller's mortgage. Most lenders require the borrower to qualify for the mortgage in order to assume the mortgage.
CMA: Comparative market analysis or competitive market analysis. A CMA is a report that shows prices of homes comparable to a subject home and that were recently sold. The sold prices, known as comps, can help homeowners determine how much their home is worth in the current market.
Contingency: A provision in a real estate contract in making an offer is “contingent”, or dependent, on one or more conditions that must be fulfilled before the buyer is willing to proceed with the purchase; such as the prospective buyer making an offer contingent on his or her sale of a present home.
Conventional Mortgage: A type of mortgage not insured by either the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), and thus usually requiring a 10 percent – 20 percent down payment. (HUD Homes may be purchased with a conventional mortgage.)
Counteroffer: The rejection of an offer to enter into a contract, where the rejecting party includes a different offer that changes the terms of the original offer in some way. The legal significance of a counteroffer is that it completely voids the original offer.
Down payment: The lump sum in cash that you can afford to pay at the time of purchase. Traditionally, down payments are 20% of the purchase price.
Earnest money deposit (EMD): A partial payment demonstrating “good faith” in a contractual relationship, made at the time of the purchase offer. The remainder of the payment is due on the closing date. The seller keeps the earnest money if the buyer fails to make timely payment in full (or if there is a similar breach of the agreement).
Escrow: The holding of funds or documents by a neutral third party prior to closing your home sale.
Fixed-rate mortgage: A mortgage loan that has an interest rate that remains constant throughout the life of the loan, usually 15 or 30 years. This mortgage's interest rate will never change, even if the term of the loan is 30 years. This can be good or bad, but it will always be predictable. Interest on fixed-rate mortgages is almost always higher initially than on adjustable-rate mortgages. But you'll also be protected against rate hikes, a pitfall of adjustable-rate mortgages.
FHA Loan: A program in which the federal government (Federal Housing Administration) insures the lender if you fail to pay and they have to foreclose and wind up losing money. The government doesn't make the loan, they just offer the guarantee to the banks. Such financing allows for a lower down payment than required by most lenders. Houses must be in decent shape to qualify for FHA Loans. The other kinds of loans are Conventional and VA.
Home inspection: A thorough professional examination, typically at the buyer’s expense, that evaluates the structural and mechanical condition of a property, including plumbing, foundation, roof, electrical, HVAC systems, etc. This highly recommended step is a common contingency clause in real estate sales contracts. If the inspector identifies issues that may be expensive to remedy, these can be revisited with the seller before proceeding with the sale.
Homeowners' association: An organization made up of neighbors concerned with managing the common areas of a subdivision or condominium complex. These associations collect monthly dues and take on issues such as garden, pool, and fence maintenance, noise abatement, snow removal, parking area upkeep, repairs, and dues. The homeowners' association is also responsible for enforcing any covenants, conditions, and restrictions (CC&Rs) that apply to the property.
Homeowners Insurance: Insurance that protects the homeowner from “casualty” (losses or damage to the home or personal property) and from “liability” (damages to other people or property). Required by the lender and usually included in the monthly mortgage payment.
House closing: The final transfer of the ownership of a house from the seller to the buyer, which occurs after both have met all the terms of their contract and the deed has been recorded.
Loan Origination Fee: A fee charged by the lender for evaluating, preparing, and submitting a proposed mortgage loan.
Mortgage Insurance Premium (MIP): A charge paid by the borrower (usually as part of the closing costs) to obtain financing, especially when making a down payment of less than 20 percent of the purchase price, for example on an FHA-insured loan.
Multiple listing service: A computer-based service, commonly referred to as MLS, that provides real estate professionals with detailed listings of most homes currently on the market. Membership isn’t open to the public, however much of this information is sold to and can be found by the public on many real estate listing websites.
Nonrecurring closing costs: Those costs of closing a home purchase that need to be paid only once — such as the appraisal fee, title insurance, and transfer taxes. (Compare with recurring closing costs, defined below.)
Pending Sale: This is the escrow period, where the seller has an accepted offer and an executed contract, all the contingencies have been met, and the buyer and seller are working towards a closing.
PITI: Abbreviation for the major expenses that make up a mortgage payment: principal (the amount borrowed), interest, (property) taxes, and (homeowners') insurance.
Point: Prepaid interest on a loan, equal to one percent of the principal amount being borrowed. The lender may charge the borrower several “points” in order to provide the loan. The advantage of paying points upfront is that a lower interest rate can be secured for the lifetime of the loan. This may be a good deal if a buyer plans to stay in the home for many years, as the long-term interest savings outweigh the initial cost in points.
Pre-approval (loan): A lender’s written guarantee to grant a loan up to a specified amount (subject to receiving full documentation). Pre-approval for a loan can strengthen a buyer’s negotiating position with a seller.
Pre-qualification: Less official than a mortgage pre-approval, banks offer free pre-qualifications to estimate the amount a buyer may be able to borrow. It is often used early in a buyer’s search to help determine a reasonable price range.
Principal: The outstanding balance on a loan. Also refers to the portion of a loan payment that pays down your debt.
PMI/Private Mortgage Insurance: If your down payment is less than 20%, you'll have to buy Private Mortgage Insurance which protects the bank if you fail to make your payments, they have to foreclose, and they lose money.
Property Taxes: Taxes, based on the assessed value of the home, paid by the homeowner for community services such as schools, public works, and other costs of local government. Paid as a part of the monthly mortgage payment.
Recurring closing costs: Those costs of closing a home purchase that represent the first of a series of payments that will recur over time -- such as homeowners' insurance and property taxes.
Title Insurance: This type of insurance is acquired to protect against any unknown liens or debts that may be placed against the property. Before issuing title insurance, public records are searched to ensure that the current owner has legal rights to the title as well as the legal ability to sell the home and that no liens are held against the property.
Under contract (UC): The seller has an agreed-upon contract with the potential buyer (which is typically contingent on additional factors like financing and inspection results).
VA Loan: A loan guaranteed by the Department of Veterans Affairs against loss to the lender, and made through a private lender. Similar to FHA Loans, the federal government insures the lender if you fail to pay and they have to foreclose and end up losing money. The government doesn't make the loan, they just offer the guarantee to the banks.
