wpe1.gif (6042 bytes) Your Home Buying Guide
*Advantages of home ownership
*Question & answer
*Glossary for the home buyer

*Types of policies
*Common methods of holding title
*Common ways of holding title to real property

*Who pays what?
*Alameda County closing costs
*Tax calendar


These definitions are to acquaint the homebuyer with terms commonly used in real estate transactions. These 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 your Real Estate Agent for more information or questions regarding these terms.

ADJUSTABLE RATE MORTGAGE (ARM): A Mortgage with an interest rate that charges over time in line with movements in the index.

ADJUSTMENT PERIOD: The length of time between interest rate changes on an ARM. For example: a loan with an adjustment period of one year is called a one year ARM, which means that the interest rate can change once a year.

AMORTIZATION: Repayment of a loan in equal installments of principal and interest, rather than interest only payment.

ANNUAL PERCENTAGE RATE (APR): The total finance charge (interest, loan fees, and points) expressed as percentage of the loan amount.

ASSUMPTION OF MORTGAGE: A Buyer’s agreement to assume the liability under an existing note that is secured by a Mortgage or Deed of Trust. The Lender must approve the Buyer in order to assume the loan.

CAP: The limit of how much an interest rates or monthly payment can change, either at each adjustment or over the life of the Mortgage.

CC&R’s: COVENANTS, CONDITIONS, AND RESTRICTIONS: A document that controls the use, requirements, and restrictions of a property.

CERTIFICATE OF REASONABLE VALUE (CRV): A document that establishes the maximum value and loan amount for a VA guaranteed loan.

CLOSING STATEMENT: The financial disclosure statement that accounts for all of the funds received and disbursed at the closing including deposits for taxes, hazard insurance, and Mortgage Insurance.

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 Mortgage. This conversion feature may be an extra cost.

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: The portion of the down payment delivered to the Seller of Escrow Holder by the Buyer with a written offer as evidence of good faith.

ESCROW: A procedure in which a third party acts as a stakeholder for both the Buyer and Seller, carrying out both parties’ instructions and assuming responsibility for handling all of the paperwork and distribution of funds.

FHA LOANS: A loan insured by the Insuring Office of the Department of Housing and Urban Development; the Federal Housing Administration.

FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): Popularly known as Fannie Mea. A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by the FHA or guaranteed by VA, as well as conventional home mortgage.

FEE SIMPLE: An estate in which the owner has unrestricted power to dispose of the property as he/she wishes including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

FINANCE CHARGE: The total cost a Borrower must pay, directly or indirectly, to obtain credit according to Regulation Z.

GRADUATED PAYMENT MORTGAGE: A residential mortgage with monthly payments that is stated at a low level and increased at a predetermined rate.

HOME INSPECTION REPORT: A qualified inspector’s report on a property’s overall condition. The report usually includes an evaluation of both the structure and mechanical systems.

HOME WARRANTY PLAN: Protection against failure of mechanical systems with the property. Frequently includes plumbing, electrical, heating systems, and installed appliances.

INDEX: A measure of interest rate fluctuations used to determine changes in an ARM’s interest rate over the term of the loan.

JOINT TENANCY: An equal, undivided ownership of property by two or more persons. Upon death of any owner, the survivors take the decedent’s interest on the property.

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 with specific terms.

LOAN_TO_VALUE RATIO: The relationship between the amount loaned to the appraiser value of the property, expressed as a percentage of the appraised value.

MARGIN: The number of percentage points the lender adds to the index rate the calculate the ARM interest rate at each adjustment.

NEGATIVE AMORTIZATION: Negative amortization occurs when monthly payments fail to cover the interest cost. The interest that is not covered is added to the unpaid principal balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when ARM has a payment cap that results in monthly payments that are not high enough to cover the interest.

ORIGINATION FEE: A fee or charge for establishing a new loan.

PITI: Principal, interest, taxes, and insurance.

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

PREPAYMENT PENALTY: A fee charged to a Morgator who pays a loan before it is due.

PRIVATE MORTGAGE INSURANCE (PMI): Insurance written by a private company protecting the lender against loss of the Borrower defaults on the Mortgage.

PURCHASE AGREEMENT: A written document in which the Purchaser agrees to buy certain real estate and the Seller agrees to sell certain real estate under state’s terms and conditions. Also called a sales contract, earnest money contract, or agreement for sale.

REALTOR: A Real Estate Broker or Associate active in a local real estate board affiliated with the National Association of Realtors.

TENANCY IN COMMON: A type of joint ownership of property by two or more persons with no right of survivorship.

TITLE INSURANCE POLICY: A policy that protects the properties purchased, Mortgage, or other party against losses.

VA LOAN: A loan that is guaranteed by the Veterans Administration and made by a private lender.

Information Deemed Reliable, but Not Guaranteed.
ęBarbara Kolodziejski, 1999-2003.

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To Life ...... Support
To the Explorer ...... A Base
To the Wise ...... An Investment"


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The Best Kept Secret in San Francisco Bay Area

Barbara Kolodziejski

Good Things Come To Those Who Make Things Happen!