Real estate, like many industries, has a whole language of terms and definitions that make sense to those of us who live and breathe real estate, but that can leave homeowners in the dark. So I thought I’d shed a little light on the subject.
Licensed Real Estate Agent – someone licensed by the California Bureau of Real Estate to transact otherwise restricted business transactions, including the listing and selling of real estate, under the supervision of a broker
Realtor– licensed real estate professional who is a member of the National Association of Realtors, which requires adherence to a strict code of ethics
Licensed Real Estate Broker – someone licensed by the California Bureau of Real Estate to transact otherwise restricted business transactions, including the listing and selling of real estate and the brokering of real estate loans.
Single Family 1-4 – this is how we refer to the category of real estate that includes single-family homes, duplexes (2 living units), triplexes (3 living units), and four-plexes (you guessed it—4 living units)
Financial Institution – in this context, an organization in the business of making loans secured by real estate
Underwriting – process of determining whether to make a loan whereby a lender or his representative reviews a property and all of the borrower’s qualifications to purchase it
Conventional Loan – an institutional loan usually secured by a single family 1-4
Conforming Loan – usually a loan that meets specific underwriting requirements and includes a minimum of 20 percent down and (in this area) a maximum value of $417,000
Owner-Occupied – a single family 1-4 owner will occupy one of the units or anticipates occupying it within 12 months. This is a requirement for most loans.
Primary Residence – the owner-occupied unit where the owner spends 50 percent plus one day each year. Single-family, owner-occupied, primary residences typically secure the best loan terms
USDA, FHA, VA, CalVet – these are large government loan programs. The United States Department of Agriculture offers loans to families in rural areas who don’t make too much money; the Federal Housing Authority offers limited loans to those with good credit; the Veteran’s Administration offers loans to U.S. veterans, and CalVet offers loans to vets who want to purchase a home in California.
GSEs – Government-Sponsored Entities are institutions that buy loans from loan originators on the secondary market with the goal of providing lower housing costs and better access to financing. The big players are referred to as Fannie Mae, Freddie Mac and Ginnie Mae. They are actually the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Association (FHLMA), and the Government National Mortgage Association (GNMA)—which is actually part of the US Department of Housing and Urban Development.
Pre-qualified – a loan representative has given you the likelihood of loan approval based on information you’ve supplied.
Pre-approved – a loan representative has reviewed documentation, verified income and employment, confirmed the source of funds for the down payment and closing costs, reviewed credit, and made all determinations to arrive at a monthly payment for which you qualify; leaving only the property and its value in question.
Debt-to-Income Ratio – compares overall debt to income. Front-end ratio: the ultimate loan payment divided by net income. Back-end ratio: all debt expense (car loans, credit cards, any other recurring debt) divided by income. A lender will use both to determine the loan amount you qualify for.
Escrow – neutral, third-party depository where the buyer, seller and lender place money and/or appropriate executed documents. When all escrow conditions are met, the escrow holder (usually the title company) will record the documents and distribute them and the funds to the appropriate parties.
Funded – usually means the lender has deposited net loan proceeds into the escrow account.
If you have questions about real estate or property management, feel free to contact me at rselzer@selzerrealty.com or visit our website at www.realtyworldselzer.com. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.