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Real estate terms simplified by NESI Title & Escrow

Real Estate Terms, Simplified

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Understanding real estate terminology is crucial for anyone involved in property transactions in Los Angeles County. Here’s a quick glossary to help you navigate the process with confidence.

Glossary of Real Estate Terms

Adjustable Rate Mortgage (ARM): A type of mortgage where the interest rate changes over time according to a specific index, allowing it to align with current market rates. Known also as variable rate, renegotiable rate, or graduated payment mortgages.

Amortization: The process of paying off a debt through regular, scheduled payments that cover both principal and interest, gradually reducing the loan balance.

Annual Percentage Rate (APR): A comprehensive measure of the cost of borrowing, expressed as a yearly rate. It includes not just the interest rate but also points, fees, and other charges, providing a tool for comparing different mortgage offers in places like Los Angeles County.

Assumption of Mortgage: When a buyer agrees to take over the seller’s existing mortgage, becoming responsible for its payment terms.

Caps: Limits set on adjustable rate mortgages to control how much the interest rate can increase at each adjustment period or over the entire loan term, protecting borrowers in dynamic markets like those in California.

Conditions, Covenants & Restrictions (CC&Rs): Legal documents that outline the rules, requirements, and limitations for property usage, common in community associations in areas like Pasadena or Torrance.

Certificate of Reasonable Value (CRV): An appraisal document provided by the Veterans Administration, determining the current market value of a property, crucial for VA loans in regions like Santa Clarita.

Closing (Settlement): The final step in a real estate transaction where ownership is transferred from seller to buyer, or a mortgage is secured, often involving local title and escrow services in Los Angeles.

Condominium: A type of housing where individual units are owned separately, but common areas are jointly owned.

Conventional Mortgage: A home loan not insured by FHA or guaranteed by VA, typically requiring good credit and a down payment, common in financing homes in Glendale or Burbank.

Deed: A legal document that transfers property ownership from the seller to the buyer when executed and delivered.

Discount Point: A fee paid to the lender at closing to lower the interest rate on the mortgage. One point equals 1% of the loan amount, often used in financing strategies in California.

Earnest Money: A deposit made by a buyer to show commitment to purchasing a property, held in trust until the transaction is completed or terminated.

Easement: A right granted to use another’s land for a specific purpose, like utilities or access, which can affect property value in places like Long Beach.

Equity: The portion of the property’s value that the owner truly owns, calculated as the market value minus any loans or liens, crucial for homeowners in Los Angeles County.

Federal Housing Administration Loan (FHA Loan): Government-backed loans designed to make homeownership accessible, with lower down payment requirements, popular in suburban areas like Arcadia.

Federal National Mortgage Association (FNMA or Fannie Mae): A government-sponsored entity that buys mortgages, facilitating liquidity in the mortgage market, impacting loans across Los Angeles County.

Fee Simple Deed: Grants the highest level of ownership, providing the owner with full control over the property, ideal for those seeking long-term investment in real estate.

Joint Tenancy: A form of ownership where two or more people have equal shares, with rights of survivorship, commonly used by couples or partners in California.

Lien: A legal right or interest that a creditor has in another’s property, lasting until the debt is paid, which can complicate property sales in cities like Pasadena.

Loan-To-Value Ratio (LTV): The ratio of the mortgage amount to the appraised property value, expressed as a percentage, influencing loan terms in areas like Santa Monica.

Mortgage: A loan secured by the pledge of real property, where the borrower provides the property as collateral.

Negative Amortization: When monthly payments don’t cover the interest, causing the loan balance to increase, a risk in some mortgage structures in Los Angeles.

Personal Property: Items not classified as real property, including furniture, vehicles, and electronics, relevant in property transactions.

Points: Also known as discount points, each point is 1% of the loan amount, used to buy down the interest rate, common in mortgage negotiations in California.

Principal, Interest, Taxes, and Insurance (PITI): The components of a typical monthly mortgage payment, often referred to in budgeting for home purchases in the region.

Private Mortgage Insurance (PMI): Insurance policy that lenders require when the down payment is less than 20%, increasing monthly costs but enabling lower down payments in places like Culver City.

Realtor®: A real estate professional who is a member of the National Association of Realtors®, ensuring a standard of ethics and practice in the industry.

Subdivision: A larger piece of land divided into smaller parcels or lots for development and sale, common in new housing projects around Los Angeles.

Tenancy in Common: A form of ownership where multiple owners have distinct, potentially unequal shares, without rights of survivorship, allowing for flexible estate planning.

Trust Account: A separate bank account where real estate professionals must deposit client funds, ensuring these are not mixed with personal funds, a practice upheld in California.

Trustee: In a deed of trust, acts as a neutral third party holding the property title until the loan is paid or foreclosure occurs, a key role in property transactions in Los Angeles.

Trustor: The borrower who places their property in trust as security for a loan, a term familiar in real estate dealings in the state.

Veterans Administration Loan (VA Loan): Loans guaranteed by the VA, offering veterans the chance to buy homes with little to no down payment, particularly beneficial in areas like Lancaster.

Warranty: A promise by the seller to address any title defects or to compensate for losses due to property defects, providing security in real estate purchases.