Glossary of Home Buying Terms

Real estate and mortgage transactions come with a vocabulary that most buyers encounter for the first time during one of the largest financial decisions of their lives. This glossary defines every major term a Ventura County buyer is likely to encounter from the first pre-approval conversation through closing day, in plain language without unnecessary complexity.

If a term from your transaction is not listed here or you want more context on how it applies to your specific situation, Edgar Limon is available for a direct conversation. For answers to common process questions, visit the Buyer FAQs page.

A

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically after an initial fixed period. A 5/1 ARM, for example, has a fixed rate for the first five years and then adjusts annually based on a market index. ARMs typically offer lower initial rates than fixed-rate mortgages in exchange for rate risk after the fixed period ends.

Amortization

The process of paying off a loan through regular scheduled payments over time. Each payment covers a portion of the principal balance and the interest accrued. Early in the loan the payments are mostly interest. As the balance decreases over time, the proportion of each payment that goes toward principal increases. A 30-year amortization schedule is the most common structure for residential mortgages.

Annual Percentage Rate (APR)

The true annual cost of borrowing expressed as a percentage, including the interest rate plus certain lender fees spread over the loan’s term. The APR is always equal to or higher than the stated interest rate. It is a standardized calculation designed to allow comparison of loan costs across different lenders and products, though its usefulness as a comparison tool depends on consistent assumptions about how long the loan will be held.

Appraisal

A professional evaluation of a property’s market value conducted by a licensed appraiser on behalf of the lender. The appraisal confirms that the property’s value supports the loan amount. If the appraisal comes in below the purchase price the lender will not loan the difference, creating a gap the buyer and seller must resolve.

Appraisal Contingency

A contract provision that protects the buyer if the property appraises below the purchase price. With this contingency in place the buyer may cancel the contract and recover their earnest money if the appraisal comes in low and the buyer and seller cannot agree on a resolution.

As-Is Sale

A sale where the seller will not make repairs or offer credits based on the buyer’s inspection findings. The buyer accepts the property in its current condition. An as-is designation does not waive the seller’s disclosure obligations — the seller must still disclose known material defects. The buyer retains the right to inspect and to cancel within the inspection contingency if the findings are unacceptable.

B

Back-End DTI

The ratio of all monthly debt obligations, including the proposed mortgage payment, to gross monthly income. The most commonly referenced debt-to-income calculation for mortgage qualification. See Debt-to-Income Ratio.

Basic Allowance for Housing (BAH)

A monthly housing stipend paid to military service members who live off base. BAH rates are set by the Department of Defense annually for each military installation’s geographic area and vary by pay grade and dependency status. For NBVC buyers, BAH is set for the Oxnard-Thousand Oaks-Ventura metropolitan area and is the primary budget input for military home buyers.

Bridge Loan

A short-term loan that allows a buyer to purchase a new home before their current home sells, using the equity in the current home as collateral. Bridge loans carry higher interest rates than standard mortgages and are repaid when the current home sells. They are most commonly used in competitive markets where buyers need to make non-contingent offers.

Buydown

A financing arrangement where the borrower or seller pays upfront to reduce the mortgage interest rate, either permanently or for an initial period. A 2-1 buydown, for example, reduces the rate by two percent in year one and one percent in year two, reverting to the full rate in year three. Builders frequently offer temporary buydowns as incentives in new construction transactions.

C

CC&Rs (Covenants, Conditions, and Restrictions)

Rules that govern what owners can and cannot do with their property in a planned community or HOA. CC&Rs run with the land, meaning they apply to every owner regardless of whether they agreed to them individually. Common restrictions include exterior paint colors, landscaping standards, pet policies, rental restrictions, and architectural modifications. Buyers should review CC&Rs before closing in any community that has them.

Certificate of Eligibility (COE)

A document issued by the Department of Veterans Affairs confirming that a borrower is eligible for VA home loan benefits. Lenders require the COE before processing a VA loan. In most cases the lender can obtain the COE electronically through the VA’s automated system without the borrower having to request it separately.

Clear to Close (CTC)

The lender’s confirmation that the loan has been fully approved and all underwriting conditions have been satisfied. Clear to close means the loan is ready to fund and the closing can be scheduled. It is the milestone buyers are waiting for during the escrow period.

Closing Disclosure (CD)

A standardized form required by federal law that shows the final loan terms and all closing costs. Lenders must provide the Closing Disclosure at least three business days before closing. Buyers should compare it carefully to the Loan Estimate received at application to confirm that fees have not changed in ways that were not permitted or anticipated.

Comparable Sales (Comps)

Recently sold properties that are similar in size, condition, location, and features to the property being evaluated. Comparable sales are the primary basis for appraisals and for determining whether a property is fairly priced. A comparative market analysis prepared by an agent uses comps to establish a value range for a specific property.

Conforming Loan

A mortgage that meets the standards set by Fannie Mae and Freddie Mac, including loan amount limits set annually by FHFA. Loans above the conforming limit require jumbo financing. Conforming loans can be sold to Fannie Mae or Freddie Mac after origination, which allows lenders to offer them at standardized rates and terms.

Contingency

A condition in a purchase contract that must be satisfied for the sale to proceed. The most common contingencies are the inspection contingency, the loan contingency, and the appraisal contingency. A contingency gives the buyer the right to cancel the contract and recover their earnest money if the condition is not met within the specified timeframe.

Conventional Loan

A mortgage that is not backed by a government agency. Conventional loans are purchased by Fannie Mae or Freddie Mac after origination and follow their underwriting standards. They can be used for primary residences, second homes, and investment properties, which FHA and VA loans cannot.

Counteroffer

A seller’s response to an offer that modifies one or more terms rather than accepting or rejecting outright. A counteroffer rejects the original offer and proposes new terms. The buyer may accept the counteroffer, reject it, or respond with their own counter.

D

Debt-to-Income Ratio (DTI)

The percentage of a borrower’s gross monthly income that goes toward monthly debt payments. The front-end DTI covers only the proposed housing expense. The back-end DTI covers all monthly debt obligations including the housing payment. Lenders use DTI to evaluate whether a borrower can support the proposed mortgage payment alongside their existing obligations.

Deed of Trust

The legal document used in California to secure a mortgage loan against the property. Unlike a mortgage, which involves two parties, a deed of trust involves three: the borrower, the lender, and a neutral trustee who holds the legal title to the property until the loan is paid off. The deed of trust is recorded with the county recorder at closing.

Discount Points

Upfront fees paid to the lender to reduce the mortgage interest rate. One point equals one percent of the loan amount. Paying points makes sense when the monthly savings from the lower rate exceed the upfront cost within the buyer’s expected ownership timeline.

Down Payment

The portion of the purchase price paid directly by the buyer, with the remainder financed through the mortgage. The minimum down payment varies by loan type: zero for VA and qualifying USDA buyers, 3.5 percent for FHA, 3 to 5 percent for conventional minimum, and 10 to 20 percent for most jumbo loans.

E

Earnest Money Deposit (EMD)

A good-faith deposit submitted by the buyer after the offer is accepted, held in escrow until closing. Applied toward the down payment or closing costs at closing. If the buyer cancels within an active contingency the deposit is typically refunded. If the buyer cancels after contingency removal the deposit may be forfeited to the seller.

Equity

The difference between the market value of a property and the outstanding loan balance. Equity increases as the loan balance is paid down and as the property appreciates in value. Equity can be accessed through a sale, a cash-out refinance, or a home equity line of credit.

Escrow

A neutral third-party process used in California real estate transactions to manage the exchange of funds and documents between the buyer, seller, and their respective service providers. The escrow company holds the earnest money deposit, collects and distributes closing funds, prepares closing documents, and coordinates the recording of the deed. In California, escrow companies rather than attorneys typically manage the closing process.

F

FHA Loan

A mortgage insured by the Federal Housing Administration. FHA loans allow lower credit scores and smaller down payments than conventional loans. They require both an upfront mortgage insurance premium and an ongoing annual premium that lasts for the life of the loan on most current FHA loans. Subject to county loan limits set annually by HUD.

Fixed-Rate Mortgage

A mortgage with an interest rate that does not change for the life of the loan. The most common residential mortgage structure. The 30-year fixed-rate mortgage is the most commonly used product in the United States. 15-year fixed-rate mortgages offer a lower rate but higher monthly payment.

Funding Fee (VA)

A one-time fee charged on most VA loan transactions to help sustain the VA loan program. Can be financed into the loan balance rather than paid in cash at closing. The amount varies by service type, whether it is a first or subsequent use, and whether any down payment is being made. Waived entirely for veterans with a qualifying service-connected disability rating of 10 percent or more.

G – H

Grant Deed

The legal document used in California to transfer ownership of real property from the seller to the buyer. The grant deed is signed by the seller, notarized, and recorded with the county recorder at closing. Recording the grant deed is the act that officially transfers title.

Hard Inquiry

A credit inquiry made by a lender when reviewing a borrower’s credit for a loan application. Hard inquiries may lower your credit score by a small amount temporarily. Multiple mortgage-related hard inquiries within a short window are typically treated as a single inquiry by credit scoring models because rate shopping is considered responsible behavior.

HOA (Homeowners Association)

An organization that manages and enforces rules for a community of properties. HOAs collect monthly or annual dues used to maintain common areas, enforce CC&Rs, and fund reserves for major repairs. HOA dues are included in the monthly housing expense for DTI calculation purposes. Buyers should review HOA financial statements, reserve study, and meeting minutes before closing to assess the association’s financial health.

Home Inspection

A visual examination of a property’s accessible systems and components by a licensed inspector. The inspection identifies deficiencies, safety concerns, and items needing repair. Not a guarantee of condition. Not a substitute for an appraisal. The buyer pays for and arranges the inspection, which is separate from the lender’s appraisal.

Housing Ratio (Front-End DTI)

The ratio of the proposed monthly housing expense to gross monthly income. The housing expense includes principal, interest, property taxes, homeowner’s insurance, and HOA dues and mortgage insurance where applicable. Also called the front-end debt-to-income ratio.

I – J

Impound Account (Escrow Account)

An account maintained by the lender that collects monthly deposits for property taxes and homeowner’s insurance as part of the mortgage payment. When taxes and insurance are due the lender pays them from the impound account. Some loans require impound accounts while others make them optional. Also called an escrow account by lenders, though this is different from the transaction escrow managed by an escrow company.

Inspection Contingency

A contract provision that gives the buyer a defined period to have the property inspected and to negotiate repairs, request credits, or cancel the contract based on the findings. In California the standard inspection contingency period is 17 days from acceptance, though this is negotiable.

Jumbo Loan

A mortgage that exceeds the conforming loan limit set annually by FHFA. Jumbo loans are not eligible for purchase by Fannie Mae or Freddie Mac and are held by the originating lender or sold through private channels. Each lender sets their own jumbo underwriting standards, which is why jumbo requirements vary more across lenders than conforming requirements do.

L – M

Lender Credit

A credit from the lender toward the buyer’s closing costs in exchange for accepting a slightly higher interest rate. Lender credits reduce the upfront cash needed at closing but increase the monthly payment and long-term interest cost. Most useful for buyers who are short on closing cost funds and plan to sell or refinance within a few years.

Liquidated Damages

A predetermined sum, typically the earnest money deposit, that the seller is entitled to retain if the buyer cancels the contract after removing all contingencies without a valid reason. In California residential transactions, liquidated damages are capped at three percent of the purchase price in standard purchase contracts.

Loan Contingency

A contract provision that protects the buyer if they are unable to obtain financing on the terms described in the purchase contract. With this contingency in place the buyer can cancel and recover their earnest money if the loan is denied or if the terms available differ materially from those specified in the contract.

Loan Estimate (LE)

A standardized form required by federal law that the lender must provide within three business days of receiving a complete loan application. The Loan Estimate shows the estimated loan terms, monthly payment, and closing costs in a standardized format that makes comparison across lenders straightforward.

Loan-to-Value Ratio (LTV)

The ratio of the loan amount to the appraised value of the property, expressed as a percentage. A $400,000 loan on a property appraised at $500,000 has an LTV of 80 percent. LTV affects whether PMI is required on conventional loans and influences rate pricing. Lower LTV generally means less risk to the lender and more favorable terms for the borrower.

Mortgage Insurance Premium (MIP)

The insurance premium paid on FHA loans. Includes an upfront MIP of 1.75 percent of the loan amount and an ongoing annual MIP collected monthly. On most FHA loans originated after June 2013 with less than 10 percent down, the annual MIP lasts for the life of the loan and does not cancel at 20 percent equity the way conventional PMI does.

N – P

Natural Hazard Disclosure (NHD)

A report required in California real estate transactions that identifies whether the property is located in any state-designated natural hazard zones, including fire hazard severity zones, earthquake fault zones, flood zones, and others. In Ventura County, fire hazard zone disclosure is particularly relevant given the county’s fire history and the presence of significant fire hazard severity zones in the hillside and mountain communities.

Non-Conforming Loan

A mortgage that does not meet the standards required for purchase by Fannie Mae or Freddie Mac. The most common type of non-conforming loan is a jumbo loan that exceeds the conforming loan limit. Non-conforming loans are held by the originating lender or sold through private channels rather than the government-sponsored secondary market.

Notice to Perform (NTP)

A formal written notice in a California real estate transaction that demands the recipient take a specific action, such as removing a contingency, within two business days. A seller can issue a Notice to Perform if a buyer fails to remove a contingency by its contractual deadline. Failure to respond to an NTP can give the issuing party the right to cancel the contract.

Origination Fee

A fee charged by the lender for creating and processing the loan. May be expressed as a flat dollar amount or a percentage of the loan amount. Some lenders charge no origination fee and compensate through a higher interest rate. Comparing lenders requires evaluating both the rate and the total lender fees together.

PITI

An acronym for the four components of a standard monthly mortgage payment: Principal, Interest, Taxes (property), and Insurance (homeowner’s). When mortgage insurance or HOA dues apply they are added to this base calculation to determine the total monthly housing expense used in DTI calculations.

Pre-Approval

A lender’s conditional commitment to loan a specified amount based on verified income, asset, and credit documentation. A pre-approval letter accompanies an offer and signals to the seller that the buyer’s financing has been reviewed. More credible than a pre-qualification, which is based on self-reported information only.

Preliminary Title Report (Prelim)

A report prepared by the title company early in escrow that summarizes the current state of title on the property. Identifies the current owner, recorded liens, encumbrances, easements, and restrictions. Buyers and their agents should review the prelim to identify any title issues that need to be resolved before closing.

Prepaid Items

Funds collected at closing that represent advance payments for ongoing homeownership expenses rather than one-time transaction fees. Include the first year’s homeowner’s insurance premium, prepaid mortgage interest from funding date to month-end, and initial deposits into the impound account for property taxes and insurance.

Private Mortgage Insurance (PMI)

Insurance required on conventional loans when the down payment is less than 20 percent. PMI protects the lender, not the borrower, against default. Unlike FHA mortgage insurance, conventional PMI cancels automatically when the loan balance reaches 80 percent of the original appraised value, and can be requested for cancellation when equity reaches 20 percent.

R – S

Rate Lock

An agreement between the borrower and lender that guarantees the interest rate for a specified period while the loan processes. Protects the buyer from rate increases during the lock period. If the rate lock expires before closing, an extension fee may apply. New construction buyers face particular rate lock challenges given the variable construction timeline.

Recording

The act of filing the grant deed and deed of trust with the county recorder, making the transfer of ownership a matter of public record. In California, the recording of the deed is the act that officially completes the transfer of ownership. The buyer receives keys once recording is confirmed.

Reserves

Liquid assets the borrower holds after paying the down payment and closing costs at closing. Lenders verify reserves to confirm the borrower has not been financially depleted by the transaction. Reserve requirements vary by loan type and property type. Conventional loans typically require two to six months of the total monthly payment. Jumbo loans often require six to twelve months.

Section 1 / Section 2 (Pest Report)

Classifications used in California pest inspection reports. Section 1 identifies active infestations or conditions caused by wood-destroying organisms requiring immediate treatment. Section 2 identifies conditions not yet causing damage but that could lead to infestation if not addressed. In many California purchase contracts the seller is expected to clear Section 1 findings before closing.

Seller Concessions

Credits from the seller toward the buyer’s closing costs. The maximum allowable concession varies by loan type and down payment percentage. Conventional loans allow two to nine percent depending on down payment. FHA allows up to six percent. VA allows the seller to pay all of the buyer’s closing costs.

SOAR (Save Open Space and Agricultural Resources)

A set of Ventura County ballot initiatives that require voter approval before agricultural land can be converted to urban uses. SOAR ordinances are one of the primary governance mechanisms that protect agricultural land from residential development in Ventura County and contribute to the county’s structural supply constraint.

T – U

Title Insurance

Insurance that protects against losses from defects in the title to a property that existed before the policy was issued but were not discovered until after closing. There are two types: the lender’s title insurance policy, which protects the lender’s interest and is paid by the buyer, and the owner’s title insurance policy, which protects the buyer’s ownership rights and is typically paid by the seller in California.

Transfer Disclosure Statement (TDS)

A California-required form in which the seller discloses known material facts and defects about the property. The TDS is one of several disclosure documents the buyer receives and must sign during escrow. Buyers should read the TDS carefully as it represents what the seller knows about the property’s condition and history.

Underwriting

The process by which a licensed underwriter reviews the complete loan file and makes the credit decision. The underwriter evaluates the borrower’s ability to repay, willingness to repay, and the value of the collateral. Underwriting may result in a clean approval, a conditional approval requiring additional documentation, or a denial.

USDA Loan

A mortgage guaranteed by the U.S. Department of Agriculture for buyers purchasing in designated eligible rural areas who meet income limits. Requires no down payment. Available to any qualifying buyer, not just agricultural buyers. Eligible areas and income limits are updated periodically by the USDA.

V – Z

VA Loan

A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, active duty service members, and surviving spouses. Requires no down payment for buyers with full entitlement, has no mortgage insurance, and has no loan limit for buyers with full entitlement. The most financially advantageous mortgage program available to eligible buyers in virtually every scenario.

Vesting

How ownership of a property is held and recorded on title. Common vesting options for California buyers include joint tenancy with right of survivorship, community property, community property with right of survivorship, and tenancy in common. The choice of vesting has legal and tax implications that buyers should discuss with an attorney or tax advisor before closing.

Wire Fraud

A type of fraud that specifically targets real estate transactions by intercepting or spoofing communications to redirect wire transfers of closing funds to a fraudulent account. Real estate transactions are among the most targeted for wire fraud because of the large sums transferred at closing. Always verify wiring instructions by phone directly with the escrow officer before sending any funds, regardless of how official the written instructions appear.

Wood Destroying Organism (WDO) Inspection

California’s formal term for a pest inspection. Conducted by a licensed pest control operator to identify termites, other wood-destroying insects, fungi, and related conditions. Results are classified as Section 1 (active infestations requiring treatment) and Section 2 (conditions that could lead to infestation). See Section 1 / Section 2.

If a term from your transaction is not listed here, contact Edgar directly for a plain-language explanation. For answers to common process questions visit the Buyer FAQs page.