EP 96 : First Time Home Buyer Terms and Definitions from A-Z – “C” 

 May 16, 2022

HBH 96 | Real Estate Terms

We’ve already done homebuyer terms and definitions for A to B. Now, let’s get down to the C terms. Everybody knows that buying a home can be confusing and daunting. Then things even get worse once everyone starts using real estate jargon and expects you, the first-time homebuyer, to keep up. Join David Sidoni on the second episode covering real estate terms language, and definitions from A-Z, covering the letter ‘C’, and arm yourself with ample knowledge that will help you buy your first home.

First Time Home Buyer Terms and Definitions from A-Z – “C”

If you are reading this and you have read the first two episodes of the First Time Home Buyer Terms and Definitions from A to Z. Those two episodes were so riveting and enticing that you have been salivating, watching your phone, waiting for this episode to drop, either that, or you are some maniac who jumped straight to the C episode. Either way, I am glad to have you both here. This episode is C, so let’s go.

What’s up my How to Buy a Homies? It is a glorious day as we get ready to go through the C terms and definitions for buying a house. I realized you might be a regular reader who has been planning to buy a home for years, and now it is years in the future, and you had a question about something in your home buying journey that started with the Letter C. You could be reading way in the future and jumping back.

Cap, Capacity, Cash Out Refinance 

Straight to what you came for, let’s go to the C words, a whole list of them. We are going to start with Cap. It is not just something you wear on your head from the 1920s. It is an Adjustable-Rate Mortgage, also known as ARM. The cap is the limit on the amount that the interest rate or the mortgage payments can increase or decrease.

Our next C-word is Capacity. Banks look at your capacity when they are determining whether or not they want to loan you money. You are probably used to measuring your own capacity for tolerating haters or perhaps your friends need to tell you about all their dreams as soon as they wake up. Seriously, I do not need to hear it.

As far as buying a home, your capacity is judged by your income and your income stability at your job, history, and security. They also judge you by your assets and your savings and the amount of income each month that is left over that you have got to pay for your housing costs, your debts, and your other obligations. That is your fiscal capacity.

The next C-word is a Cash-out Refinance. These come and go as an option for homeowners depending on the current financial markets. Once you do own a home, and you will make this happen, you are going to have the option to tap into the equity on your home. You can do that by doing a refinance in which the borrower, that is you, can tap into the equity to get money, but you are going to have to refinance to the market rates and have to be approved for that transaction.

HBH 96 | Real Estate Terms
Real Estate Terms: The borrower can tap into the equity to get money. If you do that, you can take cash out of your home and use it for fixing up your house or paying off debt.

Remember that the borrower came from the B episode unless you are one of those weirdos who jumped right to C, then you do not know what I am talking about, but the borrower is you, the buyer, when you are buying a home. If you do that, you can take cash out of your home and use it for fixing up your house or paying off debt. Although sometimes that can be a little bit backward, most of the time, people use it for home improvements.

Cash Reserves, Cash To Close, Certificate Of Eligibility

The next C is Cash Reserves. This is a term you are going to hear a lot of times when you are applying for a loan. It is the money in the bank beyond your down payment and your closing costs or what’s leftover. Sometimes, cash reserves are required for you to get the best loan. The amount is determined by the lender and the product that you are going for. It basically represents a safety net to show that you have got money in the bank, as it were.

Cash to close is a term that you are going to hear a lot. It is the total amount that you need to bring to what they call the closing table. In some states, you do go to a closing table or a closing attorney’s office. In some states, you go to an escrow office. On that closing day, you need to bring the cash to close, which will include your down payment minus your earnest money deposit. It also includes your fees for title, escrow attorneys, etc.

Most of the time, it is also going to include your prepaid taxes, homeowner’s insurance, and Home- Owner’s Association fees that apply. That is your HOA. These days it is usually done by a wire, so make sure that you deposit that big bag of cash that you have got lying around in your apartment a few days early, so your bank has got it for the wire. Seriously, do not do that. If you have got a big bag of cash, tell your lender right away. If you have a big bag of cash, what are you doing?

Next up is the Certificate of Eligibility. This is something strictly for my military folks or my vets. This is a document used in VA loans. If you are a military person or a vet and you have not started your home buying plans, binge this episode and get going because you have one of the absolute best loans out there, which is a VA loan. As a matter of fact, I had someone who was in the military for twelve years. She came out and called me. She is like, “I am ready to buy a house.” We went out and first offered, first home.

She closed on a house with an incredible VA loan. This was a little hoop that we had to jump through. If you are getting this Certificate of Eligibility, it is a certificate that is issued by the US Department of Veterans Affairs, The VA, certifying a vet’s eligibility for a VA guaranteed mortgage loan. As with all things in the government, be sure to ask this very early in your home buying process because acquiring it goes through all those standard military things like SNAFUs, FUBARs, and TARFUs.

Sometimes, cash reserves are required for you to get the best loan.

Chain Of Title, Change Orders, Clear Title, Closed-Ended Credit

The next one is Chain of Title. This is the history of all the owners and the title changes that have happened on a property. The next C is called Change Orders. This is something you are going to hear in a new build. It is a change in the original construction plans for a new build. Let’s jump back to a clear title. This is why you get title insurance. You want a clear title. It is to ensure that your ownership is free of liens, defects, or other legal encumbrances.

The next C-word is Closed-ended Credit. This is a loan of a specific amount of money for a specific period of time. You repay this type of loan in a set number of equal payments which are usually made monthly. A mortgage and a home equity loan are examples of closed-ended credit. What the heck does that mean? Your credit card is revolving credit. It does not have time. It can go on forever and they keep charging you. An installment loan is what we call closed-ended credit. It can be a good way for you to bump up your credit score. Go back to Episode 56 if you want tips on that.

Closing, Closing Agent, Closing Costs

The next C-word is my favorite C-word in real estate, which is Closing. The happiest day in the world for first-time home buyers. You did it. I told you, you could do this. Technically, a closing can also be called a Settlement. This is the time when the property is legally sold, and it is transferred from the seller to the buyer. This is when the sale of the home is final. At that time, you, the borrower, stopped becoming a borrower and you became an owner.

That is why they call you the borrower because this is all the money stuff that happens. The title goes over directly to you and the borrower assumes the loan obligation. You are going to pay the closing costs and get the title from the seller, escrow, court, or whoever does it in your state. It is the delivery of the deed, the financial adjustments, the signing of the note, and the disbursement of funds necessary to close the sale or a loan transaction.

In some jurisdictions, closing is going to be referred to as an escrow. That is where the legal documents go to a third party. In some parts of the country, it is going to be recording the deed straight with the county clerk. Sometimes, it is going to be done by attorneys. Once this happens, you are the homeowner. Congratulations.

If you have not heard me say it before, the date that the closing happens is fluid. Do not set your calendar for it. There are hundreds of things that could delay this date. Have a nice crossover in your living situations and you are not going to be homeless or sleeping in the back of a moving truck with all your stuff. Never count on the closing date as a sure thing. This is a new progressive area. You always have to ask for consent from everybody out there before you get your keys, so give it some space. Make sure everyone is cool with it.

HBH 96 | Real Estate Terms
Real Estate Terms: Your credit card is revolving credit. It doesn’t have time. It can go on forever, and they keep charging you. An installment loan is a closed-ended credit. It’s a good way for you to bump up your credit score.

The next C-word is the Closing Agent. This person, entity, or robot coordinates the various closing activities, including the preparation and recording of the closing documents and the disbursement of the funds. Depending on where you live, as we discussed, it could be an escrow officer, an attorney, a title rep, a closing person, or, as I also mentioned, it could be a robot.

The next C is Closing Costs. I did an entire episode on this, Episode 87. The reason I did a whole episode on it is that you have no idea what they are until we get to the very end. Everybody wants to calculate it super early, it does not work like that. They usually can equal anywhere from 3%, 4%, or 5%, sometimes even 6% of the total value of your loan. Again, you won’t know that until you get to the very end. They vary and change. If you want the big full understanding of it, read Episode 87 at HowToBuyAHome.com. Reading is fundamental.

Closing Disclosure, Closing Settlement Statement, Co-Borrower Or Co-Signer

The next C is the Closing Disclosure. This is sometimes known as a CD. This is an important one. It is the document that tells you the final terms of your loan. It is a required five-page form that is going to provide the final details on the mortgage loan that you have selected. It includes the loan terms, the closing costs, your projected monthly payments, how much you are going to pay in fees, and all the other costs associated with the mortgage.

Your lender is legally required to give you at least three days to look at this closing disclosure before you sign the documents on your loan. That is something that came after the last crash, so you have got time to review it. Make sure that you keep in mind if you are getting down to the wire and you have not got your loan documents yet. Once they get that CD to you, you still have to wait three days before you sign, and that can move your closing date because the closing date is fluid.

The next C-word is the Closing Settlement Statement. This can be referred to as a HUD 1 statement. This is an FYI for you. When you hear HUD 1, think to yourself, “Sidoni said that is a closing statement.” It is the final paperwork for your records. Save it for your taxes. As I was going through my list from Google, the closing date came up. It says it is fluid.

Our next C-word is a Co-borrower or a Cosigner. It is tough to buy a home, and I understand that. I am not going to sugarcoat it. I am going to tell you that some of you might need a co-borrower or a cosigner if you are lucky enough to have someone. Let’s explain how that works. Any borrower, other than the first borrower whose name has to appear on the application or the mortgage note, is someone who agrees to take full responsibility to pay back a mortgage loan, the one that you are on.

The closing day is the happiest day in the world for first-time homebuyers. It’s the day you become the owner.

This person is obligated to pay any missed payments, even the full amount of the loan, if you do not pay. You better like this person or more importantly, they better like you. Some mortgage programs distinguish a cosigner as someone who is not on the title and does not have any ownership interest in the home. When you have a cosigner or a co-borrower on your mortgage, it gives your lender additional assurances that it will be repaid, depending on how they need to structure it. A lot of times, you need their credit record and their finances to help you get approved for the loan that you want.

Collateral, Commitment Letter, Common Areas

This next word I am going to tell you about because I swear, I totally thought this was part of real estate when I got into it. Back in 2005 and 2006, when I got into it, Collateral was not even a thing. Do we all think that when you are buying a house and maybe you want to buy another house, you use your house as collateral? Nope. That is not a thing anymore. For those who do not know, collateral is an asset pledged as security for a loan or something else. It is hardly ever used anymore. It is an old stuff. Apparently, it is in the movies.

The next C-word is a Commitment Letter. That is not the little note you passed to Susie back in class when you were in seventh grade telling her that you wanted to go around. In real estate, a commitment letter is a binding offer from your lender and includes the amount of the mortgage, the interest rate, and the repayment terms.

Let’s get to another C-word, which is Common Areas. This definition has my favorite acronym in all of the real estate, PUD. The common areas are the portions of a building of land or improvements and amenities that are all owned by a Planned Unit Development, PUD. We also find common areas with condominium projects, homeowners associations, or cooperative projects in a cooperative corporation that are used by all the unit owners that may share the common expenses of the operation and the maintenance. Common areas include swimming pools, tennis courts, recreational facilities, and even things down like the corridors, the parking garage, or any means of ingress or egress. What are those words, David? I will explain it in E and I but now I have to stick with the Cs.

Comparables, Concession, Commission

Comparables is a word that you often hear in real estate when they say comps. We are way too busy as realtors to say the entire word comparables, so they are comps. What are the comps, David? These are comparable properties, which are used as a comparison in determining the value of a home that you are looking at.

The next C-word is Concession. It is something given up or agreed to in a negotiation when you are buying a house. In 2022, do not expect too many seller concessions. Love you, truth bomb, no BS. The next C-word is Commission, a dirty word in real estate. What do you mean I have to pay somebody? Do not worry about it. You do not pay the commission. The seller does.

HBH 96 | Real Estate Terms
Real Estate Terms: Condos are homes in a multiunit complex with a common area in which the owner shares financial responsibility for the common areas and the exterior maintenance.

The commission is an amount, usually a percentage of the property, the sales price, or the loan value that becomes a fee for handling the transaction. The real estate broker, the mortgage company, the property insurance agent, or the title company are all going to earn commissions for the sale of the purchase of the property. The cool thing is most of those come from the seller. Bear that in mind later on when you are thinking about turning around and selling your house. It is not 100% profit.

Comparable Market Analysis, Condominiums Vs Townhomes

The next term is Comparable Market Analysis. I understand why people shorten it. It is often called a CMA. What is a CMA? CMA is a list of the homes or how much they sold to tell you how much your home is worth. It is pretty simple. You compare the homes on the market to analyze. The next word is Condominium.

I thought, “That is dumb. I am not even going to explain that to everyone,” but I realized this is something I have to explain a lot. A lot of people think there is like a huge difference between a condo and a townhome. I have even had people break it down to me like, “A condo is like an apartment where you have people above and below you. A townhome is you only have people on the side of you.”

I cannot explain it any easier than this. It is one of those things that people have decided it is, but it is not. Let me tell you what technically a condominium is because things that you call a townhome are technically condominiums. Technically, homes in a multiunit complex with a common area in which the owner shares financial responsibility for the common areas and the exterior maintenance are considered condos.

If the land that the home is on is not owned by the condo or townhome owner, whatever you want to call it, and it is owned by a condominium association, technically, that is a condo. Even though people like to say, “Townhome, many states consider all homes with the land and not owned by the owner as a condominium.” In general, condominium owners own the unit themselves and have the rights along with the other owners to the common areas but they do not own the common elements even of their own unit.

You do not own your walls on the exterior, your floors or your ceilings, or the structural systems outside the unit. Those are all owned by the condominium association. They are usually condo association fees. That will keep up with the building maintenance, the property upkeep, the taxes and insurance on the common areas, and finally reserves for the entire complex.

HOA plus CC&R equals the devil.

Conforming Loan, Convertable Arm, Contingency

Getting down to the end of the Cs, a Conforming Loan. That is a loan with a limit. It usually offers better terms and better rates than the next step up, which is a jumbo loan. Most of you first-timers out there are going to be using a conforming loan. The limits are pretty high. In conventional loans, a lot of people go, “I got to use an FHA, a USDA, or VA loan because I want those low-down payments.” One that is not guaranteed or insured by those government-backed loans, the FHA, USDA, or VA, but depending on the market, you might be able to get a conventional loan with very low-down payments. If you have got good credit and good income, we are seeing 3% conventional loans all over the place.

The next C-word is Conversion Option or a Convertible ARM. This is the clause in your adjustable mortgage that allows the borrower to convert the Adjustable-Rate Mortgage, also known as an ARM, to a fixed-rate mortgage. If an Adjustable-Rate Mortgage is an ARM, what is a fixed-rate mortgage? It is an FRM. A conversion option means that you can, at some point, take your adjustable mortgage and turn it into a fixed-rate mortgage. You should know about that way before you sign the paperwork.

The next C-word is Contingency. Contingency can mean a lot of things, but in real estate, not every state, but in some states, contingency is a very specific word that has to do with the timelines that things need to get accomplished in the contract. It is a condition that must be met before a contract is legally binding. In California, we do call them contingency time periods. Where you are might be called a due diligence time period or a conditions time period.

The simplest example is home purchasers will often have a home inspection contingency. That means the sales contract has a certain amount of time that you get to do the home inspection and sign off on it. It means you have a free look time. If my broker ever heard this, they could smack me down on the head for saying free look. It is never a free look.

You are committed and you signed a contract, but the contract does allow you a contingency period to inspect the home. At that time, if you find something wrong, you and the seller can negotiate. If you do not do the inspection, it takes too long, and the time has passed, the seller can ask you in writing to remove that contingency. If you do not, they can bail you out of the deal.

Coop, Counteroffer, Covenants, Conditions, And Restrictions

The next C-word is a Coop. A coop is where residents purchase stock in a cooperative corporation that owns the structure. If you are like, “What are you talking about?” This is something that happens mostly in big apartment buildings in big cities where people buy apartments as their homes because everything is vertical. In a coop, each stockholder is entitled to live in a specific unit of the structure and is responsible for paying a portion of the big loan on the big property. You are going to see this mostly in cities, so make sure if you are looking at coops, you talk to your unicorn about it.

HBH 96 | Real Estate Terms
Real Estate Terms: But another good source of what you can do to the outside of your house is to drive around the complex. See what changes other people have made. But just to be safe, always look at the CC&Rs.

Our next C-word is Counteroffer, an offer made in response to a previous offer. For example, when you write an offer, you are going to hear, a lot of times, the seller is going to counteroffer usually asking for a higher price. Real estate agents love to say, “We got to counter,” which means counteroffer. The next C-word is something that you are going to love. It is called Covenants, Conditions, & Restrictions. If you have never been in a home with an HOA or never lived or had friends that have ever had an HOA, maybe you have never heard of what we call CC&Rs, Covenants, Conditions, & Restrictions.

If you are like me, and at one point in your life, your father lived in a place that had CC&Rs, you never heard about these things. I do not even know if that was a sentence, but you know what I mean. Let’s call them not young people who live in places with CC&Rs. They love to talk about these all day long. Why? Here is the Google definition. Usually, these are the rules and regulations placed on real property by a Home Owners Association, the HOA. HOA plus CC&R equals the devil.

It is a neighborhood association, a developer, or a builder that sets forth any requirements or limitations of what an owner is allowed to do with the property. Hear all those nasty words, limitations and allowed. It also includes “might get out of town.” It says it might also include monthly or annual fees or special assessments.

Here is the real definition of what the CC&Rs are. When you buy a house and you have to review the CC&Rs, let me explain to you what they are. They are a pile of papers about two inches thick filled with incomprehensible legal mumbo jumbo. You are only going to have a couple of days to review it to decide if you want to make the biggest financial decision of your life. What is going to happen? You are going to flip through it and find the pages where they talk about the parking rules or stupid trashcan policies. Other than that, good luck to you.

One of the things I tell people all the time is I cannot tell you a shortcut around it. You have to look at all the CC&Rs. It sucks. It is part of buying a home with an HOA, but if you want another good source of what I can do to the outside of my house, my fence, or my patios, one good way is to drive around the complex and see what changes other people have made. Odds are, if you see changes that are obvious to you driving around that, it is probably not a problem. Do not quote me on that and do not sue me when you change your fence because you never know. Maybe if people let it go, one day, it could be an intense neighbor who decides to get on the HOA Boardroom and site everybody.

Conventional Sale, Credit, Credit Worthy

Our next C-word is a Conventional Sale. That is a regular sale, not a foreclosure, short sale, trust sale, or probate sale. These are the easiest sales to complete. Our next C-word is Credit. I went online. As I said, I am trying to give you guys all the Google definitions and give them to you in real words. I found 86,482 definitions for things having to do with credit. Here is what you need to know about credit, Episodes 3, 8, 56, 61, 64, and 90. I cannot do the definitions here. There is way too much incorrect information out there.

Buying a home is not a process of selection. It’s a process of elimination from the homes that are available to you.

My favorite C-word is Credit Worthy. I am so old drunk that I was going to do Wayne’s world, “We are not worthy.” It is an old joke, but I realized that you would not know what I am talking about. You are going to go Google it to try to figure it out. You are going to start googling and that is going to defeat the entire purpose because then you are going to Google real estate words. The whole point is that I give you the real definition, not the Google definition, so I am not doing that joke.

And The Last Word, Compromise

In credit worthy, people are judging you. Not just clearance, but the banks and the lenders. Are you worthy? It depends on your income, your debt, and your ability to qualify for credit and repay those debts. How violated do you feel now? This is part of it. I have got one more big C word for you. It is not what you are thinking.

Before I wrap it up, I am going to ask you, how many hours of free content you have consumed and still not taking your 94 seconds to write a review for the show or on YouTube? Help others find us on Apple, Spotify, and YouTube. Get the message out there and share it with folks. You can always go to @HowToBuyAHome on TikTok and write me some comments. Your homie is out there. Get on TikTok and drop some truth bombs in the comments. Troll me so other people could find me and get all the juicy nuggets.

The last C word I promise for you is Compromise. You are not going to hear it too often when you look online to try to find advocates who are trying to help you figure out how to buy a home and try to get you buying home information. You are going to see lots of information on how easy it is and how you do not need to be intimidated.

I agree with a lot of what they say, but after several years of helping thousands of first-time homebuyers all over North America, training other realtors on how to work with first time home buyers, and getting down in the trenches and going one-on-one with these people all day long, this is the one truth bomb that I want all you guys to embrace.

Once you do that, everything else is going to be gravy. Be ready for compromise. Buying a home is not a process of selection. It is a process of elimination from the homes that are available for sale at the time that you are buying. Who knows? Maybe you have got a little bit of champagne style on a beer budget and all those must-haves could be changed to nice-to-haves or you will be able to dump your rent earlier, start to build your financial stability, and tell all your friends, “I thought this was impossible, but this dude is in my earholes kept saying to me, ‘You can do this.’”

Important Links

This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!

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