Here is a collection of frequently asked questions that I have put together to help you in buying or selling a home. If you have any other questions, not listed here, feel free to call or send an e-mail.
Click the Plus Sign beside any of the questions below to reveal the answer.
Can a home depreciate in value? Answer
Generally, real property never depreciates in value, or more so, it is not very common for property to depreciate. This is why it’s a great investment. Make sure you carefully consider location and community when choosing a home, it can effect the homes future value greatly.
If you are in a newly developed area, do some research on the construction of the surrounding areas being developed to determine if they may effect your homes value.
Is an older home as good a value as a new home? Answer
This is really just a matter of preference, but both newer and older homes offer distinct advantages, depending upon your unique taste and lifestyle.
Older homes can generally cost less than new homes, however, there are many cases where new homes can also cost less then older homes. Most new homes will not have any backyard landscaping and some don”t include any front landscaping either. With an older home, the landscaping is normally already completed and could have 10”s of thousands of dollars in landscaping done, which is included in the purchase price.
Taxes on some older homes may also be lower. Some people are charmed by the elegance of an older home but shy away because they”re concerned about potential maintenance costs. Consider a home warranty to get the peace of mind you deserve. A good Home Warranty plan protects you against unexpected repairs on many home systems and appliances for a full year or more after you move in.
In a new house, you can pick your own color schemes, flooring, kitchen cabinets, appliances, custom wiring for TV”s, electrical, computers, phones and speakers, etc., as well as have more upgrade options. Modern features like media rooms, extra-large closets and extra-large bathrooms and tubs are also more attainable in ground-up construction. In a used home, you rely largely on the previous resident”s tastes and technological whims, unless you plan to farm thousands into a remodeling and rewiring.
New-home designers can use new building materials such as glazed Energy Star windows, thicker insulation and other technology that will lower future energy costs for the owner. Most states now have minimum energy-efficiency requirements for new construction. Kitchens and laundry areas in new homes are designed to house more efficient energy-saving appliances. Older homes, unless they have undergone an energy retrofit, usually cost much more per square foot to air-condition and heat.
Builders have to follow very strict guidelines in new-homes and additions, especially in the West and Northwest, where earthquake safety standards must be observed. In general, new homes are usually more fire-safe and better accommodating of new security and garage-door systems.
Older homes can be better judged for their quality and timeless beauty. New homes that now possess a smooth veneer might reveal the use of substandard building materials or shoddy workmanship over time.
As you can see there are advantages and dis-advantages to each, but it really comes down to what fits you and what you are looking for in a home.
What are closing costs? Answer
Closing costs are expenses incurred by buyers and sellers in transferring ownership of a property.
FSBO stands for For Sale By Owner. A for sale by owner property usually indicates that the property is being sold without a real estate agent.
What is a “One-Time Show” listing? Answer
With this type of listing the homeowner signs an agreement with the agent. What this agreement declares is the homeowner will provide the agent with a commission for selling the property. This agreement also states the homeowner cannot negotiate with the buyer at a later time to avoid paying a commission. This type of listing is most often used by agent showing FSBO (for sale by owner).
An agent who is authorized to open and run his/her own agency. All real estate offices have one principal broker.
A contingency is a provision included in a sales contract stating that certain events must occur or certain conditions must be met before the contract is valid.
What is a debt-to-income ratio? Answer
A debt-to-income ratio is the percentage of a person’s monthly earnings used to pay off all debt obligations.
What is a Multiple Listing Service (MLS)? Answer
A multiple listing service is a computerized listing of the homes for sale in an area listed with a realtor. Agents are granted access to the MLS and can use it to find a house in a particular price range or area.
A REALTOR® is an agent or agency that belongs to the local or state board of REALTORS and is affiliated with the “National Association of REALTORS” (NAR). They follow a strict code of ethics beyond state license laws and also sponsor the Multiple Listing System (MLS), which is used to list houses for sale.
REALTOR is a trademark of the National Association of Realtors.
What is an escrow officer? Answer
An escrow officer is the person that walks you through the closing process. They are usually employed by the title company that you are working with. They are a neutral third-party, responsible for overseeing the escrow process. They typically perform the title searches, prepare final paperwork, witness the document signings as well as ensure that the transaction is executed properly and legally.
What is homeowners association (HOA)? Answer
Homeowners association is a nonprofit association that manages the common areas of a condominium or “planned unit development” (PUD). Unit owners pay a fee to the association in order to maintain areas such as a pool or playground that are owned jointly.
What is the difference between being prequalified and preapproved for a loan? Answer
If you’re prequalified it means that you POTENTIALLY could get a loan for the amount stated to you, assuming that all of the information you provide to the bank is accurate and true. This is not as strong as a preapproval.
If you’re preapproved, it means that you have undergone the extensive financial background check, which includes looking at your credit history, previous tax returns and verifying your employment – and the lender is willing to give you a loan, basically meaning you’re approved!
You will usually be provided an accurate figure which shows the maximum amount that you are approved for. Most sellers prefer buyers that have been preapproved because they know that there will not be any problems with the purchase of their home.
What is title insurance? Answer
Title insurance is insurance that protects the lender and buyer against any losses incurred from disputes over the title of a property.
What’s the Difference between a “Listing Agent” and “Selling Agent”? Answer
Listing Agents usually deal with sellers, and are the ones who will list a property for sale on the Multiple Listing Service.
Selling Agents (also Buyers Agents) mostly deal with the homebuyers, usually only listing just a few homes for sale. They will sell the homes (which have been placed in the MLS) via the listing agents.
The majority of agents will focus on one or the other. Some agents will also divide their time between sellers and buyers and are usually regarded as the best ones since they are dealing with both sides of the coin.
If you phone an agent from a magazine or newspaper ad, you are usually contacting the listing agent. These agents will place ads to show the seller that they are making an effort to sell their home. Also their advertising efforts can draw others who may decide to sell their homes.
Why should I use a real estate agent? Answer
A real estate agent is more than just a sales person. A real estate agent may act on your behalf, providing you with advice and guidance when buying or selling a home. Due to the constant changing of the market, the information available on listings is not always 100% accurate. There are times when you need the most current information about what has sold or is for sale, and the only way to get that is with a real estate agent.
If you are in the market to buy, it would be advisable to use a Buyer’s Agent. They can make recommendations on what terms and prices to offer as well as negotiating a deal with your best interest in mind.
Are lenders limited in the amount of escrow funds they can collect from borrowers? Answer
The Real Estate Settlement Procedures Act (RESPA) sets standards for the calculation of the amount mortgage lenders require borrowers to deposit into the escrow account. RESPA limits the initial deposit into an escrow account to an amount equal to the sum sufficient to pay taxes, insurance premiums, and other charges on the mortgaged property for the first payment period, plus a cushion.
An escrow cushion is an amount of money held in the escrow account to prevent the account from being overdrawn when increases in disbursements occur.
On a monthly basis, mortgage lenders may not require borrowers to pay more than one-twelfth of the total amount of the estimated annual taxes, insurance premiums, and other charges, plus an amount necessary to maintain the allowable cushion.
Can I pay my own taxes and insurance? Answer
When a loan is originated, the mortgage documents specify the escrow conditions. This has become a standard practice for all mortgages, including FHA, VA and conventional mortgages. Occasionally on conventional loans, FRFCU waives the collection of escrow requirement at closing if the member has a minimum 20% equity position in the property.
How can I avoid private mortgage insurance? Answer
The easiest way to avoid PMI is by putting 20% down payment; however, PMI can also be avoided if you only have 5% or 10% for the down payment. The way to accomplish this is via a first and second mortgage combination commonly referred to as 80/10/10^s or 80/15/5^s.
These two methods combine a first mortgage lien for 80% of the home price with a second mortgage lien for either 10% or 15% of the home price leaving the remaining 5% or 10% as the down payment. Because the first lien is at the magical 80% loan=to-value, there is no PMI required, even though a second mortgage is being |piggybacked| onto the financing thus allowing for the lessor down payment.
While the second lien terms are not as attractive as first lien rates, the second mortgage is still home mortgage interest and thus deductible as such on your federal tax return where PMI is insurance and offers no deduction.
How is interest calculated on a mortgage loan? Answer
Most mortgages originated today calculate interest in arrears, unlike consumer loans which calculate interest to the date of payment receipt. As an example, when borrowers pay their February mortgage payments, they are paying the January interest. This method of calculating interest is based on a 360 day year in which each month has 30 days.
How long does the loan process take? Answer
The number of days from application to closing can vary from just a few days to 45 or more days, depending on a number of factors. Some of the factors include: loan type, whether an appraisal is needed, and title clearance. Time delays also occur if outside sources or the borrowers do not promptly provide documents to the lender.
How much time will it take to close my loan (sign the loan documents)? Answer
Generally, the process takes as long or short as the borrower wishes. Explaining and signing the documents takes approximately 30 to 45 minutes. However, the borrower may choose to sign the documents and be on his/her way or ask a number of questions and spend more time. Closings may also vary from closing agent to closing agent.
Is there a minimum credit score? Answer
This answer depends largely upon the type of mortgage you are trying to obtain. The most attractive and most common type of mortgage financing is FNMA & FHLMC also known as agency paper. To get an agency approval, the rumored acceptable credit score is 620. This can vary widely depending on other factors when underwriting the buyer (down payment, income, liquid assets…). To offer a range, consider the following: below 620 is poor, 620-650 marginal, 650-680 nothing special, 680-700 fairly good, 700-720 good, 720-750 very good, above 750 is excellent. Many loans are closed every day with credit scores less than 620. More than likely they are not on agency paper. Alternatives to agency paper are government loans (FHA & VA) and sub-prime money.
Must I use the mortgage company that my builder directs me to? Answer
No. It is your mortgage and you may decide upon the lender. However, most volume builders are effectively |forcing| their buyers to use their in-house mortgage company by refusing to pay certain fees or even altering upgrade packages based upon them getting or loosing the mortgage. This |forced-use| game most often spells higher interest rates for the buyer compared to what is available in the open marketplace.
Should discount points be paid to lower (buy down) an interest rate? Answer
This question is best answered after careful consideration of your own personal financial goals. Buying down the interest rate (paying points on the mortgage – one point is one percent of your mortgage amount) may not be in your best interest. Here are some reasons why:
Mortgage interest paid is tax deductible in most cases (seek the advice of an accountant or the IRS).
The funds are no longer available to invest, save or use (ie. purchase an IRA, pay off credit card debt at a higher rate, etc.)
Falling interest rates can be taken advantage of sooner if discount points are not paid to buy down the interest rate (the original interest rate was higher).
In the past, if a consumer bought down the interest rate and then refinanced (buying down the rate again), it is possible not enough time will have elapsed to recover the |buy down| amount through the reduced monthly payment. This also occurs if the consumer sells the home before recovering the |buy down| amount.
Not only does the amount paid in discount fees (buy down amount) need to be recovered, the |time value| of the money spent or its |present value| also needs to be recovered. Present value is the income you could have earned or the satisfaction you could have received through alternative use of your money. Remembe to consider the tax consequences of your ultimate decision.
Individuals should do what best fits their own personal situation and goals.
What are the benefits of doing a first and second lien conbination? Answer
By doing a first and scond lien you will avoid private mortgage insurance, get a larger tax deduction, have a better equity position, and you will also be able to waive escrows if desired.
What benefits do I receive from private mortgage insurance? Answer
Prior to the existence of private mortgage insurance, individuals typically could not purchase a home unless they had a downpayment of at least 20% of the purchase price. Private mortgage insurance benefits the mortgage lender directly by reducing the costs associated with borrower default. It also benefits consumers by lowering downpayments, thereby allowing more people to achieve home ownership.
What do I do if I receive a tax statement? Answer
Many tax authorities will mail an informational copy of the real estate tax statement to the homeowner in addition to the Credit Union. However, there are some statements tax authorities do not forward to the credit union, and in special cases we will need your assistance in obtaining the bill. If you receive a statement for any of the following, please forward it to our office by mail or fax.
- delinquent real estate taxes
- supplemental or additional real estate taxes
- special assessments
- if the tax authority will not honor a bill request from another party.
What does Prepaid Interest mean? Answer
Prepaid interest is typically paid at loan closing. It is the interest paid on a new loan from the day of closing through the end of the month. All future interest on a mortgage loan is then paid in arrears. For example, if your new loan closes in February 19th, prepaid interest would be paid at closing from February 19th through the end of the month of February. Interest would then be paid monthly with your first payment beginning April 1st which would pay March interest. Your payment on May 1st would pay April interest, etc.
What does the origination fee cover? Answer
The origination fee is the fee some lenders charge to cover some of the costs of making the loan and is calculated by multiplying the total mortgage loan amount by the percentage shown. This fee is typically 1% or lower, but may also be influenced by market conditions or the type of loan being sought.
A gift letter is when an individual gives you money for a down payment as a gift, that person must write you a gift letter so that it can be included in your loan documentation.
A lock in guarantees a certain interest rate for a certain period of time.
An ARM loan is an Adjustable Rate Mortgage. The interest rate on an ARM loan is adjusted periodically based on the terms of the mortgage documents. The interest rate is typically based on a common index published periodically, adjusted by a margin. The margin is an amount charged in addition to the index and typically does not change over the life of the loan.
What is an escrow account? Answer
When borrowers make their monthly mortgage payments, they generally also pay one-twelfth of the anticipated annual amount needed to pay taxes and insurance premiums. These additional funds are deposited into an escrow account until the lender pays the taxes and insurance premiums as they come due. The borrower benefits for budgeting reasons because costs are spread through the year rather than as a lump sum. This method allows the lender greater control in avoiding tax delinquencies or lapses of hazard insurance coverage on the property. Mortgage documents often stipulate lenders that establish an escrow account.
What is my credit score and how is it calculated? Answer
Your credit score is a one look number at your overall credit rating. The calculation formula for this score is somewhat of a mystery and a secret held by the credit reporting bureaus. We do know that the major variables to derive this score are: public records, late payments, how recent and the number of late payments, amount of credit open, balances on credit open compared to available credit, and inquiries into your credit history. Each of the three major credit bureaus (Experian, TransUnion, and Equifax) offer a credit score for each borrower. So for a married couple there are six credit scores.
What is PITI and what does it stand for? Answer
PITI is the total monthly payment you make on a house-Principal, Interest, Taxes, and Insurance.
What is preapproval or prequalification? Answer
These are similar terms thrown loosely around by many loan officers. They essentially mean that a mortgage professional has reviewed your qualification ability from a credit, income, debt obligations, and assets available for the purpose of getting a home mortgage.
Underwriting is the process of evaluating a loan to determine whether the loan is a good risk.
Why did my mortgage payment amount change? Answer
There may be several reasons. Some mortgages, such as ARM loans, provide for periodic adjustments to your principal and interest payment amount. A second reason for a change may be due to an annual analysis of your escrow account. In compliance with the Real Estate Settlement Procedures Act (RESPA), you will receive an Annual Escrow Disclosure Statement, which shows the adjustment to your escrow payment based on current tax and insurance amounts.
Why does the title have to be cleared before I can get a mortgage? Answer
When a lender makes a mortgage loan (other than a home equity loan), the lender typically requires a first lien position. This means there can be no other outstanding liens against the property that are superior to the new mortgage. Liens can result from a variety of sources, such as home equity loans or lines of credit, child support judgments, divorce settlements, delinquent taxes, and special assessments. Most realtors, mortgage companies, title companies, and escrow companies will assist the seller and/or borrower in clearing title. The ultimate responsibility, however, lies with the sellers of the property who are warranting clear title to the buyers. It is important the buyers receive clear title from the sellers so there are no future claims against their property ownership rights.
Why is the Annual Percentage Rate (APR) on the Truth in Lending Disclosure higher than the rate shown on my note, which is the rate I thought I chose? Answer
All lenders are required by the Real Estate Settlement and Procedures Act (RESPA) to show the rate which will be charged on the note signed at closing, including the total cost to obtain the loan. This includes, but is not limited to, the total interest paid over the life of the loan, assuming the full term is carried out at the note rate, plus certain closing costs.
Closing costs could include prepaid interest, Private Mortgage Insurance/FHA Mortgage Insurance Premium/ or VA Funding fee, whichever may be applicable, and various miscellaneous costs including, but not limited to, underwriting fee and tax service fee, may be charged. All of these “Finance Charges” are taken into consideration when calculating the APR to give a more accurate picture of the total cost of the loan.