For those who have yet to complete a real estate transaction, here are some terms you should be aware of as you proceed:
A Pre-approval Letter is an essential and primary component of a real estate transaction. They are acquired through banks or Mortgage Brokers. They summarize your qualifications to purchase a home, based on an analysis of your job history, income, credit and reserves. Your Pre-approval Letter will accompany your offer when you’re ready to buy.
MORTGAGE BROKER –
A Mortgage Broker works specifically to find loans for home buyers, whether for an original purchase or for re-financing. Many consider working with a Mortgage Broker, versus a bank, to be desirable because they have a greater range of products and fewer layers of administration to bog down the approval and underwriting process.
The process the lender goes through to make sure that all of the documentation required for the loan is in place, accurate and unchanged. The three C’s are: credit, capacity and collateral. They verify the appraisal, the insurability, clear title, employment, etc.
Depending on how long you plan to stay in the home, a fixed rate is a desirable loan plan, insuring that the interest rate you’ve negotiated will remain unchanged for the life of the loan. The lower your interest rate the better.
ADJUSTABLE RATE MORTGAGE (ARM) —
This is when the interest rate on the loan adjusts in conjunction with fluctuations in the market, causing either an increase or a decrease depending upon the costs the lender incurs associated with the loan. These loans can be nice for shorter terms. It is possible to negotiate a very low interest rate for a shorter period, usually five, seven or ten years, after which the loan “balloons” to an ARM. This can be problematic if rates have adjusted way up since the loan originated, causing a sudden, large leap in the mortgage payment.
MORTGAGE INSURANCE (MI)—
This is insurance required by the lender if the buyer has less than 20% equity in the home. It is to protect the bank from defaults. It is possible to avoid paying mortgage insurance by having two loans: a primary (for 80%) and a secondary (for 10%), with just 10% down. This satisfies the banks need to only lend 80% on the primary loan.
The original amount of money put down along with your offer to purchase a house. During the term of your offer process, you will be required to increase the deposit to 3% of the purchase price. Strong offers often include a 3% deposit from the start.
The Neutral 3rd party where funds are held during the transaction. Your Realtor will “Open Escrow” when your offer is accepted.
TITLE COMPANY –
This is where your funds will be held. Title companies handle the escrow. They also insure that the title to the property is free and clear for transfer, with no liens or encumbrances. Additionally, they service the signing of all loan documents and file the deed with the county. When you are ready to close you will go to the title company to sign a big pile of documents.
This is an acronym for Covenants, Conditions and Restrictions, which are the terms defined when a subdivision or development is established, describing what is and is not permitted for the homeowners. These are conveyed through the Preliminary Title Report, and often times are no longer relevant. They need to be reviewed in the context of when they were written.
MULTIPLE OFFERS –
This happens when more than one buyer decides to try to buy the same home. It can happen if a home is underpriced, if the home is exceptionally desirable, or when there is a lack of inventory.
The set of documents collected from the seller, Realtors and Inspectors detailing any and all knowledge about the house.
And evaluation of the property required by lenders to ensure that the property has enough value to support the amount of the loan.
After writing your offer, you will have a period in which you may hire any number of inspectors to examine every aspect of the home, from foundation to roof, from trees to the way water flows on the property. The only reason one should ever waive the right to these inspections is if they have either so much money that they don’t care whatever kind of problems they might discover and/or they are experts on homes—like General Contractors—and can accurately assess any issues they are buying into.
A set of criteria with which you may investigate the home including: physical inspections, insurability, the HOA should there be one, the loan, the appraisal, etc. Your Realtor will help you work through all of these investigations. They are cause to either move forward, renegotiate or cancel the contract. When you release ALL of the contingencies, it is possible you will not be able to get your deposit back if you then decide to back out of the purchase.
When all contingencies are released, all loan documents are signed and filed, deposits are released.
When the Title Company files the new deed with the County.