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This is a collection of questions that you have frequently asked. It will help your process of buying or selling a home much easier. Any questions that have not been listed here? Feel free to call or email me. Click on any of the questions you are interested in below, and the answer will show.

Buyers

Can a home depreciate in value?

In general, properties usually don’t depreciate in value. It’s not a common thing – they are more likely to stay at their current value or increase in value, depending on the circumstances. This is why buying a home is a perfect investment. But before you buy, you need to carefully think about the location and the neighborhood as well as the community when choosing a home to invest in. These factors all affect the value of the home in a significant way. If the home is in a new, recently developed location, you should do research on how the nearby areas are developing because this can be a determining factor of your home value now and in the future too.

Is an older home as good a value as a new home?

When it comes to this, it’s just a matter of preference. Both new and old homes have their perks. For instance, old homes have that charm, new homes are stylish. It will all depend on your taste, needs and lifestyle.

If we are talking about the price, older homes tend to cost less than new homes. However, we have witnessed numerous cases when a new home had a lower price tag than an old one. New homes usually don’t have any landscaping done in the back and often not in the front either. But older homes tend to have all of the landscaping already done – some older homes have thousands of dollars worth of landscaping both in the front and in the back and this comes included in the asking price.

Taxes are also lower on older homes. You may find yourself charmed with the look and feel the older home has, though the maintenance might scare you a bit.

To get some peace of mind when buying an older home, you should get a home warranty. A good home warranty plan can protect you and your family from any unexpected events, issues or repairs. This often includes the appliances and lasts for a year, if not more, starting the day you move in.

A new house comes with its own advantages – you get to pick your own flooring, color schemes, kitchen decor and cabinets, custom wiring and appliances that are newer. You can have various modern perks like large closets, large bathrooms, media rooms, big tubs and so on. You also get a more attainable construction. When you buy an older home or a used home, you will have to do with what the previous owner has left you with. This means that you will have to adjust to their tastes, technological efforts etc. That is, unless you are willing to invest some more money into renovations or rewirings.

New homes have newer building materials as well – this might include thicker insulation, better windows and other adjustments that might lower your energy costs in the future and be more environmentally friendly. Appliances, kitchens and laundry areas are also designed to save as much energy as possible. Older homes are, in most cases, a lot less energy efficient and they would cost more in terms of heating and air-conditioning. Builders of the new homes are usually under strict guidelines and they have to apply safety measures to all buildings which makes new homes more fire-safe and adjusted to meet various security standards. Old homes are better judged against their charm and beauty. On the other hand, new homes often use cheap materials and workmanship.

There are many advantages and disadvantages to both options and it will all come down to your own wants and needs.

What is a broker?

A broker is an agent authorized to run their own agency and all real-estate officers that homeowners deal with usually have one main broker that they work for.

What is the difference between being prequalified and preapproved for a loan?

Being pre qualified means that you could potentially get a loan if all of your information is true. This is not equal to or as strong as pre approval. When you get pre approved, you have already been screened – your financial background, including your credit report, taxes and employment have been checked – and your lender wants to give you a loan.

They will provide you with a figure which will tell you what is the maximum amount of money you can get.

Most of the sellers will prefer buyers that have been pre approved because this means that there will be no problems in the purchase of the home.

What is title insurance?

This is the type of insurance which will protect both the lender and the buyer from getting any losses because of the disputes over the title.

Can I pay my own taxes and insurance?

The mortgage documents at the beginning of a loan always specify the escrow conditions. This is a standard practice for mortgages now and that includes the FHA, the VA and all of the conventional mortgages. On occasion, FRFCU will waive the escrow requirements at the closing if a member has at least 20% of equity position in the property.

How can I avoid private mortgage insurance?

One of the easiest ways to avoid the private mortgage insurance is to put a down payment of 20%. You can also put 5 or 10%. The best way to do this is via first and second mortgage combination. These methods combine the first mortgage for 80% of the home price with a second mortgage of 10 or 15% and the remaining 5 or 10% are left as a down payment.

Because the first lien is at 80%, private mortgage insurance is not required even though the second mortgage is carried onto this financing.

The second mortgage is thus deductible on the federal tax return while PMI isn’t.

How is interest calculated on a mortgage loan?

While consumer loans calculate interest to date of payment receipt, mortgages calculate interests in arrears. This method is based on 360 day year – so, for instance, you pay your January interest in February.

Is there a minimum credit score?

This will mostly depend on what kind of loan you want to get. The most common type is FNMA and FHLMC. To get this, the acceptable credit score is 620. But this can vary depending on the other factors like down payment, income and so on. Some of the most common ranges include: anything below 620 is poor, 620-650 is marginal, 650-680 is nothing special, 680-700 fairly good, 700-720 good and 720-750 is very good while anything above 750 is excellent. Try to strive for that number. However, you might even get a loan if your credit score is below 620, just not the mentioned loans. You can probably get FHA or VA loans.

What benefits do I receive from private mortgage insurance?

Before the private mortgage insurance, you had to have a down payment of at least 20% of the asking price in order to get a loan or purchase a home. Private mortgage insurance serves to benefit the lender by reducing the costs with borrower and it also benefits the borrower by lowering the amount of the down payment which allows more people to get a house.

What do I do if I receive a tax statement?

Tax authorities usually mail you a copy of the real estate tax statement and this is purely informational. They will send it in addition to the Credit Union. But some of the tax authorities don’t send this to the credit union and the credit union might need you to send them the tax statement.

You should mail delinquent real estate taxes, supplemental real estate taxes, special assessment and similar documents to the Credit Union.

How long does the loan process take?

This can vary greatly – there have been cases of the loan process lasting just a few days and there have also been cases of a loan process lasting more than 45 days. This will largely depend on several factors like the loan type, if the appraisal is needed and the title clearance. Delays also happen if the documents are not delivered promptly to the lender.

What are closing costs?

Closing costs are the payments both buyers and sellers have to make in order to transfer the ownership of the property from one to the other.

What does FSBO mean?

FSBO means that the home or property is sold without the engagement of a real-estate agent. It stands for For Sale By Owner.

What is a "One-Time Show" listing?

This is the type of listing where an owner of a home creates and signs and agreement with an agent. This agreement says that the owner will give the real-estate agent a commission from the money he gets from selling the property. It also prevents the owner of the home from negotiating with a buyer on their own later in order to sell the house without the agent or paying the commission. This is the type of listing is commonly used by an agent showing FSBO.

What is a contingency?

This is a part of the sales contract, a provision which says that some things have to happen and some conditions have to be met before the validity of the contract is approved.

What is a debt-to-income ratio?

This is a percentage of someone’s monthly income which is used to pay all of their debt and obligations.

What is a Multiple Listing Service (MLS)?

This is a digital listing of the homes that are for sale in a certain area. These homes are also listed with a realtor. Agents can have access to the MLS and they can use it to find a home for their buyer with a particular price or in a certain area.

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.

What is a REALTOR®?

This is either an agent or an agency that is a member of the local or state board of realtors. They are commonly affiliated with the National Association of Realtors and they have to follow a code of ethics which spans beyond the state license laws. They also have to sponsor the MLS which is what is used to list houses that are for sale. It’s a trademark for this association.

What is an escrow officer?

An Escrow officer is a person that will help you through the process of closing a deal. They are an employee of the company you are working with and they are neutral in the sense that they are only responsible for caring for the Escrow process. They will work on title searching and preparing the final papers. They will also be there for the document signing to ensure that every transaction is done properly and in a legal way.

What is homeowners association (HOA)?

This is a nonprofit association that enables and manages the common areas of a condominium or a planned unit development. People living in the units pay a fee for maintenance of the facilities within the area like pools, playgrounds and various other areas that are owned jointly.

What's the Difference between a "Listing Agent" and "Selling Agent"?

Listing agents are the type of agents that work with sellers and they will list a property for sale. Selling agents are the type of agents that work with buyers and they usually don’t list that many homes for sale. They normally sell homes listed by listing agents and they can also be called Buyers Agents.

Most of the agents choose to be either one or the other  while some of the agents might choose to divide their time between selling and buying. The latter are considered the best since they understand both parties well.

An agent that advertises in magazines and newspapers is usually a listing agent. They advertise to show their effort and attract new people who want to sell their home.

Why should I use a real estate agent?

A real-estate agent can act on your behalf, give you some guidance and advice on selling or buying a home. They are also a salesperson. Since the market is always changing, the information available isn’t always accurate and you might need it to be. This is where a real estate agent comes in handy for providing the best and most accurate information.

If you want to buy a property, you might want to go for a Buyer’s agent because they are good at making recommendations on how to negotiate and which terms and prices to go for.

Sellers

Are lenders limited in the amount of escrow funds they can collect from borrowers?

There are some standards for the amount of mortgage that you have to put into an Escrow account. These standards are set by the Real Estate Settlement Procedures Act. It limits the starting deposit to the amount necessary to cover taxes, insurance premiums and other charges in the first period, in addition to cushion.

A cushion or an escrow cushion is the amount of money placed in the escrow in order to prevent that account from being overdrawn.

Monthly, mortgage lenders will not ask for more than one twelfth of the complete amount of annual taxes, premiums and other charges plus the amount necessary for the cushion.

How much time will it take to close my loan (sign the loan documents)?

It can take as long or as short as you want to. Signing the documents and explaining can last from 30 to 45 minutes. It can be even shorter if you just want to sign and go. If you have any questions, you will have to spend a bit more time there. It can also vary from agent to agent.

Must I use the mortgage company that my builder directs me to?

You shouldn’t do this. This is your loan and you should decide who your lenders will be. Keep in mind that builders are often pushing their clients into working with certain lenders by refusing to pay some feels or altering some packages and so on. Plus, the lender you are being pushed into probably has higher interest rates than what’s available on the market.

Should discount points be paid to lower (buy down) an interest rate?

To answer this question, you should ask yourself what your financial goals are because buying down the interest rate might not be in your best interest.

Mortgage interest is tax deductible. These funds will no longer be available for investment, save or use. You can’t take advantage of the falling interest rates.

In the past, a consumer would bring down the interest rate and then they would refinance. This makes it difficult for the enough time to pass – the time needed to recover the amount through the reduced monthly payment. This can also happen when the consumer sells their home before the recovering the amount.

So, you should do what you think is best for you and your goals.

What are the benefits of doing a first and second lien combination?

You can avoid paying private mortgage insurance and get a better tax deduction and have a better equity position.

What does Prepaid Interest mean?

This is the amount of money paid when you close the loan. It stands for the interest paid on the new loan from the closing day to the end of the month. You will pay all future interest in arrears.

What does the origination fee cover?

This fee is the fee that some lenders will charge you in order to cover some of the costs that happen when you create a loan. They get this amount when they multiply the complete mortgage loan amount with the percentage shown. This number is currently 1% or lower and this typically stays that way. It also might be influenced by various market conditions and the type of the loan that you are taking out.

What is a gift letter?

This is when someone gives you money as a gift for placing the down payment. They have to write you a letter which can be included in the loan documents. This could be a family member, a friend or any individual in your environment but the gift letter is obligatory.

What is a lock in?

A lock in is a term that means guarantee of a certain interest rate for a certain period of time.

What is an ARM loan?

This stands for Adjustable Rate Mortgage. The interest rate on the ARM loan can be adjusted periodically and based on the documents. This interest rate is based on an index which is published periodically as well and adjusted by a margin which is an amount charged in addition to the index and it usually doesn’t change while the loan lasts.

What is an escrow account?

An escrow account is a method that allows the lender to have more control over the loan, in the sense of avoiding tax delinquencies and lapses. When people who take out a loan make monthly payments, they also pay one-twelfth of the anticipated annual amount for taxes and insurance premiums. These are deposited into the escrow.

The borrower also benefits from this because these costs spread throughout the year.

What is my credit score and how is it calculated?

Your credit score is a number that provides an overall look at your credit score. The formula for calculating this is a mystery but some of the major factors are late payments, open credit, balances, number of inquiries into your credit history, public records and so on. There are three major credit bureaus and these are the Experian, TransUnion and Equifax which all offer a credit score for every borrower. Other factors may include any late payments on the rent as well as any other late payments that you might have missed.

What is PITI and what does it stand for?

PITI stands for the Principal, Interest, Taxes and Insurance or the total payment you pay on a monthly basis on a house. This is basically what you pay for every month.

What is pre-approval or pre-qualification?

These are similar terms but they essentially mean that a lender has reviewed your qualification from a financial standpoint. When you are pre-qualified, that means that you still have to go through approval and when you are pre-approved, this means that they have already given you a maximum figure you can get.

What is underwriting?

This is a process of evaluating a loan with the goal of making a decision whether a loan offers a good risk or not and this is what lenders do before they approve you.

Why did my mortgage payment amount change?

There could be several reasons for this. Some mortgages similar to ARM loans or the ARM loan itself will enable periodic adjustment to the principal and the interest payment amount. They could also change because of the annual evaluation and analysis of the escrow account that you own. This is all in compliance to the Real Estate Settlement Procedures Act and you will get an annual Escrow Evaluation Statement Disclosure which will then show you all of the adjustments that have been made to your escrow payment based on the current tax and insurance.

Why does the title have to be cleared before I can get a mortgage?

The first lien position is often required when a lender makes a mortgage loan other than a home equity loan. This means that no other liens can be made against the property superior to the new mortgage. These can result in many and various sources like home equity loans, lines of credit, child support judgement, divorce settlements, delinquent taxes and some special assessments. Most of the realtors and mortgage companies as well as title companies and some escrow companies are included here as well.  The most of the responsibility lies with sellers of the property who need to warrant a clear title to the buyer. It’s very important to get a clear title from the sellers so that there cannot be any claims against their property, especially concerning 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?

Lenders are required by the Real Estate Settlement And Procedures Act to provide a rate on the note signed at closing and this includes the cost to obtain a loan. This will also include the total interest paid during the lasting of the loan, certain closing costs and so on.

 

Closing costs can include the prepaid interest, private mortgage insurance or PMI, FHA mortgage premium or VA funding fee – considering which of these may be applicable in the case of an individual loan – and other miscellaneous costs which can also include underwriting fee and tax service fee. These are all considered when they are calculating the annual percentage rate or APR.

This helps paint a more accurate picture of the total cost of the loan.

Mortgages

Do I have to sell to the person with the highest offer?

While this may be the prefered type of selling for some – which is understandable, considering the financial aspect – if you don’t want to, you don’t have to accept it. You may have many reasons for this, one of the main being that you have a better qualified buyer offering less money but better conditions. They might also offer more attractive terms. You might even want to give counter offers to one buyer or to all of the buyers.

However, if you turn down this offer or a full priced offer, you might have to pay the  full commission even if you decide against selling your home. Check your options by consulting a professional and reading the contract.

Can I back out of my contract with one buyer and accept a new, higher offer from a second buyer?

This is not a good idea. A purchase offer is a legal contract and the buyer can ask for legal remedies to enforce the agreement upon you.

How should I price my home?

To price your home properly, you have to understand and take into account the state of the real estate market at that specific point, with a special focus on the local market and its conditions. This changes constantly and this affects the property values. So, the most important thing to determine your pricing may be to base your listing price on the most recent sales and their prices in your neighborhood. This is probably what someone would be likely to pay for your location. You can also get a Home Value Request or Comparable Market Analysis to get a professional opinion on your home’s value.

Is there a "best time" to put my house on the market?

The time of the year in which you decide to sell your house can impact the length of time it takes to sell it and it might even impact the price it’s sold at, in addition to some other economic and similar factors. The real estate market starts to pick up in February, after the holidays pass and people get steady financially, making decisions and resolutions for the year in front of them. This rise continues during May and June and becomes even better during July or August. This may be due to the fact that the summer is the perfect time for moving because there is no school and parents might be on vacation that allows them to move freely. They are also looking to get their children into school before the new school year starts. September to November are usually marked by a rally and then there is a huge slowdown again during holidays, starting with Thanksgiving.

What are comparables or comps?

Comparables or comps are recently sold properties that are similar in location, size and amenities that a home for sale has. This helps both the owners and the buyers determine what the value of a property is and makes it easier to set an appropriate price.

What are disadvantages of pricing my home on the high end?

There are several factors to consider when you are pricing and selling your home on the high end. For one, you might help sell similar homes which are priced in the lower range. Your home also might stay on the market longer than you have expected. You might also lose market interest and interest of the buyers as well as create a negative perception and impression of the property. You can also lose money paying mortgages, taxes, insurance and maintenance costs. You might have to end up accepting less money an a potential buyer might face appraisal and financing problems as a result of a large and inflated price.

You shouldn’t inflate the price for your home and should rather stick to the price determined by the appraisal unless the demand is really high in your area or in your neighborhood specifically. Consult your real estate agent and possibly get a Home Value Request in order to reach a normal, comfortable price which will satisfy you and the market as well.

What does an appraisal mean?

An appraisal is a report made by a qualified person on the value of the property. This also stands for the process by which the estimate is made. The conventional mortgages will mean that the lender will get a copy of the complete report which will show the basis of the estimate. In case of the VA or HUD, the lender might receive only the statement on the estimate but without any of the data that supports that statement.

What is a counteroffer?

This is an offer that is made by one person or party which makes changes to the latest offer of the other party.

What is an "Exclusive Right to Sell" listing?

This is the type of listing which is commonly used and it’s usually the most effective one. The agent does most of the work here and they usually advertise your home, place it in the MLS, market it to some other agents and they also host open houses for potential buyers to get a better look at you home. With this type of listing, an agent can expect to earn their money back on selling your home.

What is an "Exclusive Agency Listing"?

This is a listing that will allow your agent to market your home and put it in the MLS. They will also receive a commission if your home sells through any real estate company, agency or any other agent. They will not get a commission if you find a buyer on your own. Because the commission is not a guarantee when it comes to this agreement, your realtor might be more motivated to sell and market your home. This type of listing is not so common and you should avoid it.

Who is responsible for making repairs, if any, as a result of home inspection reports conducted for the buyer?

When the buyer orders home inspections, this doesn;t create an obligation for the seller to make repairs or create any modifications because of the results of those inspections. However, these inspection reports are used against the sellers as a way to negotiate a lower price or to negotiate who is going to be responsible for the costs of the reparations. The purchase contract should state what is to be done in these situations, especially when the repairs require huge amounts of money like some major problems, safety hazards or environmental hazards.

Why should I use a real estate agent?

A real estate agent can act on your behalf and provide you with guidance and advice that will help you buy or sell a home. They are more than just a salesperson – they will provide you with the most accurate information that might be missing from the market.

You don’t have to hire a commissioned real estate agent because you can probably sell the home on your own eventually, but you should consider the advantages of hiring one.

Modern real estate transactions are often too complex for everyone to understand so a real estate agent would be great here to help you through this process. Your listing will also be added to the MLS where many buyers will be able to see it. Your real estate agent will get all of the cost of marketing and advertising as well as all of the screening the potential buyers will do. They will also handle the negotiation.

This decision will depend on your confidence to handle all of the details. If you don’t feel confident, hire a real estate agent and leave all of the tedious, complex details to them.