On Good Terms: Common Real Estate, Mortgage and Closing Terminology to Know

How to get the mostWhether you’re on the hunt for a new home, considering a refinancing option or casually browsing the current real estate market, it’s good to have a sound understanding of what certain words or phrases relative to your efforts actually mean. We’ve compiled a list of terms you’ll likely encounter in such situations.

  1. Land Survey: Instrument that describes, maps and documents boundaries and characteristics of a property.
  2. Closing/Settlement: Finalizes the process of transferring ownership of a property from one party to the next.
  3. Closing Costs: Monies paid by buyers and sellers in the final settlement of a real estate transaction.
  4. CD Form (Closing Disclosure Form): Document that presents mortgage particulars, closing costs and detailed financial responsibility of the home buyer.
  5. Title Insurance: Protects the lender’s financial interests (Lender’s Policy) and homeowner’s rights to the property against loss due to title defects.
  6. Title Search: Process of reviewing the title history of a property for defects.
  7. Loan Discount Points: Also known as pre-paid interest. Allows a home buyer to pre-pay interest to lower the interest rate on a home loan. Each point paid equates to 1% of the loan amount.
  8. Mortgage Pre-Approval: Process of becoming approved by a lender to borrow up to a certain loan amount, after submitting financial documents such as bank statements, employment verification and tax returns, among others.
  9. Contingency: Clause included in a real estate contract that enables one or both parties to cancel the transaction based on certain circumstances.
  10. Buyer’s Agent: Real estate agent representing the home buyer(s) and their interests.
  11. Listing Agent: Real estate agent representing the home seller(s) and their interests.
  12. Adjustable-Rate Mortgage (ARM): Mortgage in which the interest rate fluctuates based on market conditions, causing the monthly loan payments to increase or decrease.
  13. Fixed-Rate Mortgage: Mortgage in which the interest rate is fixed over a specified period of time (typically 15 or 30 years).
  14. Loan Origination: Performed by the lender, and encompasses all phases of the loan process, from initial application to release of funds.
  15. Escrow Agent: Third party responsible for holding and maintaining all funds and documents related to a real estate transaction until closing.
  16. Escrow: Type of account established by the lender. Holds a portion of each monthly mortgage payment, the collective funds of which are used to pay property taxes and homeowner’s insurance on an annual basis, or when due.
  17. Home Appraisal: Professional third-party assessment performed to determine the fair market value of a property.
  18. Home Inspection: Professional third-party service designed to determine the current condition of a home. Finding are produced in a document rendered to the lender and home buyer.
  19. Seller Concessions: Certain closing costs paid by the home seller on behalf of the home buyer.
  20. Private Mortgage Insurance (PMI): Type of insurance often required on conventional loans, when the borrowers put less than a 20 percent down payment on a home. Remains in effect until loan-to-value reaches less than 80 percent.
  21. Short Sale: Real estate sale in which the amount received for a home is less than the loan balance. In this case, the lender agrees to accept less than what is owed on the property.
  22. HOA Fees or Assessment: Monthly, yearly or bi-annual fees or one-time payments assessed by a homeowner association, collected for the purpose to maintain, improve, develop or further modify private residential neighborhoods.
  23. Amortization: Describes the payment of a loan over time, through a series of regular monthly mortgage payments.

 

Have questions about other real estate, mortgage or closing terms? Contact our friendly team at Linear Title & Escrow today!

To Pre-Qualify, or Pre-Approve?

Pre-approval

In our last post, we discussed the advantages of being pre-qualified for a home loan. But what are the advantages to skipping this step altogether, and going straight for pre-approval? Read on to learn more about mortgage pre-approval and the benefits of choosing this route.

What Does It Mean to Be “Pre-Approved?”

Requesting pre-approval for a home loan involves more than that required for pre-qualification. With a pre-approval, the lender performs an evaluation of your financial ability to take on a mortgage, and to what extent. This includes a close look at your income, debts and assets. The financial institution determines the amount of money they’d lend to you based on the documents you provide (financial statements, tax returns, pay stubs, etc.) along with your credit score. You’ll be asked to complete a mortgage application, which often carries a nominal fee.

If all goes well, the lender will then pre-approve you for a mortgage, and provide you with a pre-approval letter. This includes the precise loan amount, up to which you can borrow, and your estimated interest rate.

Benefits of Mortgage Pre-Approval

  • Gain an exact idea of the maximum loan amount for which you qualify.
  • Give more clout to your interest in a home. Being pre-approved shows the buyer’s agent that you’re serious about purchasing the home he or she represents.
  • Increase your chances of a seller accepting your offer, especially during a bidding war. Pre-approval enhances your ability to negotiate on your dream house.
  • Minimize time to settlement. Though you’ll still need to complete the mortgage process, you’ll have a head start on the game and decrease the time it takes to close.

In short, pre-approval puts you closer to securing a home loan when compared with pre-qualification, though there are benefits to the latter as well (refer back to our post on mortgage pre-qualification). Perhaps pre-qualification is likened to browsing or “window shopping,” while pre-approval indicates an intent of looking to buy. In either case, it’s always best to do your due diligence and determine the right course of action for you.

 

 

 

What Are the Benefits of Mortgage Pre-Qualification?

Mortgage Pre-Qualification

The purchase of a new home is equally an exciting and frightening endeavor. Exciting for the obvious reasons, but scary from a financial standpoint. Do you know how much mortgage you can handle, or how much you can reasonably expect to borrow? Getting pre-qualified for a home loan erases a good deal of uncertainty, giving you an accurate idea of your price range and solid ground when it comes to searching for your perfect home.

How Pre-Qualifying for a Mortgage Works to Your Advantage

What does it mean to be “pre-qualified?” With mortgage pre-qualification, a lender provides an estimate of the amount you could borrow, based on financial information you provide. (Note: This typically doesn’t involve submitting bank statements and tax documents, as in a pre-approval process.) Not everyone in the buying market seeks to get pre-qualified for a home loan. But if you’re a first-time buyer or have no general notion of how much you might qualify for, a mortgage pre-qualification is a smart idea.

Being pre-qualified for a home loan offers the following benefits:

  • Better Understand Your Goals. Having a general idea of the amount of home loan you can take on gives you greater insight into your financial position. This can help you determine if now is the right time to buy, or whether you should wait until you establish more secure financial footing.
  • Quick and Free. The mortgage pre-qualification process is often completed by phone or Internet. There is usually no charge associated with this service.
  • Early Understanding of Options. Having a general idea of your financial reach helps you narrow down and understand your mortgage options. The lender with whom you pre-qualify can review and explain the mortgage products that may be right for you.
  • Saves Time. When you look within your price range, you won’t waste time browsing properties beyond your budget.
  • Know Where to Start. Being pre-qualified gets you started in the right direction. Establishing a relationship with a lender who understands your personal needs and financial abilities is a great way to begin the home buying process.

Keep in mind, mortgage pre-qualification is just a general estimate of the loan amount for which you could potentially be approved. Being pre-qualified for a home loan in no way ensures you’ll be approved for a mortgage. Stay tuned for our next post, which compares and contrasts mortgage pre-qualification vs. pre-approval.

 

 

When Is the Best Time to Close on a Home?

Best Time to CloseBuying a home is an exciting venture, whether it’s the first time or the fifth. It takes a certain amount of strategizing, from finding the perfect location to getting your offer accepted. Once approved for your home loan, the last step is to lock in your rate and count the days until your closing date. But when is the best time to close on a home? Is there a certain time that works more to your advantage?

Closing Date Comparisons

It’s largely assumed that closing on the last day or as close to the end of the month as possible is the best choice. However, this isn’t true for all cases. The following compares the benefits and drawbacks of closing at varying times within the month. Keep in mind the date on which you close affects when your first mortgage payment is due.

  • Beginning of the Month: Closing early in the month does require that you pay a good deal of interest for the remaining days of the closing month. But it also leaves you almost two full months before making that first mortgage payment. (For example, if you close November 4th, your initial loan payment is due January 1st of the following year.) The benefit is the substantial cost savings you’ll gain by not having to make a mortgage payment for nearly two months.
  • Middle of the Month: Closing between the 15th and the end of the month sets your first mortgage payment a full month out. (For instance, if you close between October 15th and October 31st, your first loan payment is due on December 1st.) You must take into consideration the amount of interest you’ll incur and be required to prepay during the closing month.
  • End of the Month: Closing towards end of the month ensures the amount of daily accrued interest you pay is minimized (for that month). This can add up to a significant savings in closing costs, when you consider paying interest on one to two days as opposed to 15 or more. Like the middle of the month example, your first mortgage payment would be due a full month out.

Consider the Circumstances

Many people prefer to close at the end of the month, to avoid paying additional interest. But bear in mind that the last few days of the month are the busiest times for lenders and title companies. Loans can often be pushed through more efficiently during slower times. The “funnel-effect” at the end of the month, at times, leads to closing date delays.

You may not have full control over which day your closing actually takes place. Certain factors may cause your closing to be delayed, and even moved into early days of the next month, depending on how the days fall. In such as case, you’ll pay more interest, but have nearly two months before you’re expected to remit your first mortgage payment.

Have questions on the closing process? The Linear Title & Escrow team is always here to help! Contact us today at (757) 340-0340.

 

What Goes Into the Appraisal Process?

Appraisal

If you’ve ever bought or sold a home, or are currently in the process, the term “appraisal” is likely one with which you’re very familiar. An appraisal is a process that determines the fair market value of a home or property for sale. It’s also a crucial part of whether or not a lender decides to approve a home loan. If the appraisal comes back lower than the asking price, the loan request will likely be denied.

What Goes Into a Home Appraisal?

The lender is the party that orders the appraisal. An approved appraiser is contracted to complete the process, and visits the property to perform the assessment. A number of things factor into the final appraisal value of a property, such as the following:

  • Condition of interior and exterior portions of the home
  • Overall size of the home and lot
  • Age and location of the home
  • Square footage of each room
  • Number of bedrooms, bathrooms, etc.
  • Features, upgrades or improvements made to the home
  • Unique geographic aspects, like water-front, beach or mountain views
  • Comparable information (recent home sales in the neighborhood, zip code and surrounding area)

If the Appraisal Comes Back Low, Should You Spring for a Second?

Typically, the seller pays for the appraisal. However, some lender’s require the buyer to cover this cost. The seller wants the highest price possible, but the buyer also wants to be approved for the loan. If the appraised amount comes back off the mark, either party has the opportunity to order a new appraisal, at their own expense. According to HomeAdvisor.com, the national average cost of a home appraisal is currently $316. (The average for the Hampton Roads area is a bit higher, at around $450.)

Appraisals are an integral part of the home buying and selling process, and almost always required for residential real estate transactions.

Have a question about a real estate transaction or the closing process? Contact the Linear Title & Escrow team today at (757) 340.0340!