Whether 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.
- Land Survey: Instrument that describes, maps and documents boundaries and characteristics of a property.
- Closing/Settlement: Finalizes the process of transferring ownership of a property from one party to the next.
- Closing Costs: Monies paid by buyers and sellers in the final settlement of a real estate transaction.
- CD Form (Closing Disclosure Form): Document that presents mortgage particulars, closing costs and detailed financial responsibility of the home buyer.
- Title Insurance: Protects the lender’s financial interests (Lender’s Policy) and homeowner’s rights to the property against loss due to title defects.
- Title Search: Process of reviewing the title history of a property for defects.
- 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.
- 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.
- Contingency: Clause included in a real estate contract that enables one or both parties to cancel the transaction based on certain circumstances.
- Buyer’s Agent: Real estate agent representing the home buyer(s) and their interests.
- Listing Agent: Real estate agent representing the home seller(s) and their interests.
- Adjustable-Rate Mortgage (ARM): Mortgage in which the interest rate fluctuates based on market conditions, causing the monthly loan payments to increase or decrease.
- Fixed-Rate Mortgage: Mortgage in which the interest rate is fixed over a specified period of time (typically 15 or 30 years).
- Loan Origination: Performed by the lender, and encompasses all phases of the loan process, from initial application to release of funds.
- Escrow Agent: Third party responsible for holding and maintaining all funds and documents related to a real estate transaction until closing.
- 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.
- Home Appraisal: Professional third-party assessment performed to determine the fair market value of a property.
- 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.
- Seller Concessions: Certain closing costs paid by the home seller on behalf of the home buyer.
- 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.
- 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.
- 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.
- 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!
Our last post discussed closing cost breakdown on the buyer’s side of a real estate sale. But what closing costs can you expect when selling a home? The seller’s side of the Closing Disclosure form typically has fewer line items than that of the buyer, but the costs vary based on a number of factors.
The two portions of seller’s closing cost having the most impact on the bottom line are the agent(s) sales commission and mortgage payoff balance. Though paid at closing out of the proceeds from selling your home, we’ll leave these aside when discussing fees associated with seller’s closing costs. Total seller’s closing costs typically average between six and 10 percent of the sale price, as reported by Realtor.com.
Understanding Seller’s Closing Costs
Here’s a breakdown of typical closing costs incurred when selling a property:
- Loan Payoff Fee: Covers the cost of forwarding the loan payoff to the lender.
- Lien or Judgment Releases: Settles any liens or judgments against the home.
- Termite Letter: Covers the cost of a termite inspection. A termite inspection and letter are generally conducted and submitted prior to closing.
- Home Warranty: The purchase of a service plan that covers the cost of repairing or replacing major systems and appliances in the home you are selling in the event breakdowns, damage or loss occurs. (This coverage typically lasts for one year after closing.)
- Home Repairs: Often appear in the form of a credit to the buyer to cover the cost of any necessary (pre-negotiated) home repairs.
- Homeowner Association Fees – Prorated based on the amount owed at closing. (If paid in full or through a date beyond closing, these amounts are prorated back to the seller and paid by the buyer.)
- Condo/Co-op Fees: Also prorated based on the amount owed at closing. Like HOA fees, any amounts paid for in advance for time beyond the closing date are prorated back to the seller and paid by the buyer.
- Property Taxes: This amount is prorated based on the percentage of the year the seller owned the property.
- Deed Preparation Fee: Applies to the document composed to transfer title on the property from the seller to the buyer.
- Storm Water Fee: Varies per city, and is charged to cover the cost of treating, storing and managing storm water runoff within the community.
- Grantor’s Tax: Transfer tax paid to the state, which covers the cost of conveying the property from the seller to the buyer.
- Notary Fee: Fee charged to verify signatures on closing documents. This typically applies if the seller is not local to where the transaction occurs.
- Settlement Fee: Paid to the company or attorney conducting the closing and covers the cost of preparing documents and executing the transaction.
- Seller Concessions: Paid by the seller on behalf of the buyer to cover the cost of certain closing fees. These amounts or items are negotiated prior to closing.
*These fees may vary based on state, city and county, and per mortgage product. Some may not be applicable, depending on the circumstances surrounding your closing.
Learn more about closing costs and the settlement process by contacting our friendly, knowledgeable team today! Call Linear Title & Escrow at (757) 340-0340 for additional information.
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.
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.
Buying 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.
Closing on a new home is one of the most exciting things consumers have the privilege of doing. After months of searching for the perfect place, submitting an offer and negotiating terms of the sale, the time to closing can seem like an eternity. While this procedure may seem arduous, and at times emotionally taxing, there are a few things you can do to expedite the closing process.
5 Tips for Streamlining Settlement
When purchasing a new home or even refinancing your current property, keep the following tips in mind for the most efficient, expedited closing possible:
- Complete pre-approval process and loan application promptly. The sooner you submit your application to the loan officer, the faster you can get the ball rolling on the closing process. Ensure the information you provide on your application is accurate, though, or else you will experience a delay.
- Have all required paperwork gathered in one location and ready to go. This includes important documents like pay stubs and proof of other income sources, W-2’s, tax returns for the previous two years and all bank statements. The settlement process is often delayed due to waiting for all necessary paperwork and information be submitted; this inevitably lengthens the time it takes for loan packages to be completed, and ultimately time to close.
- Request a home appraisal as soon as possible. This is contingent upon getting all required documentation for your loan application submitted as quickly as possible. Once this occurs, your loan officer can initiate the appraisal request.
- Stay in constant communication with your representative. Remain active in the communication process by frequently checking in with your agent. It’s also crucial to reply to inquiries about your loan as soon as possible, providing a quick response to phone calls, letters, emails and requests for additional information.
- Be available to sign the Closing Disclosure (CD) form 3 days prior to settlement. Be aware, this document is submitted via email and signed electronically. The longer you wait to sign, the more time accrues until that closing day. Keep a close watch on your email account so that this step can be completed as early as possible.
Linear Title & Escrow has been providing settlement services to the Greater Hampton Roads area for the past 10 years. We take great pride in providing a streamlined, efficient and highly professional closing experience, and look forward to serving the needs of our community for many years to come. Learn more about how to expedite your closing process by contacting our friendly, experienced team today at 757.340.0340.
In place for over a year now, the TILA-RESPA Integrated Disclosure (TRID) rule set forth by the Consumer Financial Protection Bureau has certainly impacted the process of buying real estate. The intent of tightening regulations within the mortgage industry was meant to streamline and simplify the process for home buyers, while reducing the paper count and confusion of residential real estate purchases in previous years.
Here’s a closer look at how stricter regulation in the mortgage industry has affected the process of buying a home.
From the Home Buyer’s Perspective
- Changes to settlement forms. Lenders are now required to provide more detailed, thorough information surrounding the mortgage loan to home buyers prior to closing, which is largely accomplished through the Closing Disclosure Form (replacing the HUD-1). Such changes better enable consumers to understand their risks and costs associated with taking on a mortgage.
- Enhanced awareness of mortgage terms. Though the pre-approval process is relatively the same, borrowers are now more aware of the terms of their mortgage, generating less confusion and fewer surprises at the closing table. TRID mandates that home buyers receive a copy of the Closing Disclosure Form for review at least three days prior to closing.
- Time to settlement. With TRID, the timeframe between contract and close has increased slightly, though overall, no major impact has been experienced. In general, purchasers have fewer questions at the closing table resulting from enhanced understanding of mortgage details.
Thanks to TRID, the explanation and interpretation of often complicated mortgage information has rendered residential real estate purchasers better informed about their mortgage responsibilities. In fact, all parties involved in the real estate transaction now typically experience a congruence throughout the process, right through to the day of closing. For questions or concerns regarding real estate settlement, contact Linear Title & Escrow at (757) 340.0340 today.