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!

Q: “Can I Choose My Own Title Insurance Company?”

This is a question we’re often asked when preparing for a real estate closing. If you’re looking into buying a new home, be aware that title insurance is typically an important factor in the closing process.

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What Is Title Insurance?

Title insurance is a type of insurance policy that covers the mortgage lender’s interests in the transaction (Lender’s Title Insurance) and your financial investment in the property as the future homeowner (Owner’s Title Insurance). However, it’s important to understand that title insurance on your property doesn’t fall under the blanket protection of a single policy: Lender’s and Owner’s Title Insurance policies are indeed separate policies, each of which carry its own premium.

Lender’s Insurance Is Usually Required. Owner’s Insurance Is Highly Recommended.

Let’s start by saying that purchasing a Lender’s Title Insurance Policy is usually non-negotiable. Most mortgage lenders require homebuyers to have this type of policy to cover their interests in the case of title defect or other issue. But an Owner’s Title Insurance Policy, on the other hand, is entirely optional.

We do, however, strongly advise that you purchase an Owner’s policy, to protect against the loss of your home, further financial responsibilities and time in court in the event that clouds or defects on the title to your home surface in the future. See our page on title insurance to learn more on the benefits of having this coverage.

The Option to Choose Depends on Your State

Since purchasing Owner’s Title Insurance is optional, many homebuyers wish to know if they can choose their own title insurance company, or shop around for the best deal. In some states, this may be allowed. However, Virginia maintains strict regulations over the insurance industry, leading most underwriters to remain competitive in their pricing when it comes to premiums.

Whether you choose a standard or enhanced Owner’s Title Insurance plan, the difference in fees from one insurance provider to the next will likely be negligible. It’s also worth noting that purchasing an Owner’s Policy enables a discount on the Lender’s Policy, known as a “simultaneous discount rate.”

 

At Linear Title & Escrow, we put the interests of the homebuyers and sellers we are privileged enough to work with first. Our process of procuring title insurance involves working with only the most reputable insurance companies in the industry. For more information on title insurance policies or premiums, please contact us today.

 

 

 

 

 

 

 

What Factors Prevent Clear Title?

magnifying-glass-145942_1280The last thing anyone wants in real estate is to be unable to buy or sell a home because of title problems. Defects, or “clouds,” on title at the very least can stall the real estate transaction, taking anywhere from days to months to resolve. Title companies and their agents work diligently to conduct a title search for each real estate transaction. Unmarketable titles not only prevent proper title transfers – they can be costly to resolve and ultimately result in the inability to sell a property.

Barriers to Settlement: Title Defects

A myriad of factors can prevent clear title and interfere with the closing process. Here are the most common:

  • Unknown or missing heirs
  • False impersonation
  • Liens
  • Prior owner judgments
  • Clerical errors in public records
  • Forgery
  • Fraudulent document execution
  • Inaccurate representation of marital status
  • Improper probation of wills
  • Boundary, survey or easement inaccuracies
  • Unreleased deed of trust

How Are Clouds on Title Resolved?

Resolving defects on title varies, depending on the issue preventing clear title and the circumstances surrounding it. The best way to protect against title problems is to work with a highly experienced title agent, ensure a thorough title search is conducted and purchase Owner’s Title Insurance. In some cases, the courts may need to get involved to “clear” title and render it marketable. In others, liens or judgments must be satisfied, or necessary paperwork completed to remove title defects before closing.

A Word About Title Insurance

Title insurance protects the lender and owner against title defects identified after the transaction closes. Most lender’s require a Lender’s Policy, and buyers are strongly encouraged to purchase an Owner’s policy to insure against significant financial loss. In some cases, the cost of an Owner’s policy may be included in seller concessions. Even if title appears to be “clear,” purchasing title insurance is highly recommended. Visit our title insurance page for additional information.

At Linear Title & Escrow, we are unwavering in our commitment to conduct a thorough title search for each real estate transaction. For help with your title concerns and questions, contact our friendly team today!

What Are the Most Frequently Asked Closing Questions?

The the process of closing on your real estate purchase can be confusing, especially if you’re a first time home buyer. We’ve put together some of the most commonly asked questions surrounding settlement, to help make sense of the closing process.

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Do I need to purchase title insurance? Lenders typically require that you purchase Lender’s Title Insurance, to protect the financial institution’s interest in providing you a home loan. Owner’s Title Insurance is highly recommended, as it protects your financial investment in the property you intend to purchase. Learn more about both types from our title insurance page.

How long does the settlement process take? The entire settlement process depends largely on the type of mortgage, but the average time to close is 30 to 45 days.

Will seller concessions include my title fees? Yes. Title fees typically include items like title search and the Lender’s Title Insurance premium. Costs like these are covered in transactions where sellers contribute to closing costs on behalf of the buyer.

What do I need to bring to the closing table? You’ll need to present your driver’s license or other government-issued ID. Depending on the lender, two forms of identification may be required. You’ll also need to bring a Cashier’s or Certified Check for the amount of your closing costs.

Have other questions? Here at Linear Title & Escrow, we work closely with lenders and agents to make the closing process as simple, streamlined and seamless as possible. For more information on title and escrow, contact our friendly team at (757) 340-0340 today!

What Are My Closing Costs When Selling a Home?

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.

Seller's Closing Costs

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.

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.

 

 

 

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!

 

 

 

 

The Year in Review

year-in-review

 

As we begin the final countdown to the year’s end, it’s always interesting to reflect on how things have changed over the past 12 months. This season kindly offers a chance to celebrate successes, milestones and positive experiences, or strengthen our resolve and hope the upcoming year brings the progression and prosperity we seek. The title industry has certainly experienced its share of changes in 2016. Here’s a glance at the year in review from a settlement standpoint.

Changes 2016 Brought to the Settlement Process

  • First Full-Year of TRID in Effect – The Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosure Rule (TRID) simplifies consumer disclosure information by improving readability of content regarding terms of impending real estate transactions. The Consumer Financial Protection Bureau requires that lenders submit the Closing Disclosure Form to homebuyers three days prior to closing.
  • February 23, 2016 – The American Land Title Association/National Society of Professional Surveyors Survey Standards is enacted, bringing forth greater utility and clarity of survey items in terms of how they are displayed on the survey form, and the content of items included within the survey. A list of revised survey form topics can be viewed here.
  • March 21, 2016 – Foreclosure Relief and Extension for Service Members Act passes, extending the one-year foreclosure protection for military personnel through the end of 2017 (part of the Service Members Civil Relief Act).
  • July 1, 2016 – House Bill 393 (General Assembly of Virginia) takes effect, delegating that the designated license producer of a title agency must be a director, officer or employee of said company, dissolving the practice of an independent contractor fulfilling this role.

 

As we look forward to a successful 2017, we welcome any changes designed to make the entire settlement process more streamlined, transparent and ultimately more efficient for all parties. The team at Linear Title & Escrow remains committed to providing clients with the highest level of service in the industry, and wishes you and yours a very healthy, prosperous New Year.