In medieval days, a father would send an entire herd of cattle as a not-too-subtle hint that his daughter be married into a certain family. Nowadays, when you've decided a particular home is "the one" for you, you can, thankfully, leave the cattle at home. You are asked, however, to deposit a small percentage of the sales price of the home you want to purchaseit's called "earnest money."
Your earnest money is a good faith deposit that accompanies your offer. It is usually a personal check, but a short-term promissory note is sometimes acceptable. A sizeable earnest money deposit indicates financial strength and assures the seller of your commitment to purchase the property.
Once your offer is accepted, your earnest money check is cashed and deposited with the title company, attorney or with the listing broker. Your funds are held in a separate trust account reserved only for earnest money deposits. In most cases, everything proceeds smoothly to the closing day when the total amount of your earnest money is credited to you as a portion of your down payment.
Your earnest money is totally refundable if the offer is not accepted or if some condition in the contract is not satisfied. For example, your earnest money is refundable if financing is not approved with the terms specified in the contract.
Why Shouldn't We Just Rent!?
If you've heard it once, you've heard it a million times, "When you're renting, you're just throwing your money away." As rents continue to rise, you'll part with larger and larger chunks of your hard-earned dollars. Maybe it's time to consider the benefits of home ownership.
There are a number of excellent financing programs specifically designed for the first-time home buyer or, for that matter, any home buyer with a minimal down payment and maximum debt. Recent changes in conventional, FHA and VA loan programs make it easier for many people to qualify for home loans.
Home ownership may be the largest investment you'll ever make--and one that brings significant benefits. Increases in area property values mean increased equity for you--just like adding money to a savings account. With the tax deductions for mortgage interest and property taxes, home ownership brings you substantial tax savings. Additionally, there is a real sense of security and personal pride that comes with owning your own home. Imagine choosing wallpaper that suits your taste rather than your landlord's!
You may find that monthly costs for home ownership are comparable to--or even less than--the rent you're currently paying.
What little piece of paper is complex, confusing and capable of keeping you from getting a loan?
You guessed it. It's your credit report!
Today more than ever, having acceptable credit is essential for obtaining a home mortgage. It is quite common for credit reports to contain inaccurate information or items belonging to individuals with similar names. So, it's wise to review your credit report once a year.
Credit reports are produced with three main purposes:
1.Your credit report gives a profile of your bill paying habits--whether you pay on time, in 30 days, 60 days, 90 days, or flat out never pay your debt.
2. Your report indicates whether you have any outstanding collection items. A collection note appears on your report when traditional methods of receiving payment for your debts have failed and your account has been turned over to a collection agency. If a collection agency takes legal action, a judgement can be filed against you.
3. Your credit report details items from public records. If a judgement, divorce, or other type of court action is filed, information is entered into your credit report indicating that a debt is owed to another party.
Since negative items on your credit report can keep you from receiving a loan, checking the status of your credit report is an important first step in the home buying process. If your credit needs a little cleaning up, your lender can assist you.
Should I have a New Construction Inspected?
If you're buying a newly constructed home, you may be wondering if you really need to hire a professional home inspector. After all, you've been assured that:
1.Your new home has been checked regularly by building inspectors.
2.Your new home has at least a one-year warranty.
3.Your contractor promised to take care of any problems that may arise after closing.
So you might as well save your money, right? Wrong!
City and county building inspectors primarily check newly constructed homes for building code compliance. Professional home inspectors check a home's major systems to see if they were constructed properly, installed correctly and operate effectively. A new home inspection covers the electrical, plumbing, structural, insulating, ventilation, drainage, heating and cooling systems. Tips are given on the proper operation and maintenance of the basic systems and appliances. An inspector can also test for the presence of radon gas.
It's not uncommon to discover defects in new homes. Deficiencies can hide in newly constructed houses until more serious problems develop or your warranty expires. As a rule, contractors are more willing to correct problems before closing rather than after you've lived in the home for awhile.
Your new home is one of the most important financial investments you'll ever make. A professional home inspection will help to protect your investment and give you peace of mind.
Can A Local Realtor Help if We're Moving Out of Town?
Moving to Bora Bora anytime soon? Whether you're moving to Boulder, Baltimore, Bora Bora--or anywhere in between--I can help.
Within 24 hours, I can locate a real estate professional who is an expert on your new destination. Your "long distance expert" will answer all your questions and give you vital information that will help you decide whether to or where to buy.
Just let me know your price range, the type of property you'd like and features that are important to you. Then, your "long distance agent" will compile a free, customized packet of information for you.
Would you like to know about homes currently for sale? New homes or older homes? Areas with specific services or amenities? Neighborhoods and price ranges that are the best financial investments? Vacant land? Commercial or investment property? Lenders with excellent rates and superior service? I can help.
Would you like information on the local area? Public and private schools? The local economy and local issues? Public services? Taxes and utility costs? Employers and employment opportunities? Shopping? Recreational activities and parks? Hotels and motels? Rental property? Medical facilities? I can help with these items, too.
Whether you're just beginning to consider a move or were told yesterday that you're being transferred next week, your relocation expert and I will work together to make your move a positive and successful experience.
We've Narrowed it Down, Now What?
Most buyers find that it takes a lot of searching to find just the right home. Once you've narrowed your search to a particular favorite, there are three things I'd recommend:
1. Visit the neighborhood. Look for traffic patterns and congestion during morning and evening rush hours. Take note of the mileage and the actual time it takes you to drive to work, schools, shopping, entertainment and medical centers. Take a weekend walk and chat with a few neighbors.
2. Do a little research. Read the subdivision covenants. (I'll be able to provide you with a copy.) You may wish to call the homeowners' association for a current report and the HOA's financial status. Ask for written information regarding dues, restrictions and policies.
3. Visit your city or county planning office to inquire if any zoning changes or improvements are in the works for "your" subdivision as well as adjacent areas. Be sure to ask about the zoning and future plans for any undeveloped lots or land in the subdivision.
If major improvements are being planned for the neighborhood, will they be paid for by taxes, an assessment or private business funds? Keep in mind that some improvements will significantly increase property values. In some cases, it may be wise to buy before the improvements have been made.
What Will the Kids Think?
"How will Santa know where we are?" "Who will I play with?" "Will I like my new school?" Whether you're moving across town or across the country, your school-aged children are bound to have lots of questions and concerns. Here are a few ways to make their move a smoother and more positive experience.
Tell your children about the move as soon as possible. Don't let them learn about it by overhearing conversations. Keep a positive attitude and be enthusiastic about how your move will benefit each family member.
Encourage the children to share their feelings about the move. Answer their questions as completely as possible to alleviate their fears of the unknown.
Let your children assist you in making a checklist of pre-moving tasks; then let them select a few they'd like to complete. Children can pack some of their own non-breakable belongings and label each box with their name and new address. Filling out post office change-of-address cards also gives them practice in writing their new address.
Make a Moving Survival Kit. They'll enjoy helping you list and collect all those essential items you'll need as soon as you arrive at your new home. Either take this box with you or see that it's the first to be unloaded at your new home.
I'm A Do It Yourself Type Why Do I Need Professional Advice
There's nothing wrong with saving a few cents here or there by doing things yourself. But when it comes to medical care, building a decent stock portfolio, or buying or selling real estate, it's wise to seek professional advice.
When you buy or sell a home, you're dealing with one of the largest assets you'll ever own! Your real estate transaction is too important to leave in the hands of a beginner or part-time real estate agent, so choose your agent carefully. Look for a REALTOR® who has earned professional designations in addition to having an in-depth knowledge of the real estate market and current financial conditions. Always ask for recommendations from past clients.
If you're selling, you'll want a real estate professional who will price your home correctly and market it aggressively. Interview more than one agent. Ask each one to prepare a comparative market analysis, an outline of their marketing program, and an estimate of your net proceeds. Choose a skilled negotiator.
Never select an agent just because they have recommended a high listing price!
If you're buying, you'll want an experienced agent who will take the time to locate the best properties for you, draft a well-written contract, and negotiate effectively on your behalf. Check out the benefits of buyer agency.
I've Heard the Term Prorations Whats That Mean?
If you pay your annual bill for homeowner's insurance or association dues and then sell your house, will this money be lost? Or, if you buy a home before the prior year's tax bill arrives, will you have to pay more than your share of the taxes? Don't worry. That's what proration is all about.
Usually, the following items are prorated to the day of closing: general taxes for the current year, water and sewer charges, and homeowner's association dues. When a buyer assumes the seller's current mortgage, interest charges are prorated. If the property is currently rented, the rent can be prorated.
The proration for property taxes is often based on the taxes for the calendar year immediately preceding closing. An alternative method of proration is to prorate taxes based on the most recent assessment and mill levy. By considering all the variables, I am able to enhance my seller or buyer's net proceeds by selecting the most appropriate proration method.
Services such as telephone, cable, water, trash removal, gas and electric services usually are not prorated. These utility companies generally arrange to discontinue service and/or transfer it to the buyer on a prearranged day.
Prorated items and the terms for proration are an integral part of the real estate sales contract.
How Do I Choose a Home Inspector?
Whether you're buying a brand new home or a 100 year-old "fixer-upper," it's always wise to have a professional home inspection. An inspection can reveal hidden defects and hazards and tell you how sound your investment really is. To select a qualified professional, the American Society of Home Inspectors (ASHI) recommends asking the following questions:
1.What is your experience and training in residential inspection?
2.How long will the inspection take?
3.What items are excluded?
4.May I attend the inspection?
5.Will I get a written report?
6.What do you charge for an inspection?
7. Can you test for radon? What is your fee?
Most inspections evaluate heating, air conditioning, plumbing and electrical systems, roofs, insulation, ventilation, interior and exterior structure, foundation and grade. Generally, sprinkler systems, hot tubs and solar systems are excluded.
Be sure to be present at the inspection. You'll learn a lot about the home you're buying, how to maintain its basic systems, and what to watch for in the future.
If you're planning to sell, it is advisable to have a home inspection and make needed repairs before you list your property. This will increase your chances for a successful sale.
Well What Exactly is Radon? Will I Glow In The Dark?
It's a Gas!
Radon is an odorless, radioactive gas that is produced by the natural decay of uranium in the soil. Typically, it penetrates a home through cracks and holes in the foundation. Although it is present in outside air, it can build to unsafe levels when it remains trapped inside a home. The highest level of radon will be found in the basement or crawl space. The amount of radon can vary widely--from one area of the country to another and between houses sitting next to each other.
It is believed that prolonged exposure to high doses of radon can be carcinogenic, and it appears that smokers are at greater risk than non-smokers.
Testing for radon is easy and relatively inexpensive. Many home inspectors can test for the presence of radon, or you can purchase a test kit from your local hardware store and perform the test yourself.
If a radon problem exists, it can be reduced to acceptable levels. Mitigation usually involves installing a special fan which draws radon gas from under the foundation and releases it outdoors. All cracks and joints in the foundation should be sealed with a caulking compound especially designed for this purpose.
Every sales contract should include a clause permitting a radon test and a contingency allowing an acceptable agreement between buyer and seller for mitigation, should it become necessary.
Any Moving Ideas?
Moving Survival Kit
Sometimes little things can make a big difference. Here's an idea that can make a big difference in seeing that your moving day goes smoothly. Create a "Moving Survival Kit" filled with the essential items you'll need when you arrive at your new home. Set this box aside so it doesn't get mixed in with all the other boxes.
If you're traveling to your new destination by car, label your survival kit DO NOT MOVE and take this box with you. Otherwise, tell your movers to see that this box is the last to be loaded and the first to be unloaded.
Here's what you might want to include in your survival kit: first-aid kit and pain reliever, bar soap, toilet paper, shower curtain, extension cord, trash bags, light bulbs, flashlight and fresh batteries, telephone, pens and paper, scissors, utility knife, screwdriver, pliers, hammer and nails, cleaning supplies, paper towels, dishwashing and laundry detergent, dish cloth and kitchen towel, paper cups, paper plates, napkins, silverware, kitchen knife, can opener, canned and dry food, coffee and coffee pot, towels, sheets, pillows and blankets.
With a little planning and attention to the details, you can do a lot to help your moving day go smoothly. With a real estate professional, like me, who takes care of all the details from contract to closing, your real estate transaction can be a smooth and successful experience from beginning to end.
How Do We Schedule The Closing
When you're negotiating the purchase or sale of a home, you'll want to give some thought to the closing date you select. Your closing date will affect the amount of funds you either bring to or receive at your closing. Remember these basic rules:
1.Although rent is paid advance, mortgage interest is paid in arrears. For example, a May 1st payment pays April's interest.
2. With one exception, interest is prorated to the day of closing. A buyer and
seller pay interest on their respective loans for each day of their ownership during the month of the sale. A buyer who closes at the end of the month needs to bring less cash to a closing than a buyer who closes earlier in the month.
Here's the exception to the "prorated-to-the-day" rule: interest on FHA loans is not prorated on a daily basis when the loan is being paid off. FHA loans are prorated a month at a time. So, if you're a seller with an FHA loan, it's wise to close at the end of a month. If you have to pay for the entire month, you might as well live in the property!
3. A seller's last month's mortgage payment is often paid at closing.
The IRS allows buyers to deduct origination and discount points for the tax year of the sale. If you have the option of purchasing property at the end of one year or at the beginning of the next, consult your tax professional for advice on when to schedule the closing to your advantage.
We're a littel Concerned About Unexpected Repairs What Should We Do?
A Home Warranty Ousts Murphy
It Murphy's Law. No sooner does a prospective buyer walk through your front door than your kitchen faucet comes to life of its own accord spewing water everywhere. And when the home inspector shows up, the front door swells with such pride that it won't budge an inch.
If you're selling your home and would like to be insured against your home's emotional upheavals, consider purchasing home warranty protection. Most warranty plans cover the home from the time it's listed until one year after the closing date. Details of policies vary widely, but most prices range from just $300-$400 with deductibles of $35-$100. The typical policy covers electrical, plumbing, heating and cooling systems, and some appliances. An added plus--the warranty makes your property more attractive by limiting the buyer's out-of-pocket expenses if a problem is discovered after closing.
If you are interested in a home warranty plan, you may want to compare the services offered by different companies. Check their prices, coverages, exclusions, procedures, charges for service calls, and length of time they have been in business. Don't forget to check references from past clients, too.
How Do We Select A Realtor?
Since buying or selling a home involves very important financial and lifestyle decisions, the expertise of a professional real estate agent is invaluable. Yet, when it comes to choosing an agent, the choice is often whimsical! Too often the decision is based on a desire to appease a golfing buddy or a relative who dabbles in real estate part-time. Here are a few guidelines that will help you select the right real estate professional.
If you're selling your home, ask more than one real estate professional to prepare a comparative marketing analysis (CMA) for your property. Ask how each one plans to market your home--beyond a yard sign and the multiple listing service (MLS). Ask for an estimate of all your closing costs and your net proceeds.
If you're buying a home, look for a real estate professional with computerized access to all MLS listings who will inform you of new listings on a daily basis. Review all the options for agency representation. Will the agent or an assistant be showing properties to you? You'll be spending a lot of time together, so choose someone with whom you feel comfortable.
Whether you're buying or selling, look for an agent who is an experienced, full-time professional. Look for someone with educational and professional designations who is knowledgeable about current market conditions and various financing options. Choose an agent who will write a solid contract, negotiate effectively on your behalf, and keep you updated on a regular basis. Review references from past clients. Then relax. You'll be in good hands!
My knowledge, experience and dedication to excellent service will assure you of a smooth transaction from beginning to end. If you're thinking of buying or selling, please call me.
What Is Title Insurance?
When you purchase a home, you should also buy owner's title insurance. Owner's title insurance protects you against future loss resulting from current defects in your title to the property.
Before closing, the title company conducts a thorough examination of public records to uncover possible title defects. Easements, unpaid taxes or mortgages, judgements against previous owners, and other defects will be disclosed and cleared before you receive clear title to the property at your closing.
What if a problem arises after closing? If the defect is covered by your policy, your title insurance company will defend your title to the property, in court if necessary, and at their expense.
Does the standard owner's title insurance policy cover all title defects? No, a standard policy has several important exceptions. For maximum coverage, you need an owner's extended coverage policy which is also called an ALTA or plain language policy. Owner's extended coverage provides protection against several important items: unrecorded ownership rights of other parties, unrecorded easements, unrecorded liens, and unrecorded boundary discrepancies or unrecorded encroachments that an accurate survey would reveal.
The fee for title insurance is a one-time premium which is paid at closing. In some parts of the country, this premium is paid by the seller; in other areas, it is paid by the buyer. If you are obtaining a mortgage, your lender will require you to obtain lender's title insurance to protect their interest in the property.
Remember, when you purchase title insurance, ask for ALTA or owner's extended coverage.
What Is A Warranty Deed
The deed is the document that officially transfers ownership from the seller to the buyer. Although there are many types of deeds, the general warranty deed is the one most frequently used in real estate transactions. It also offers the greatest protection. The general warranty deed--sometimes called the warranty deed--warrants the title, not the quality of the home's construction.
It is prepared by the attorney or title company and is signed by the seller at closing. When the deed is recorded in the public records, the new owners become part of the property's chain of title. Therefore, it is important that the deed be recorded properly with correctly spelled names, addresses and legal description of the property. The deed is the sole record that county assessors and recorders rely upon in preparing real estate tax documents.
The warranty deed specifies how the owners have taken title to the property. Generally, there are three types of ownership:
1. Sole ownership.
2. Joint tenancy. In this form of joint ownership, the surviving owner automatically receives the deceased's share of property.
3. Tenancy in common. Though jointly owned, if one owner dies the property
share goes to the deceased person's heirs instead of to the other owner.
Although joint tenancy is the most common form of ownership for married couples, consult your attorney, estate planner or CPA for advice on the best option for you.
What Are Capitol Gains?
The new tax law signed by President Clinton on August 5th makes it possible to sell a primary residence and downsize to a less expensive house without suffering a large federal tax bite on capital gains.
Capital gains realized on the sale of a house consist of the sale price minus the original purchase price and minus other items such as costs of selling the house and costs of improvements.
The new law:
*Provides a $500,000 exclusion for couples and a $250,000 exemption for a single person.
*Allows the exclusion to be used an unlimited number of times, but only once in a two-year period of time.
*Requires that a seller must have lived in the house as a primary residence for two of the past five years. (There are some exceptions to the two-year residency rule for health and job changes.)
*Taxes profits in excess of the $500,000/$250,000 exemption at a new, lower capital gains tax rate of 20%. (The tax rate for low-income brackets is only 10%.)
*Contains no rollover provision and no $125,000 once-in-a-lifetime exclusion.
*Affects primary residences sold on or after May 7, 1997.
The new law simplifies the capital gains tax provisions and provides more choices for people who wish to sell their homes. Some people who have expensive homes may decide to move down to less expensive homes in order to free-up assets for other investments. For more information on the details of this new law, consult your tax advisor.
Is Lead-Based Paint A Concern?
Experts have determined that leaden dust, paint chips or lead in soil can be harmful when inhaled or ingested. Babies, children under the age of six, and pregnant women are especially susceptible. Babies and young children with high levels of lead in their bodies can suffer from behavioral problems, learning difficulties or other serious health disorders unless they receive early treatment.
In recent years, the use of lead has been greatly reduced or eliminated in gasoline, imported plastic venetian blinds, solder used in water pipes, and in paint. However, the majority of the nation's homes built prior to 1978 still contain lead-based paint.
Thanks to a new law effective December 1996, when you purchase or lease pre-1978 housing, you'll be informed about the dangers of lead poisoning. Sellers, real estate agents and landlords are required to disclose, in writing, any known presence of lead-based paint in housing built prior to 1978. Buyers have ten days to have the property checked for the presence of lead-based paint.
Buyers and tenants must be given the EPA pamphlet, "Protect Your Family From Lead in Your Home." This pamphlet outlines the hazards of exposure to lead-based paint and explains methods of testing the lead content in paint. It also gives suggestions on how to reduce the dangers of lead-based paint.
Because significant amounts of lead dust can be released into the air when lead-based painted surfaces are disturbed, professional renovators are also required to give this pamphlet to owners who plan to remodel pre-1978 housing.
Call me if you would like a copy of "Protect Your Family From Lead in Your Home" or information on having your home tested.
How Can We Save A Little Money When We Buy?
While most buyers would prefer to view a home that is spotlessly clean and tastefully decorated, some sellers just don't have the opportunity to meticulously prepare their home for sale. Sometimes, sellers have been transferred with little warning or are settling an estate property. In other cases, they don't have the ability or finances to make everything ship-shape.
If you're looking for a good value or have experience in handling home improvement projects, remember that some flaws are only skin-deep. Look for a home that is structurally sound with updated systems (indoor plumbing and the like). Select a house in a neighborhood of more expensive homes. Choose a house with a workable floor plan.
When you view such a property, try to imagine those cosmetic repairs already completed. Visualize new carpeting or hardwood flooring adding a fresh vibrancy to the entire home. Picture the kitchen with new cabinets, countertops and flooring. Envision skylights brightening darkened rooms. Imagine the home dressed in a fresh coat of paint inside and out.
By choosing wisely and investing time, money and elbow grease, you can turn a rather sad house into a warm and inviting home and one that is an excellent financial investment as well. I know of several properties that require a bit of TLC. If a fixer-upper is on your wish list, give me a call.
Multiple Listing Service
If it weren't for the Multiple Listing Service (MLS), we'd probably still be employing a town crier to let people know about homes for sale.
In some areas, limited information about currently listed properties is available to the general public who "surf" the Internet--certainly a wave of the future that is picking up momentum daily.
In many areas, complete information on homes for sale is available only to REALTORS® via local or regional MLS networks. A few real estate agents choose not to use its service--a real loss, I think, since they cannot hear our modern "town crier's" news about listings in our area.
When a new listing appears on the MLS, real estate professionals throughout the area are notified of the home's availability. The MLS provides information on how to set up showings as well as information about the property; details include address, price, sq. ft., number of bedrooms and baths, room sizes, garage/parking, and lot size or acreage, etc.
If you're listing your home, count on two things to occur when it is included on the MLS:
1.Since your home is advertised to many real estate agents, it's likely that another real estate agent will sell your home.
2.Expect to see even the most efficient town crier looking for work. The MLS is that good!
Thinking of buying or selling? I'll be happy to show you how I use the MLS as a part of a comprehensive program to help you achieve your goals.
What Is Buyer Agency?
Historically, all real estate agents represented the seller. This was true when an agent listed a property as well as when an agent assisted a buyer in purchasing property. Since real estate agents represented the seller, agents were obligated to negotiate the best price and terms for the seller.
If you are a future homebuyer, you'll be happy to know that now, with buyer agency, you can choose to work with a real estate professional who represents you! Working solely in your behalf, your buyer's agent can freely discuss with you the advantages and disadvantages of a particular home, advise you on how much to offer, and actively negotiate for you. Your buyer's agent is allowed to share any known information with you, such as the seller's reasons for selling, how long the home has been on the market, previous offers on the home, and whether the seller would accept a lower price.
Buyer agency requires that your agent represent you with loyalty, diligence, confidentiality, obedience, disclosure, accountability and reasonable care. These duties are defined state law and agency law.
A buyer agency relationship is established with a written agreement between a buyer and real estate professional. Although the commission may be paid by the buyer, usually it is paid by the seller in the traditional manner--as a portion of the sales commission built into the list price.
What is a Seller Disclosure?
In the movie, "The Money Pit," Tom Hanks is swindled by a seemingly mournful widow who wants a quick sale on her mansion. After he moves in, the house literally falls apart around him. It's a pity he didn't ask for a seller's property disclosure form.
Seller disclosure requires the seller to reveal any known defects in his or her property that could adversely affect the property's value. In most cases, the disclosure form also details whether or not appliances will be included in the sale, and whether or not they are working properly. Though sometimes this may be an uncomfortable process for sellers, the policy is really a benefit to all parties. Buyers know at the outset about the condition of the property, and sellers are protected from their former home coming back to haunt them.
Oddly, it wasn't until the last few years that seller disclosure was adopted as law by most states. Until recently, state laws were silent and sellers were silent, too. Now, although compliance and detail vary from state to state, seller disclosure lets the buyer decide if the home is worth its asking price, given any known defects. It's always wise to include a blank form with your sales contract and ask that it be completed prior to your inspection of the property.
What Are Deductible Moving Expenses
Before 1994, a long-distance move was one big glorious tax deduction. Most premoving expenses were deductible, including everything from meals, house hunting trips and temporary living expenses to the cost of getting out of (and back into) a lease.
The picture drastically changed in 1994, and it continues to be a regular victim of whittling as every tax year draws nigh. Before, you could deduct moving expenses if your new or relocated employment was more than 35 miles away; that distance has been increased to 50 miles. Now, deductible moving expenses include only transportation and storage of your household goods, and travel and lodging expenses incurred during your actual move.
Lately, the IRS has stepped in with another interesting change of venue. In prior years when your company transferred you, your entire reimbursement for moving expenses was deductible--within certain guidelines. Under the new regulations, the IRS treats this reimbursement as bonus income, and you are expected to pay taxes on that amount. A sad state of affairs but true!
Relocating? Consult a tax attorney or accountant to learn how you can take full advantage of the remaining benefits and deductions.
What Are Adjustable Rate Mortgages
ARMs are debated, berated, ignored and adored. Here's a list of terms to help you become well-armed with an understanding of the basic components of adjustable rate mortgages.
Initial Rate - The loan's starting interest rate. Some ARMs have initial rates that change after the first month while others have initial rates that are fixed for several years. By reducing your monthly payment, a lower initial rate allows you to qualify for a larger mortgage.
Index - The basis that determines how much the lender must pay to obtain the funds it lends you. The index rate increases or decreases in response to changes in money market conditions.
Margin - The fixed percentage that represents the lender's profit. The margin is added to the index to determine the ARM's interest rate. You'll save money over the long term by choosing an ARM with the lowest available margin.
Cap - A limit to the amount that a loan's interest rate may increase or decrease. A periodic cap, generally 2%-3%, limits the interest rate change at any adjustment period. A life cap, generally 6%, limits the interest rate change over the life of the loan.
Learn about the wide variety of adjustable loans available today. You may find that an ARM will save you money or stretch your purchasing power.
How Do We Apply For A Mortgage?
For most people, applying for a mortgage loan ranks right up there with interviewing for a job or calculating that last line on one's tax return. If you're feeling jittery about applying for a loan, keep this in mind: you're in the driver's seat. You're giving the lender your business, not the other way around.
Several days before your appointment, ask your lender for a list of the documents you'll need to bring. With complete, accurate information in hand, your lender will be able to prequalify you and complete your loan application.
Prequalification gives you an estimate of your maximum loan amount, purchase price and monthly payment. These estimates are based on how your income, debts, savings and credit history meet the requirements of a specific loan program. Your purchasing power may vary with different types of loans, so look at several options.
Lenders understand that flawless credit histories are rare finds. When your lender requests files from one or more credit reporting agencies, you may be surprised to find out-of-date or erroneous data. Ask your lender for assistance in tidying up your credit report.
A few late payments may require a written explanation. More serious credit problems may require alternative financing at a higher interest rate. In most cases, after 12 months of on-time mortgage payments and an improved credit history, you'll be able to refinance at a lower interest rate.
Why So Much Paperwork?
No, it's not your imagination that your mortgage lender wants to know everything about you including the name of your senior prom date and exactly when you got your wisdom teeth.
Okay, maybe it's not that bad. But it's true that in today's economic climate, your mortgage lender wants to know everything about your recent financial history. Today's complex rules and regulations for lending institutions have created a jungle of paperwork for borrowers.
Follow these tips to help prevent unnecessary anxiety and to stay on the right path to loan approval:
1. Your lender's requests for information are fundamental for the process to occur smoothly. Be honest with your lender. Be timely and accurate in completing all documents.
2. Changes in your financial status between loan application and closing may keep you from obtaining a loan. If you're planning to purchase new appliances, furniture or a new car, wait until after closing. In most cases, borrowing funds or using a credit card advance for your down payment are also taboo.
3. Keep all your financial records accessible up to the day of closing. Don't pack away your tax returns, bank statements or other pertinent information just in case additional data is needed at the last minute.
It's a paperwork jungle out there, but making your way through it can be an exciting adventure with a fabulous destination at the end--your own new home!
Thinking of buying a new home? Call me. My professional expertise can be your guide to a smooth and successful transaction.
Any Pointers on Points?
What is a point? A point is a loan fee equal to one percent of the loan amount. In "lender language," there are two kinds of points: discount and origination points. A discount point is a loan fee that reduces the loan's interest rate. An origination point is a loan fee that represents the lender's profit for "originating" the loan.
Let's look at a typical rate: 8% 0+1. Translated, this means that an interest rate of 8% costs you zero discount points and one origination point. If you'd like a lower interest rate, you can "buy it down" with one or more discount points. A lower interest rate can be a benefit if you'd like to qualify for a larger loan. On the other hand, paying discount points may be an unwise investment if you refinance or sell your home in the early years.
A one-percent origination point is typical. However, if you wish to minimize your closing costs, it can be waived if you accept a slightly higher interest rate.
Both origination and discount points are paid at closing, usually by the buyer. A seller or new home builder may pay a point or two in order to reduce the buyer's closing costs or help the buyer qualify for a larger loan.
Loan programs, interest rates and fees vary from one lender to another, so it's wise to interview at least three lenders. Be sure to get a good faith estimate, in writing, of all fees and loan closing costs.
Any Tips On Credit?
Have you ever copied a phone number incorrectly? Confused an address? Called someone by the wrong name? Of course, we all have! What happens when someone makes a similar mistake on your credit record?
Credit is one of your most valuable assets, and good credit is important in obtaining a home loan. Your credit report is not immune to simple human error. That's why you should check your credit report at least once a year.
Social security numbers are the primary information source for credit. Clerical errors made by a creditor imputing this number might cause someone else's information to end up in your report. Or, if someone has a name or address similar to yours, their credit information might become yours, too.
Three companies--TransUnion, TRW and Equifax--all keep records about your credit practices. Request reports from all three companies. If you find an error, write to inform the company of your dispute and ask them to research the incorrect information. They are required to provide you with an update of their findings. Check your credit report again in a couple of months to see if they made the correction.
What if negative information on your report is truly yours? Contact the creditors to see if they'll agree to remove it. If you're unsuccessful, don't panic. As time passes, it becomes less important. Negative information over two years old, while it has a bearing on your loan approval, won't necessarily mean a rejection.
Whats The Difference Between Pre-Qualified Pre-Approved?
It's well-known that a "cash buyer" has a distinct advantage over other buyers. Although not many of us are able to pay cash for a home, now there is a way to obtain a mortgage and have all the advantages of a "cash buyer."
In recent years, many of the most forward-thinking mortgage companies have implemented pre-approval programs that allow you to receive loan approval before you find the right property. Pre-approval means that the required loan documents, tax returns and credit reports have been submitted, reviewed and approved. Employment, income, bank balances and debts have been verified. All that remains is an acceptable appraisal on the chosen property.
Don't confuse pre-qualification with pre-approval. Usually, pre-qualification is just a quick, non-binding opinion of how much you may qualify to borrow based on your income-to-debt ratios and, perhaps, a review of your credit reports. Pre-approval replaces all the "ifs" in a pre-qualification letter with one big, "yes!"
A pre-approved loan can give you a tremendous advantage. The seller may select your purchase offer over other competing offers. A pre-approved loan can also allow you to close the transaction within a very short period of time--usually a week or two.
If you're thinking of purchasing soon, I'll be happy to recommend several quality lenders who offer pre-approval programs for a variety of loans.
I've Heard the Term Renovator's Disease What Is It?
The first symptoms of "renovator's disease" usually begin with, "Hmmm... Just a few changes could really improve this house."
If you've caught "the bug," here's some healthy advice: find out which improvements will add the most value to your home. Whether you're planning to sell soon or sometime in the future, you'll want to get the best return on your remodeling investment. Value for value, these are the best:
·Brighten your home with new paint, carpeting and flooring. Select light, neutral colors.
·Improve your home's "curb appeal" with a fresh coat of paint.
·Update your kitchen with new cabinets, countertops, flooring and appliances.
·Add another bath, if needed for convenience and resale value.
·Update existing bathrooms. Make them light, bright and easy to clean.
·Install new lighting fixtures to brighten rooms.
·Replace old windows or add a skylight.
·Upgrade existing landscaping. Keep it simple in design and easy to maintain.
With proper care, "renovator's disease" can increase the livability and the resale value of your home. Left unchecked, it can leave you with a home that is over-improved for your neighborhood and a poor financial investment.
How do you know which improvements you should make to your home? That's how I can help. Because I know what features buyers are looking for in homes in your neighborhood, I'll be happy to let you know which improvements will give you the best return on your investment.
What Are The Closing Day Details?
It takes weeks of decisions and deadlines to get ready for the big day--the day you take the step from "buyer" to "homeowner." Nervous excitement is to be expected on your closing day, but don't add unnecessary tension by tripping over a few details.
Two Weeks Before Closing
Take the time now to set the stage for a smooth transition. Call public service, water, phone, cable, trash removal, lawn care and newspaper companies to transfer service. Your moving day will go more smoothly if phones are turned on in both homes. Complete post office change of addresses cards. Obtain homeowner's insurance for your new home and notify your lender. Ask your real estate agent for copies of the basic closing documents so you can review them before closing.
A Day Before Closing
Review the settlement sheets and complete the walk-through of your new home with your real estate professional. If you find some items that still present problems--such as repairs that were not completed--address these items before you get to the closing table.
Ask your real estate agent for the exact amount you'll need to bring to closing. Personal checks won't be accepted; you'll need a cashier's check. If you are selling one property before buying another, ask your agent to arrange for you to receive a cashier's check at your first closing. If you're wiring funds, wire them at least 24 hours prior to closing.
The last details? Take a deep breath--and relax. Have a nice closing day... and enjoy your new home.
What Should I Know About Homeowner's Insurance?
While you've placed a substantial sum on the table to purchase your home, your lender will, in most cases, have to put down quite a bit more. That's why your lender requires proof that you're protecting your investment with homeowner's (casualty) insurance.
This protects you and your lender against loss if your home is damaged by Mother Nature's whimstornadoes, windstorms, lightning, hail, and the weight of ice or snow. It guards against loss from fire, explosions, plumbing disasters, and self-destructing water heaters and air conditioners. It even protects your home against its untimely collision with aircraft or vehicles, or its inability to step out of the way when riots or vandals are in its path.
What type of coverage should you get? Most buyers purchase a general policy that covers the house and its contents. If you live in a flood plain or earthquake zone, you'd be well advised to take out additional coverage.
It's of utmost importance that you keep your policy current. Not only does your home increase in value, but your personal property increases in value as well. Review your policy every few years to be sure that you have adequate coverage for Mother Nature's tantrums.
Should We Buy First or Sell First?
There are a few fortunate souls who enjoy owning more than one home. For most of us, however, the thought of making two mortgage payments makes our hearts skip a beat or two. If you're thinking of selling one home and buying another, consider all the options before taking the first step. Let's focus on selling first to avoid the two-home bind.
Sell your current home first. You'll strengthen your negotiating position as a seller if you are willing to sell your current home outright--even if you have not located a replacement property. You will also strengthen your position as a future buyer of another property if you do not have a home to sell. The down side? You may need a short-term rental.
List your current home contingent upon finding a replacement home. This means you're willing to sell your current home only if you can arrange to purchase another home. Once you've received an offer on your current property, you'll probably have a relatively short time in which to locate a new home. If you feel you'll need a little more time, negotiate this before accepting the offer. Then, go shopping for your new home! With professional real estate assistance, you'll soon find just the right house you'd love to call "home."
Obtain a bridge loan. This short-term loan bridges the financial gap that occurs when you purchase your new home before selling your current home. A bridge loan is not for everyone, but if you are financially strong, have considerable equity in your current home or a sizeable down payment for your new home, a bridge loan may be just the right ticket.
Obtain a home equity loan. If you have considerable equity in your home, most lenders will allow you to borrow up to 75% of your home's value--sometimes more. Usually, closing costs for a home equity loan are less than those for a bridge loan.
Rent your current home. If you rent your current home, you may be able to cover a portion, perhaps all, of your monthly mortgage payment for the rental home. Lenders normally consider 100% of your current mortgage payment as debt but only 75% of the rent as income (a "vacancy factor"). Rent your current home on a month-to-month lease with showing privileges so that you can continue to list your property for sale. Even if you need to accept a lower rent, find a tenant who will keep your home in top showing condition.
Are you pondering the "buy first or sell first" dilemma? Let's review all the options to find the one that works best for you. Call me today to review your personal situation.
What is A 1031 Exchange?
What benefit is offered by a 1031 exchange? The payment of capital gains taxes may be deferred if investment properties are "relinquished and acquired" rather than sold and purchased. With a 1031 exchange, dollars which otherwise would be used to pay taxesand are, therefore, gone forevermay be re-invested in the replacement property.
Regulations for a 1031 exchange specify that:
1.All properties involved in an exchange must be business or investment
properties. A personal residence does not qualify.
2.The transaction must be an "exchange" rather than a sale of property for
money followed by a purchase.
3.The exchanged properties must be "like-kind" properties. "Like-kind"
properties are all types of real estate held for business or investment. They need
not be of the same type, quality or number. For example, you would be permitted
to exchange an apartment building in the city for two parcels of vacant land in the
country.
Any "non-like-kind" property, usually cash or debt relief, is called "boot." Boot is taxable.
The most common form of exchange is a deferred exchange. A deferred exchange occurs when there is a gap in time between the date when one property is relinquished and the date when another property is acquired.
To fulfill requirements of a deferred exchange, a qualified intermediary oversees the exchange and acts on behalf of the taxpayer. Strict regulations govern the procedures, documentation, participants, methods and time frames for identifying the property or properties to be exchanged, and the time frame for completing the exchange.
If you are considering an exchange, seek professional advice from your attorney or tax accountant, and call me for professional assistance in locating excellent investment properties.
What Are The Basic Six?
Why does one house sell quickly for a stellar price while another has a "For Sale" sign in the yard for months? Is it luck? Probably not. The sales price and length of marketing time are determined by six basic factors. And you, as the seller, control four of them.
Location - Your neighborhood and your home's location within the subdivision are important. Does your lot border a golf course or a busy street?
Condition of Property - Is your home updated and well-maintained or does it need redecorating and repair? Is it "staged" to show at its best?
Terms - Can you carry a second mortgage? Is your loan assumable? Can you be flexible with closing and occupancy dates?
Market Conditions - How does the number of available homes (new and resale) compare with the number of buyers? Interest rates always affect the number of qualified, motivated buyers.
Price - Is your property priced correctly? A new listing receives the most activity during the first 3-4 weeks, so be sure to price your home correctly right from the beginning. Price is a very important factor that can offset other deficiencies.
Your real estate professional - The agent you select will make a difference. As an experienced, knowledgeable real estate professional, I will price your home correctly, market it extensively, and negotiate effectively on your behalf. If you're thinking of selling, please call me.
What About First Impressions?
Have you ever had guests show up unannounced? Did you ever employ a family member to lure them to the back yard deck while you frantically shoved things in closets?
It may have worked then. It doesn't work when buyers are coming through your home. As distasteful and intrusive as it may seem to you, buyers want to know what they're getting into--and that includes the walk-in closets, the children's closets with tennis shoes marching all over each other in muddy disarray, and the entirety of your basement or garage. Have a tool shed or wood shed? They'll find it, too. Think your "junk drawer" in the kitchen is safe? Don't chance it! Will they bother opening a few kitchen cabinets or pantry doors? You betcha.
Remember, first impressions are lasting impressions. Before you put your house on the market, clean up the clutter! As you'll likely be moving soon, your pre-market period is a perfect time to gather the "unwanteds" in boxes for charitable organizations and the "what in the world did we keep this for?" items into large garbage bags. Box up anything you can live without for the next few months and pack it off to a storage locker. Sparsely furnished rooms and well-organized closets and drawers give the impression of spaciousness and a well-maintained home.
WHAT is a CMA?
Before they even open their doors, smart retailers determine their pricing strategies by studying their competition. If you're thinking of selling your property, you can benefit from the same sort of study--a comparative market analysis (CMA).
In addition to determining information about the appropriate listing price for your property, a CMA will give you other important information about the current real estate market, recent sales in your neighborhood, your home's competition, how long it may take to sell, your home's probable sales price, and an estimate of your net proceeds. This information will enable your real estate professional to create an effective marketing plan for your property.
A comparative market analysis establishes an appropriate listing price range for your home by analyzing recently sold homes that are similar to yours. Adjustments are made for the similarities and differences between these comparables and your home in terms of location, finished square footage, number of bedrooms and baths, age, condition, quality of construction, and extra features.
After analyzing all these factors, including your motivation for selling, you and your real estate professional can determine an appropriate listing price for your home. It's very important that you list your home with an accurate price right from the beginning. Generally, most of the best and highest offers come during the first few weeks when a home is viewed by the most potential buyers.
If you're thinking of selling and would like to have a CMA prepared for your property, please call me.
How Do I Achieve Curb Appeal For My Home?
You've seen it ... the creepy "haunted" house, with chipped paint, shutters hanging precariously from one hinge, and cats yowling from somewhere inside the overgrown lawn. Needless-to-say, the house does not proclaim "curb appeal." "Curb appeal" entices us with clean, fresh paint, a well-manicured yard and a front entry way that smiles and says, "Welcome home."
Before prospective buyers even consider going inside your home, the outside must pass the stringent "curb appeal" test. Improve your home's curb appeal, and you'll increase your chances of selling your home sooner and for a higher price.
Prior to putting your home on the market, check the condition of your home's exterior and make needed repairs. If your home needs painting, select a neutral color that blends well with other homes in the neighborhood. Perhaps painting just the trim, front door and garage door may be the only thing needed to give your home an inviting, well-cared-for look.
Pay special attention to your front door. Give it a fresh coat of paint and see that the doorknob and locks are bright and shiny. Replace locks if they are tarnished and worn or do not work properly.
Make sure your yard is neat. Store toys, tools and trash cans out of sight. Colorful flowers in bloom around your front entrance offer a cheery spring and summer invitation, while a wreath of dried flowers on your front door adds a cozy, cheerful welcome in the fall and winter.
When the exterior of your home offers charming curb appeal, prospective buyers will have no trepidations about coming inside. Staging homes is my specialty. If you're thinking of selling, I'll be happy to give you suggestions on how to make your home shine.
Can I Be A Landlord?
Remember when you purchased your first home and assured yourself that if it got to be too much to handle, you could just turn around and sell it? Perhaps now you're finding yourself at the other end of that rainbow--it's not absolutely necessary that you sell your home in order to buy another. An option? Consider renting it. Rental property can be a great investment, but it's important to be well- informed before becoming a landlord.
Most importantly, do you want to be a landlord? Tenants don't normally share pride in ownership, nor are they willing to wait any longer than you are to see their refrigerator repaired or their frozen water pipes restored to order. If you'd like to rent property but leave the landlording to someone else, check with property management firms to see what they charge to locate tenants and/or manage property. While you're at it, ask about current rental rates and the supply and demand for properties similar to yours.
Acquaint yourself with state or local landlord/tenant laws including rental licenses, rent control, eviction procedures and lease forms. Consider your tax implications by consulting a tax expert. If the home you rent was your primary residence, you may lose certain tax benefits when you sell.
If I can assist you in locating excellent investment properties, reliable property management firms or lease forms, please call me.
We Need to Review an Offer What should I do?
When a buyer presents a written offer to purchase your home, your real estate agent will meet with you to review all the details. Although price is a key element, it's important to review all the terms and conditions to see how attractive the offer really is.
1.Is there enough earnest money?
2.What is your recourse if the buyers default?
3.Are the buyers pre-qualified or pre-approved? Do they have good credit? Ask for a lender's written verification.
4.Is the proposed interest rate slightly above the current rate? Will the buyers agree to lock-in their interest rate now? If not, ask them to accept the best rate and terms their lender has available at the time of closing. These tips may keep a rising interest rate from voiding the contract.
5.Are the buyers asking you to pay discount points or any of their closing costs?
6.Are they asking you to make expensive repairs or leave major appliances behind?
7.Is the possession date acceptable? If not, you may be able move a day or two after closing or even rent the property for up to 30 days after closing.
Your real estate professional will help you evaluate your offer, give you an estimate of your net proceeds, and write a counterproposal if the price or any terms are unacceptable. In most cases, a real estate professional can negotiate a mediocre offer into a strong contract.
REAL ESTATE TERMS-
Abstract (Of Title)
A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.
Acceleration
The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale-Clause.
Acknowledgment
A formal declaration before an authorized official (usually a notary public) by a person who has executed a document, that he did in fact execute (sign) the document.
Addendum
Something added. Items added to a document, letter, contract, escrow instructions, etc.
Agent
A person who acts or has the power to act for another. A real estate agent acts on behalf of the principal (the buyer or seller) and has a fiduciary responsibility towards the principal. Buyer's Agent: an agent who represents the buyer and owes fiduciary duties to the buyer. Seller's Agent: an agent who represents the seller and owes fiduciary duties to the seller. They are usually referred to as the listing agent who is authorized by a property owner to find a buyer or a tenant for the property.
Agreement of Sale
A written agreement of contract in which the seller agrees to sell and the buyer agrees to buy under specific terms and conditions.
Alienation Clause
A clause within a loan instrument calling for a debt in its entirety upon the transfer of ownership of the secured property. Also called a "due on sale" clause.
Amenities
Features that enhance and add to the value or desirability of real estate. Common amenities include swimming pools, professional landscaping, gourmet kitchen and so on.
Amortization
The reduction of a debt over time by making periodic payments, usually monthly, a portion of which is interest and a portion of which reduces the outstanding amount of the debt. The monthly mortgage payments remain the same over the life of the loan, even though the proportion of principal to interest changes over time. In the early part of the loan period the principal repayment is very small and interest repayment is very high. At the end of the loan that relationship is reversed.
Appraisal
An estimate of the value of property, made by a qualified professional called an "appraiser".
Appraiser
Someone who practices appraisal. Appraisers' work involves appraising, review (the process of critically studying a report prepared by another), or consulting (the process of providing information, analysis of real estate data, and recommendations on diversified problems in real estate, other than estimating value).
APR - Annual Percentage Rate
The actual interest rate taking into account the points and other prepaid fees expressed in annual percentage terms. Not to be confused with initial interest rate, a teaser rate lenders use to get you into a loan.
ARM-Adjustable Rate Mortgage
A loan that allows the interest rate to change periodically up or down.
The interest rate on an ARM is determined by adding a margin or spread to a specified financial index. Financial indexes include; Treasury, Certificate of Deposit, Cost of Funds. The margin is the difference between the index rate and the ARM rate.
Adjustment interval is how often the interest rate is adjusted. A loan that adjusts its interest rate after six months is called a six-month ARM.
Rate caps limit how much your interest rate can move up or down. Periodic caps limit the change per adjustment period, and a lifetime cap governs the maximum amount the interest rate can increase or decrease over the life of the loan.
Assessment
A local tax levied against a property for a specific purpose, such as a sewer or street lights.
Assessor
One appointed to assess property for taxation.
Assignment
A transfer or making over to another the whole of any property, real or personal, or of any estate or right therein. To assign is to transfer.
Assumption
The agreement between the buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, probably higher, interest rates will apply.
Balloon Mortgage
A mortgage for a fixed term shorter than necessary to fully repay the debt. As a result, the remaining amount of principal is due at the maturity of the loan.
Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage.
Bond
An insurance agreement by which one party is insured against loss or default by a third party. In the construction business a performance bond ensures the interested party that the contractor will complete the project.
Breach
Violation of an obligation in a contract.
Bridge Loan
A loan, usually short term, that finances the portion of the purchase price not provided by the mortgage loan and the down payment. A bridge loan is commonly used when a purchaser has not sold his existing home before he closes on his purchase of a new home. The bridge loan is paid off when the old home is sold, out of the proceeds of that sale.
Broker
A real estate professional who has acquired a higher level of training and experience than a sales agent. A minimum number of classes must be taken along with passing a state exam to acquire a brokers license. Generally they are a legal representative or a proprietor of the office. Brokers usually charge a fee or receive a commission for their services.
Building Code
A set of stringent laws that control the construction of buildings, design, materials and other similar factors.
Building Line or Setback
Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.
Buy-down
When the lender and or the homebuilder subsidized the mortgage by lowering the interest rate during the first years of the loan. While the payments are initially low, they will increase when the subsidy expires.
Buyers Market
A market condition which occurs in real estate where more homes are for sale than there are interested buyers.
Cash Flow
The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, insurance, maintenance, utilities, etc.)
Capital Gain
Income that results from sale of a capital (tangible) asset.
Capitalization
An appraising term used in determining value by considering net operating income and a percentage of reasonable return on investment.
Certificate of Eligibility
The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).
Chain Of Title
A history of conveyances and encumbrances affecting the title as far back as records are available.
Closing
The end of the transaction when the seller hands over the title to the buyer in exchange for payment. Also called settlement.
Closing Costs
Costs the buyer must pay at the time of the closing in addition to the down payment which may include points, title charges, credit report fee, document preparation fee, mortgage insurance premium, inspections, appraisals, prepayments for property taxes, deed recording fee, and homeowners insurance. Closing costs can vary considerably from one financial institution to another.
Cloud (On Title)
An outstanding claim or encumbrance which adversely affects the marketability of title.
Commission
Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price: 4 to 7 percent on houses, 10 percent on land.
Condemnation
A declaration by governing powers that a structure is unfit for use.
Conditional Sales Contract
A contract for the sale of property where the buyer has possession and use, but the seller retains title until the conditions of the contract have been fulfilled. Also known as a land contract.
Condominium or Condo
A condominium is a home in a shared building or development. The buyer gets title the space inside the unit, shares the common areas with other unit owners and pays a maintenance fee to the condominium association to pay for needed maintenance, repairs and improvements to the property.
Construction Loan
A short term interim loan to pay for the construction of building or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.
Contingency
A condition that must be met before a contract is binding. Contingencies include: the property must appraise for sales price or buyers approving of various inspections.
Contract Sale or Deed
A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.
Conventional Loan
A fixed rate and fixed term loan that is made without government insurance.
Convertible Loan
Some ARM Color loans include a provision that allows it to convert to a fixed rate mortgage at specific times, usually from the end of the first through the fifth years. There is usually an additional fee, $300-$500, to convert it.
Conveyance
The transfer of the title to land from one to another.
Co-operative or Co-op
In a residential co-operative, the buyer purchases shares in the co-op corporation which is made up of the residents in the co-op property. The buyer owns the shares rather than owning real property. In exchange he has the right to lease and occupy a co-op unit.
Covenants
Agreements written into deeds and other instruments stating performance or non-performance of certain acts or noting certain uses or non-uses of property.
Credit Report / History
Lenders will investigate your credit record which is a history of your debts. They get a report from a credit reporting agency (TRW, Equifax, TransUnion) which shows if you pay you debts on time and with who you have current debts with.
Debt-to-income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income.
Deed
A legal document by which property title is transferred from one owner to another.
Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.
Depreciation
Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.
Devisee
A person who receives real estate from another by will.
Down Payment
The down payment is the percentage of the purchase price that the buyer must pay in cash and may not borrow from the lender. The down payment amount in addition to the mortgage equals the purchase price of a property. They can vary from 0% to over 50%. The less your down payment the better your credit has to be. Lower down payments generally result in higher interest rates.
Dual Agency
Representing both parties in a transaction. In virtually all states it is unethical and illegal for a broker to represent buyer and seller in a real estate transaction without written consent of both.
Due-on-Sale Clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
Earnest Money
The deposit money given to the seller by the potential buyer as evidence of good faith in purchasing real estate. The broker places the money in an escrow or trust account until closing, when it becomes part of the down payment.
Easement Rights
A right- of- way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right- of- way across private property is a common example.
Economic Obsolescence
Loss of useful life and desirability of a property through economic forces, such as change in zoning, changes in traffic flow, etc., rather than deterioration.
Encroachment
An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.
Encumbrance
A legal right or interest in land that affects a good or clear title, and diminishes the land's value.
Equal Credit Opportunity Act (ECOA)
Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
Equity
The value of the property less the amount of unpaid mortgages and any outstanding liens.
Escalation Clause
A clause in a lease providing for an increased rent at a future time due to increased costs to lessor, as in cost of living index, tax increases, etc.
Escheat
The reverting of property to the state in the absence of heirs.
Escrow
Money or other valuables given to a third party with directions to deliver them to another party upon the fulfillment of a specific act or condition.
Escrow Instructions
This discloses when the escrow should be closing and when possession should take place, proration of property taxes, transfer taxes, release of funds and the basics of satisfying the escrow demands.
Estate
The ownership interest of a person in real property. Also refers to a deceased person's property.
Exclusive Agency Listing
A written agreement giving the broker the right to market an owner's property for a certain period of time, but also allowing the owner to sell the property during that period without paying a commission.
Exclusive Right - to Sell
A written agreement between the agent and the owner whereby the owner promises to pay a fee or commission to the broker if his property is sold during the listing period, regardless of whether the broker is responsible for the sale.
Fair Market Value
That price a property will bring given that both buyer and seller are fully aware of market conditions and comparable properties.
Fannie Mae - FNMA
Nickname for the Federal National Mortgage Association. FNMA is a public corporation originally established by the federal government. Fannie Mae purchases mortgage loans from lenders and results in a major source of funds for mortgage companies.
Fee Simple
Ownership of title to property without any limitation, which can be sold, left at will, or inherited.
FHA - Federal Housing Administration
Part of the US Department of Housing and Urban Development (HUD). It was established in 1934 to encourage improvement in housing standards and communities. The FHA insures mortgage loans.
FHA Mortgage
A mortgage loan insured by the Federal Housing Administration.
FHA Mortgage Insurance
Requires a fee (up to 2.25% of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5% of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.
Foreclosure
A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.
Freddie Mac - FHLMC
Nickname for Federal Home Loan Mortgage Corporation. It is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD- approved mortgage bankers.
Functional Obsolescence
Loss in value due to out-of-date or poorly designed equipment while newer equipment and structures have been invented since it's construction.
Ginnie Mae - GNMA
Government National Mortgage Association
Graduated Payment Mortgage - GPM
A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
Grantee
That party in the deed who is the buyer or recipient.
Grantor
That party in the deed who is the seller or giver.
Home or Property Inspection
A detailed inspection of the physical structure, the plumbing, electrical and heating systems and the overall condition of the home. Typically the cost is $150-$300 and the results are detailed in a multiple page report.
Homeowners Insurance
Insurance that protects the homeowners from Casualty losses or damage to the home or personal property and from liability damages to other people or property. Homeowners insurance is required by the lender and may be included in the monthly mortgage payment.
Home Owners Association
An association of homeowners within a community formed to improve and maintain the quality of the community. An association formed by the developer of condominiums or planned developments.
Housing Expense-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his or her gross monthly income.
HUD-The US Department of Housing and Urban Development
Department of Housing and Urban Development, a government agency created to make the American Dream of home ownership a real possibility for everyone. HUD has many programs involving homeownership assistance for low and moderate income families, community planning and development, fair housing and equal opportunity, and home improvement loans. The Housing and Urban Development home page is a rich resource of information.
Impound
That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.
Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one-three and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is used to adjust the interest rate on an adjustable mortgage.
Initial Interest Rate
The initial rate quoted usually is a lower introductory rate, sometimes called a teaser or discount rate. This lower rate lasts only until the first adjustment, after which you will be charged the fully indexed rate.
Interest
A charge paid for borrowing money.
Joint Tenancy
Joint ownership by two or more persons with right of survivorship. Upon the death of a joint tenant, his interest does not go to his heirs, but to the remaining joint tenants.
Jumbo Loan
A loan which is larger than the limits set by the FNMA and FHLMC (more than $207,000 as of 1/1/96). Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
Lease
A contract between the owner of real property, called the lessor, and another person referred to as the lessee, covering all conditions by which the lessee may occupy and use the property.
Lease With Option To Purchase
A lease where the lessee has the option to purchase the leased property. The terms of the purchase option must be set forth in the lease.
Legal Description
The geographical identification of a parcel of land.
Lien
A hold or claim on the property of another to satisfy an unpaid debt or obligation.
Life Time Cap
Life time cap governs the maximum amount the interest rate increase or decrease over the
life of the loan.
Listing Contract
An agreement between a homeowner and a licensed real estate broker that authorizes the broker to market the property for sale during a given time period.
Loan Origination Fee
A fee charged by the lender for evaluating, preparing and submitting a proposed mortgage loan.
Loan-to-Value Ratio
The ratio of a mortgage loan principal to the property's appraised value or its sales price, whichever is lower. Loan-to-value ratios vary depending upon the individual lender's policy.
Lock-in Rate
A commitment made by a lender to make a mortgage loan at a specified rate, pending loan approval, on or prior to a specified date.
Market Value
The highest price a buyer will pay for a property and the lowest price the seller will accept in a typical market.
Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Mechanic's Lien
A lien created by statute on a specific property for labor or materials contributed to an improvement on that property.
Mortgage
A lien on real estate given by the buyer to secure money borrowed to purchase the real estate.
Mortgage Broker
An individual or company that obtains mortgages for others by finding lending institutions, insurance companies or private sources to lend the money. The mortgage broker may also handle collections and disbursements.
Mortgage Insurance
A policy that provides protection for the lender in case of default and or which guarantees repayment of the loan if the borrower becomes disabled or dies.
Mortgage Insurance Premium - MIP
Insurance from FHA to the lender against incurring a loss on account of the borrower's default.
Multiple Listing
A listing taken by a member of an organization of brokers, whereby all members have an opportunity to find a buyer.
NAR - National Association of Realtors
The largest trade association in the country serving over 700,000 Realtors. The purpose of the association is to enhance the ability and opportunity of its members to conduct business successfully and ethically and to promote the preservation of the right to own, transfer and use real property.
Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.
Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
Notary Public
One who is authorized by federal or local government to attest authentic signatures and administer oaths.
Note
A written instrument acknowledging a debt and promising payment.
Offer
A proposal to purchase real estate at a particular price, subject to other specified terms and conditions. Acceptance of the offer by the seller creates a purchase contract. A counteroffer is a different offer made in response to the initial offer.
Origination Fee
Application fee(s) for processing a proposed mortgage.
Option
A right given, for consideration, to purchase or lease property upon stipulated terms within a specific period of time.
Periodic Caps
Periodic caps limit the change per adjustment period of a loan.
PITI Payment
A loan payment that combines Principal, Interest, Taxes and Insurance.
Plat
A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.
PMI - Private Mortgage Insurance
Insurance issued to a lender to protect it against loss on a defaulted mortgage loan. Its use is usually limited to loans with high loan-to-value ratios, generally in excess of 80%. The borrower pays the premiums.
Point
An amount equal to one percent of the loan amount paid to a lender for making the loan. A lender may charge the borrower several points in order to provide the loan.
Power of Attorney
A legal document authorizing one person to act on behalf of another.
Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form, but are not necessarily imposed in many states.
Primary Mortgage Market
Lenders making mortgage loans directly to borrowers such as savings and loan associations, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary market such as FNMA or GNMA.
Pre-qualification
Getting pre-qualified for a loan is a free process and normally takes between 15 minutes to an hour on the phone. The lender will ask you some basic questions about your household income, time on the job, credit history, down payment and personal savings. You should get pre-qualified before looking for properties so you and your real estate agent know in what price range to start looking.
Principal
One of the parties to a transaction. For example, the buyer and seller are principals in the purchase of real property. Also the amount of debt, not counting interest, left on a loan.
Purchase Agreement
An agreement between buyer and seller denoting price and terms of the sale.
Rate Caps
Rate caps limit how much the interest rate can move up or down.
Real Estate Agent
A licensed person who works under the direction of a broker selling and renting real estate.
Real Estate Broker
A middle man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.
Realtor
A Realtor is a real estate professional who is a member of the National Association of Realtors and subscribes to its strict Code of Ethics. This professional is committed to protecting and promoting private ownership of real property, establishing and maintaining high professional standards of practice, and creating unity in the National Association of Realtors organization and respect for the real estate profession.
Recision
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
Refinance
Obtaining a new mortgage loan on a property already owned.
Often to replace existing loans on the property.
RESPA
Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.
Restrictive Covenants
Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer.
Reverse Annuity Mortgage - RAM
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as Satisfaction of Mortgage: the document issued by the mortgagee when the mortgage loan is paid in full.
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one.
Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.
Seller's Market
More buyers than sellers.
Shared Appreciation Mortgage - SAM
A mortgage in which a borrower receives a below-market interest rate in return for which the lender or investor, receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrowers share the monthly principal and interest payments with another party in exchange for part of the appreciation.
Special Assessments
A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, street lights, etc.
Survey
A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land.
Title
Ownership of real property. Title is transferred from one party to another through a document called a deed.
Title Insurance
Protection for lenders and homeowners against financial loss resulting from legal defects in or other claims against the property's title. The cost of the policy is usually a function of the value of the property and is often borne by the purchaser and or seller.
Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
Trust
A property interest held by one person for the benefit of another.
Trustee
A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another.
Truth-In-Lending
A federal law requiring disclosure of the APR-Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.
Underwriting
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
VA or US Department of Veterans Affairs
A federal agency designed and operated to help veterans enter the housing market. The VA assists veterans in terms of low or no down payment, mortgage qualifications assistance and low interest rates.
VA Loan
A mortgage loan guaranteed by the US Department of Veterans Affairs against loss to the lender and made through a private lender.
Variable Interest Rate
A fluctuating interest rate which can go up or down depending on the going market rate.
Waive
To relinquish, or abandon. To forego a right to enforce or require anything.
Wraparound Mortgage
Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.
Zoning Ordinances
The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.
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