Title Insurance: 2 Types

Your closing costs might include two types of title insurance policies, but do you know how these policies differ?

Loan Policy

Your lender requires title insurance when you secure a mortgage. A loan or lender’s policy protects the bank or lending institution for as long as they maintain an interest in your property—typically until your mortgage is paid off. If you refinance your loan, you’ll need to purchase a new policy to cover the new loan.

Owner’s Policy

An owner’s policy of title insurance helps protect your rights as the homeowner for as long as you or your heirs own the property. In some areas, it’s standard for the seller to purchase the owner’s policy for the buyer, whereas in other areas the owner’s policy is a recommended buyer purchase.

What is mortgage insurance?

A: Private mortgage insurance (PMI) policy held by your lender which indemnifies them is an insurance against losses on their investment in your mortgage when you default.

PMI is not property insurance covering hazards to its improvements, a policy also required by the mortgage lender.

Typically, mortgages insured by PMI are covered for losses on amounts exceeding 67% of the property’s value at the time the mortgage is originated.

PMI is required as a condition for funding a mortgage when your down payment is less than 20% of the purchase price. Before your mortgage is funded, you will undergo an in-depth risk analysis based on the PMI insurer’s eligibility requirements.

The PMI investigation and documentation takes place after you submit a mortgage application. It is generally limited to verification of your representations on the application.

Your PMI premiums are typically paid through your monthly mortgage payments. However, some lenders and PMI insurers offer a lender-paid mortgage insurance (LPMI) program.

When offered by the PMI insurer, your lender pays the mortgage insurance premium and passes the cost on to you as a higher interest rate on your mortgage. However, LPMI cannot be cancelled, while borrower-paid PMI may be cancelled or automatically terminated.

LPMI only terminates upon a refinance or other total payoff of your mortgage.

Premium rates are set as a percentage of your mortgage balance and are calculated in the same manner as interest.

PMI coverage may be terminated when the equity in your property reaches 20% of its value at the time the mortgage was originated. Once the equity in your property reaches 22% of its value, PMI is automatically cancelled.

Federal Housing Administration (FHA)-insured mortgages are also available for homebuyers with little cash available for a down payment.

To qualify for an FHA-insured mortgage, you are required to make a minimum down payment of 3.5%.

When you obtain an FHA-insured mortgage, you pay a mortgage insurance premium (MIP) to the FHA. An upfront MIP is added to the principal amount financed in addition to the charge at the annual MIP rate, which is added to your monthly principal and interest payments, similar to PMI.

However, the MIP remains in place, paid monthly for the life of the FHA insured mortgage.

If you default on an FHA-insured mortgage, the FHA covers your lender against any loss on the balance of your mortgage. However, you remain personally liable to the FHA for any loss the FHA suffers as a result of your default.

Why Be Pre-Approved For a Home Loan?

Real estate experts tell first-time home buyers that it’s critical to apply for a loan before shopping for a home, and it’s true; this is an essential first step.

But do you know that it’s far better to be Pre-Approved for a loan than to be Pre-Qualified?

There are advantages to gaining Pre-Approved. When the lender hands a borrower a Pre-Approved letter, it means the borrower can:

Save Time by Looking at the Right Homes
When searching for homes you can set the parameters to more tightly encompass the selection of homes that you are qualified to buy. This way, you’ll save time by checking out homes you can actually afford to buy instead of falling in love with pie in the sky.

Spend More Time Examining the Right Homes
By decreasing the inventory of homes to those that fit your parameters, you can allot more time to thinking about all the little nuances each home has to offer. Lots of home buyers never move past the price point when sorting out their preferences, but now you can devote your energies to looking at the little things that matter to you most such as whether your SUV will pass through the overhead space in the garage or smash into the microbeam.

Gain Confidence & Avoid Disillusionment
Now when you find that perfect home, nobody can take it away from you by telling you that you do not qualify to buy it.

You can minimize anxiety and remove last-minute loan surprises that could disqualify you.
You’ll sleep better at night knowing that the home you selected is yours.

Increase Bargaining & Negotiating Power
In today’s market, sellers are increasingly demanding Pre-Approval letters from buyers and by having yours done up front you can get your offer in quickly.

Enjoy a Faster Closing Period
Because there is no window period while your loan application is processed, the lender can speed up the entire processing procedure. Appraisals can be ordered immediately. It’s possible to shorten a 30-day closing to two or three weeks, which comes in handy if a seller needs to quickly move and can’t decide which offer to accept. Yours will move to the front if you can accomplish the seller’s need to quickly close.

Because mortgage approval is generally the longest contingency to satisfy in a purchase contract, it is to your advantage to obtain a Pre-Approval letter as soon as you’re ready to begin your search. Lenders will render a decision based on your complete loan application, employment verification and data from all three credit reports.

Being pre-Approved is a pretty easy process and only takes 60 minutes or so of your time. I work with a lender who can complete a variety of loans, depending on your qualifications. Please call me for more info.

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Who is responsible for boundary fences and trees?

A: Most properties have three property lines setting the common boundaries with adjacent properties owned by others. A fourth property line usually sets the frontage on a public right of way, such as a street.

The location of the common property lines is typically represented by common boundary improvements such as shrubbery or trees. When setting up, maintaining or removing common boundary improvements, the
adjacent property owners’ rights depend on the type of improvement.

Common boundary improvements, other than trees, located on a property line between adjacent properties are called party walls. Types of party walls
include:

• boundary fences;
• driveways; and
• ditches.

Owners of adjoining properties are presumed to benefit equally from boundary fences. Under this legal presumption, all adjoining owners are equally responsible for constructing, maintaining and replacing
boundary fences.

The responsibility for constructing, maintaining or replacing boundary fences may be altered or removed only by:

• a written agreement between all affected owners; or
• an adjoining owner’s judicial petition to remove or alter their responsibility.

When trees mark a common boundary, each tree’s ownership is determined by the location of its trunk. Solely owned trees belong to the owner of the property on which the entire trunk is growing. Trees growing on government-owned parcels, such as a right of way for streets and sidewalks, belong to the local government, and thus the government is responsible for maintenance.

However, shrubbery or trees whose trunks stand partly on the land of two adjacent property owners belong to both adjacent owners. These trees are called line trees or common boundary trees.

Similar to maintaining a boundary fence, adjacent owners who own line trees are jointly responsible for maintaining the trees and, unless they agree to an alternate arrangement, share equal costs. To avoid disputes, adjacent property owners need to consider entering into an agreement detailing how they will handle the maintenance of boundary trees.

Overview of the Mortgage Loan Application and Approval Processing

Quick overview of applying for a mortgage loan:

Loan Application 1 to 2 hours:

  • Loan application and pre-qualification sheet are filled out
  • Obtain all necessary documents: W-2’s, tax returns; bank statements; paycheck stubs.
  • Review loan programs and how rate lock works

Application Processing 10 to 30 days:

1) Set Up

  • Send out missing items request for items not obtained
  • Order title information, credit report, appraisal
  • verification of employment, funds on deposit and landlord

2) Review

  • Review missing items that have been received
  • Confirm information on verification’s and review for any additional requests
  • Review credit report, appraisal and verification’s

3) Workup

  • Review loan package for completeness
  • Prepare loan paperwork
  • Work up forms for the underwriter

Underwriting 2 to 3 days:

Submit completed loan package for approval – Normally 48 hour turn around. The loan is approved or rejected. Loan approval may be with conditions to be met before loan funding

What is loan underwriting?
Mortgage loan underwriting is a process involving the analysis of your income, assets and credit to determine if you meet the requirements for the mortgage product you are applying for. The underwriter also focuses a great deal of attention on the home that is being financed to make sure the value is sufficient, the home is safe and habitable and the title of the property can be transferred without any issues like prior tax liens, judgments or zoning problems.

The foundation of loan underwriting is built on a concept called the 3 C’s of underwriting. The factors are credit reputation, capacity to repay loan and collateral, appraisal value of home + down payment.

Title 1 to 3 days:

  • Draw loan documents and send to escrow/title company
  • Buyer & Seller sign their respective documents
  • Signed documents and funding package sent from escrow/title company to lender
  • Lender reviews package to ensure all conditions have been met

Closing of Escrow:

  • Funds issued to escrow company for disbursement to seller
  • Grant deed and Trust deed are recorded
  • Keys are then given to buyer

To Buy or Not To Buy?

This is the question many potential buyers are facing right now.

 Do I wait to see if prices go lower?
 Do I wait to see if more good homes come on the market?
 Do I wait to see if interest rates move lower?

OR

Is right now the golden opportunity I have been waiting for as there are plenty of choices, sellers are motivated, and interest rates are low.

The first and most important question any buyer needs to ask is: “What do I want?”

Do I want a home?
Do I want a place to live?
Do I want an investment?
Do I want ………..?

WHAT DO I REALLY WANT AND WHY??

It is critical that every potential buyer gain clarity around what they want and why. Here is what we know about buying a home today.

1. There are some incredible values available in the market at this time.
2. It is vital that you work with a great lender to make sure you can get the loan you need.
3. Prices are not likely to soften much going forward.
4. No one has the ability to time the market.
5. Real estate is a great long term investment.

If you can live with the statements listed above and you are looking for a place to call your home for at least the next 5 – 7 years…..

Pick the home that feels the most special and make an offer that makes financial sense to you. There is no point in worrying about what prices are going to do in the short rum. This is something that is out of your control. Buying a home as a short term investment is a risky venture in any kind of real estate market, up or down.

Again….

If you want to know if NOW is the right time to buy….

Take the time to really answer the question – What do I want and why relative to buying a home?
The answer to this question will give you the freedom to move forward with great confidence whether you decide to buy now or wait.

Please do not hesitate to call me with questions about the market or if you would like to start the process of finding and buying the right home for you.

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For more info on how I can help you find and buy a home, get my Buyer Assistance Pack:

Buyer Assistance Pack

7 Secrets That’ll Help You Buy a House Right Now

Once upon a time, wannabe homebuyers could leisurely peruse a variety of properties in their price range, mull over their choices, put in an offer, and presume they’ll be moving in soon enough. But how things have changed!

In today’s hot seller’s market, scads of desperate house hunters scramble for limited inventory, paying sky-high prices to beat out other bidders.

As the homebuying landscape has evolved, so too must homebuyers, ferreting out a whole new set of insider ploys that can give them the edge in today’s market. To keep you up with the times, we pressed real estate agents and brokers to divulge the kind of intel required to find and lock down a good deal right now.

1. Look a little lower

Fixer-upper, anyone? How about an up-and-coming neighborhood? There’s no need to give up your wish list entirely; but in today’s market, you’ve got to get real.

“Move-in ready homes with modern finishes sell first. So I’m telling buyers who keep getting outbid to look at a slightly lower price point,” says Mike Opyd, the managing broker and owner of Chicago’s Re/Max Next. “You could get a better deal and use the extra money to renovate.”

This strategy also makes sense because often listing prices are intentionally low to build interest and encourage a bidding war. So if your top dollar is $750,000 and you look in that range, the available properties may well sell for $775,000 or higher. Check out homes in the $710,000 to $725,000 range, and you’re more likely to find something you can truly afford.

2. Enhance your earnest money

Cash offers may be king to the majority of sellers, but let’s face it: That’s not feasible for a majority of home shoppers. Still, you can make a financed deal more attractive with your earnest money, the 1% to 3% typically put down after an offer is accepted.

“Buyers can get a leg up by putting down more earnest money and making a portion, if not all of it, guaranteed,” Opyd says. “Yes, this means the sellers get to keep that money if the deal falls apart for any reason at any time. However, it makes a buyer look a lot more committed to doing whatever it takes.”

Obviously, there’s some risk here. You don’t want to lose your hard-earned funds by going overboard on a deal that collapses. That said, if you have found a house that is The One, this tactic can give you the edge.

3. Obtain an approval letter

Yes, you got pre-approved for a mortgage—just like everyone else! In a seller’s market, go the extra mile. Different from traditional pre-approval, an approval letter, also known as a commitment letter, can be prepared by the lender once your loan application is approved. It typically states the type of loan, the amount, the terms, and the interest rate.

“An approval letter lets the seller know that the lender has gone beyond pulling your credit,” says real estate agent Ashley Melton, owner of Agent Owned Realty in Charleston, SC.

This kind of document can give you a leg up because the home seller has less to worry about, such as your application going into underwriting and unraveling.

4. Take the escalator (clause, that is)

An escalation clause, also known simply as an escalator, can help you be ultracompetitive as you vie for a home.

This contract addendum commits you to the price you are bidding while also agreeing to increase the amount should the seller receive a higher offer.

An escalator basically includes the original offer, the amount to be raised above competitive bids, and the maximum amount the buyer can offer.

Say you decide to offer the asking price of $200,000 for a home, but you can actually afford to shell out $10,000 more. Since bidding wars are fairly common these days, the escalation clause commits you to say that if other bids come in over yours, you’ll raise your offer to $210,000 if needed.

What’s good about this is it protects you from that crushing situation in which you lose a home by a margin you coulda, shoulda, woulda paid.

5. Throw in a lease-back

Here’s the conundrum: Sure, sellers hold loads of power when they are offering up their home. But once there’s an accepted offer, they are often thrown into the pool of desperate homebuyers and have to scramble like the rest of us to find a new abode. This is why some savvy buyers will sweeten their deal with a lease-back, meaning they will let the seller stay in place for a period of time for an affordable price, or for free.

“If the seller is living in the property, the buyer can offer to lease it back for 60 to 90 days, at no charge, to allow them time to find their next place,” says Glen Pizzolorusso, a licensed associate real estate broker with Compass in Connecticut’s Fairfield County.

Offering this option with your bid may appeal to a stressed “Where will we go?!” seller.

6. Know when to waive

In a less heated market, a home inspection is sacrosanct. It can be a buyer’s friend, telling you that a water heater is about to conk out or that there’s water damage that you never would have noticed. But lately, some buyers are skipping the home inspection. This may or may not be the right move for you.

“Waiving inspections could be a way to win in a multiple-offer situation, but every case is different,” Pizzolorusso cautions. “For example, a house on city water and a city sewer system makes it easier to waive inspection, but I would never do so on a house with a septic system—there are far too many variables. Also, if the house was built in the last 20 years, it’s probably safer to skip the inspection, since the roof and most of the mechanical systems are within their typical life span.”

Bonus tip: When interviewing prospective real estate agents or brokers, ask about their experience with building, flipping, and renovating homes. Here’s why: Know-how in this area can be an asset when debating whether or not to waive inspections. This brings us to…

7. Interview for the best broker or agent

It’s more important than ever for buyers to shop around for an agent or broker. You want to talk to at least three, and don’t simply take, say, your cousin’s recommendation blindly.

“To find the right fit, ask about their experience with multiple-offer situations, contingency waivers, and escalation clauses—and what the outcomes have been,” Melton says.

Be sure to balance experience level with attentiveness.

“You need an agent who will be available to you. Someone with too many clients may be spread too thin,” Melton adds.

Sometimes, a successful and busy agent will be juggling so much that they may not honestly have the bandwidth to take on a new client but don’t want to say no. Basically, you want to look for an agent who’s the total package—who knows what they’re doing and can do it for you!

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Zillow’s Zestimate; How accurate is it?  

First of all, what is the Zestimate?

Zillow is using an AVM ( Automated Valuation Model) to come up with your home’s value. AVM’s are a service that can provide real estate property valuations using mathematical modeling combined with a database. Most AVMs calculate a property’s value at a specific point in time by analyzing values of comparable properties. Some also take into account current asking prices, previous surveyor valuations, historical house price movements and user inputs (e.g. number of bedrooms, property improvements, etc.)

An AVM typically includes:

  • An indicative market value (capital value or rental value) for a single residential property.
  • Information on the subject property and recent history of like properties.
  • Comparable sales analysis of like properties.
  • Current like properties being actively marketed.

Besides Zillow, lenders, appraisers and mortgage investors use AVMs in risk management fields, estimating home equity, and quickly coming up with approximate property valuations in a portfolio. Fannie Mae now purchases qualified homes without an appraisal only using and AVM value.

So how accurate are AVM’s and Zillow in particular?

According to Zillows website here is how accurate their off market Value is:

Active listings accuracy:

Here are 3 recent sold properties with the sale price and the Zestimate:

The Zestimate is off from 6 – 9%. Overvalued 2 properties and undervalued 1. According to Zillow itself, their off market valuation is significantly worse then the active listing valuation. That is because they get a lot of help from a real estate brokers listing price to dial in the value.

I don’t doubt that AVM’s will get more accurate in the future, but for now, the Zestimate is only that, an estimate.

If you are going to sell, get a professional Real Estate Brokers price opinion to dial in your homes value.

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How to write a competitive offer  

The current residential real estate market is hectic at best. The inventory of available homes for sale is low. All of this leads to multiple offers on any home that comes to the market.

What can you do to make your offer stand out?

Price: Should you offer more the what the asking price is?

Are homes in your preferred neighborhood selling at list price or above list price?
I will have a current printout of sold homes and where the final pricing of the home was at; i.e. below, at or above the asking price.

Using an Escalation clause:

An escalation clause is a provision added to an offer or counter offer where the buyer offers “X dollars more” than the next highest offer. For example, an offer that states, “The purchase price shall be $1,000 higher than any other offer,” contains an escalation clause. The escalation clause allows the buyer to make the highest offer but only by the minimal amount necessary to beat out other offers.

Here is a more in depth explanation.

Financing

Cash offer: The cash offer used to hold more weight, but today, with pre-approved buyers, conventional offers can be just as competitive as cash. Cash offers have to come in just as attractive to sellers as conventional offers.

Offers utilizing a Mortgage: Having a Pre-Approval letter to go along with your offer is an absolute must if you are going to utilize a loan to buy the property.

Generally, these are the types of letters from a lender that you can get:

  • Pre-Qualified Letter: When you prequalify for a home loan, you’re getting an estimate of what you might be able to borrow, based on information you provide about your finances, as well as a credit check.
  • Pre-Approval Letter: Preapproval is as close as you can get to confirming your creditworthiness without having a purchase contract in place. You will complete a mortgage application and the lender will verify the information you provide. To get pre-approved you’ll need proof of assets and income, good credit, employment verification, and other types of documentation your lender may require.
  • Fully Underwritten Pre-Approval: Pre-underwriting essentially takes the promise of a pre-approval a step further. With this, the mortgage company has already vetted your financials and agreed to give you a mortgage up to a specified price. This time, it is a guarantee. By the time you submit an offer on your home of choice, you’ll have already cleared any conditions that the mortgage company may have and they’ll have given you a firm commitment letter.

Appraisal contingency

What is an appraisal contingency? : A contingency in a real estate contract is a condition that must be met before closing on a home purchase. The appraisal contingency is a primary contingency that’s included to protect the buyer if the appraisal amount comes in lower than the purchase price.

If the buyer is committed to purchasing a particular house and waiving the contingency could seal the deal, then a waiver could be reasonable.

Waiving the appraisal contingency does not mean there won’t be a home appraisal done, there will be by your lender. Waiving the contingency means that you will be responsible for any difference between the appraisal and the sold price.

An example: The offer on a home is $750,000 and the home appraises for $725,000. In order to close the loan you will have to make up the $25,000 difference if you waived the appraisal contingency.

Inspections

There are a variety of inspections to be done: termite, home inspection, and roof inspections are the most common. The purchase offer calls for 17 days to get these done. The time line to get them done can be shortened to 10 days or 7 days.

Inspections can be waived and done for information purposes only. Any problems found you will deal with after the close of escrow.

Occupancy or when will you take possession of the home

Sometimes the seller needs a few weeks to move out of the home. Asking for immediate possession may be a negative. This is where a good real estate agent can talk to the seller’s agent and find out what the seller needs in an offer. An example on how to use this, you can offer to let the seller stay in the home for 2 weeks rent free to sweeten the offer

Earnest Money Deposit

Read about earnest money here.

Increasing the earnest money deposit to 4% or 5% of the purchase price or more is a way to get the seller’s attention and show the seller how serious you are.

You can make the earnest money deposit non-refundable if you do not close the deal.

There are pros and cons to using these tactics and it all depends on you and your situation as to which ones to use or not use.

If you would like help from a professional real estate broker in this hectic market contact me directly.

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