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HOME BUYING FREQUENTLY ASKED QUESTIONS
Why do I need an attorney when buying a home?
Buying or selling a home is one of the most important financial endeavors that most individuals will undertake during their lifetime. It is important that you fully understand what your legal obligations are and have a knowledgeable attorney to advocate for and represent you should you need to negotiate with the other parties to the transaction.
Furthermore, your attorney will conduct/ review your title search and issue title insurance commitments and policies for your transaction. In the State of Connecticut, title insurance may only be issued by a licensed attorney. Grassette & Associates is a licensed title agent for Stewart Title Guaranty and Connecticut Attorney’s Title Company.
In most cases, your lender will require that an attorney act as representative to the lender in acting as Settlement Agent. A Settlement Agent is responsible for preparing a final closing statement, assisting in the execution of loan documents, and distribution of loan proceeds. In most circumstances, your personal attorney will also act as Settlement Agent for your lender. It is important when selecting an attorney to ensure that your attorney is approved with your lending institution. Grassette & Associates is approved to work with many of the brokers, lender, and banks commonly used by home purchasers.
What is a Title Search?
A title search is a search of the land records conducted regarding the property being purchased. A title search will reveal all liens, encumbrances, easements, restrictions, covenants, and possible title defects that will affect your property. The Seller’s attorney is typically responsible for clearing all liens on title and providing the Buyer with clear title to the property. As your attorney, Grassette & Associates will make sure you receive clear and marketable title to your property unless otherwise negotiated. Failure to properly remove encumbrances from title can result in a new owner paying for the financial mistakes of the Seller. Grassette & Associates has handled thousands of title issues from small every day occurrences to major title defects and successfully helped our clients to receive clear title.
What is Title Insurance?
Everyone knows life is unpredictable. Because of this, we oftentimes purchase coverage for unexpected events such as homeowner’s insurance, car insurance, life insurance or health insurance. Most people even purchase warranties on parts or products that they buy as a way to protect themselves financially from a loss.
Title insurance is a one-time fee that can protect your ownership of your property for the duration of time that you own the property. This premium is paid at closing and is a relatively low-cost investment that offers a high return in the form of peace of mind. There are two main types of title insurance: Lender’s Title Insurance and Owner’s Title Insurance.
Owner’s Title Insurance- provides coverage for the titled owner to the property against any future claims made against their ownership interest in the property. Even the most careful search of public records may not disclose some of the most dangerous threats to home ownership. Common title claims include:
- Forged deeds, mortgages, satisfactions or releases;
- Capacity/ Authority issues regarding the Grantor/Signor of a document;
- Unrecorded claims or interests against the property such as mechanic’s liens and adverse possession claims;
- Errors or deficiencies in recorded legal documents; and
- Pre-existing violation of zoning and building ordinances, covenants and restrictions, and subdivision mapping laws.
Lender’s Title Insurance- provides coverage for your lender’s security interest position on title. This ensures that should the lender need to foreclose and take over the property, that their ownership interest shall be good and allow resale. Lenders provide loan proceeds in exchange for certain rights to your property. Should you default on a loan, a lender has the legal right to foreclose on your property and take ownership of the property for satisfaction of your unpaid debt. Nearly all lenders mandate that Lender’s Title Insurance be purchased by a homebuyer/borrower as a condition of obtaining a loan from their institution.
Unlike all of the other types of insurance policies referenced above, title insurance is a one-time payment. The one-time payment at closing is the only title insurance payment you will need to make in order to maintain your coverage. If you choose to refinance your existing mortgage you will be required to purchase an updated lender’s title policy at that time, usually at a discounted rate. Further, title insurance is relatively inexpensive in comparison with the potential savings it can afford should a claim be required to preserve an interest in the property.
How long does this process take?
The process from the time you receive an accepted offer to receiving keys in-hand can vary from two weeks to six months, or longer, depending on the circumstances surrounding the transaction. The typical duration from contract to closing is roughly 2 months; however, this time frame is based largely on how long inspection negotiations take, lender guidelines, your particular loan product, and seller circumstances such as a short sale or probate issues. It is important to work with a dedicated real estate attorney, such as those at Grassette & Associates, in order to allow your attorney to help you to plan and prepare for the timeline of your individual transaction.
What will happen at the closing?
In accordance with the good funds laws applicable in most states, all funds for closing must be cleared and available in the attorney’s escrow account at the time of closing. On or before the day of closing, you will wire any necessary funds from you, the buyer, into your attorney’s escrow account. Another option, depending on the circumstances surrounding the closing, is for your attorney to direct proceeds to be conveyed via bank or cashier’s check. Personal checks are almost never acceptable as the parties are unable to rely on the availability of funds.
On the day of closing, you, your attorney, your real estate agent, as well as the seller of the property, along with their attorney and agent will meet at a time and place that is convenient for all parties to sign documents and exchange all pertinent money, keys, and documents. Your attorney will review every document you sign and provide you with a clear, concise explanation of each document. Your attorney will then handle the exchange of documents and money with the other parties to the transaction. Barring any unforeseen issues or closing delays such as a delay in funding or moving issues, when you leave the closing table you can access the property and begin experiencing the joys of homeownership.
What happens if we cannot close on the contract closing date?
In the State of Connecticut, parties to a contract have a reasonable time to close after the contract closing date, unless otherwise specified in the Contract. If a party is unable to meet the closing date, they can typically request an extension from the buyer/seller to set a future date for the closing. A penalty is not usually imposed against the party requesting the extension unless the parameters for said penalty are outlined in the contract or if the contract states the closing date as “time is of the essence.” If the contract lists the closing date as “time is of the essence,” a delay in closing will need to be addressed differently and should be prevented at all costs.
HOW MANY STEPS TO YOUR NEW FRONT DOOR - HOME BUYING TIMELINE
The attorneys at Grassette & Associates understand the anxieties and uncertainties that may surround purchasing a new home. Our firm is dedicated to alleviating as much stress in the process as possible by always being available to answer questions, meeting you at the location which is most convenient, and keeping everyone fully informed throughout the process. As the primary practice area for the firm, having handled thousands of real estate transactions, we possess the extensive knowledge and experience necessary to navigate the complexities of buying a home.
Customary Steps Are:
1. Speak with an attorney regarding your potential purchase.
2. Become pre-approved for a loan with a lending institution.
3. Begin shopping for a home with your realtor.
4. Submit an offer to purchase the property.
5. Request for your Grassette & Associates attorney to review your contract and draft any additional accompanying documents to the Seller’s attorney or agent.
6. Have a home inspection done on the property to allow for negotiation with the Seller for any necessary repairs or credits.
7. Provide your lender with all necessary documentation to secure loan approval.
8. Once your loan is cleared to close by your lender, a closing date and time will be finalized.
9. The closing will take place with your attorney, documents and money will be reviewed, and you will receive the keys to your new home!
GLOSSARY OF TERMS
"A" Loan or "A" Paper: a credit rating where the FICO score is 660 or above. There have been no late mortgage payments within a 12-month period. This is the best credit rating to have when entering into a new loan.
ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the change in monthly payment amount, however, is usually subject to a cap.
Abstract of Title: documents recording the ownership of property throughout time.
Acceptance: the written approval of the buyer's offer by the seller.
Affidavit: a signed, sworn statement made by the buyer or seller regarding the truth of information provided.
Amenity: a feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).
Annual Percentage Rate (APR): a measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage.
Application: the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process
Appraised Value: an estimation of the current market value of a property.
Appraiser: a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
As-is Condition: the purchase or sale of a property in its existing condition without repairs.
Assessor: a government official who is responsible for determining the value of a property for the purpose of taxation.
Balloon Payment: the final lump sum payment due at the end of a balloon mortgage.
Biweekly Payment Mortgage: a mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.
Borrower: a person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
Broker: a licensed individual or firm that charges a fee to serve as the mediator between the buyer and seller. Mortgage brokers are individuals in the business of arranging funding or negotiating contracts for a client, but who does not loan the money. A real estate broker is someone who helps find a house.
Buy Down: the seller pays an amount to the lender so the lender provides a lower rate and lower payments many times for an ARM. The seller may increase the sales price to cover the cost of the buy down.
Capital or Cash Reserves: an individual's savings, investments, or assets.
Clear Title: a property title that has no defects. Properties with clear titles are marketable for sale.
Closing: the final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. At the closing the seller receives payment for the property. Also known as settlement.
Closing Costs: fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes. A common estimate of a Buyer's closing costs is 2 to 4 percent of the purchase price of the home. A common estimate for Seller's closing costs is 3 to 9 percent.
Cloud On The Title: any condition which affects the clear title to real property.
Co-Borrower: an additional person that is responsible for loan repayment and is listed on the title.
Co-Signer: a person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.
Collateral: security in the form of money or property pledged for the payment of a loan. For example, on a home loan, the home is the collateral and can be taken away from the borrower if mortgage payments are not made.
Commission: an amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction. Traditionally the home seller pays the commission. The amount of commission is determined by the real estate professional and the seller and can be as much as 6% of the sales price.
Comparative Market Analysis (COMPS): a property evaluation that determines property value by comparing similar properties sold within the last year.
Condominium: a form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. The owner also shares financial responsibility for common areas.
Contingency: a clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed. Both, buyer or seller may include contingencies in a contract, but both parties must accept the contingency.
Conventional Loan: a private sector loan, one that is not guaranteed or insured by the U.S. government.
Covenants: legally enforceable terms that govern the use of property. These terms are transferred with the property deed. Discriminatory covenants are illegal and unenforceable. Also known as a condition, restriction, deed restriction or restrictive covenant.
Credit Report: a report generated by the credit bureau that contains the borrower's credit history for the past seven years. Lenders use this information to determine if a loan will be granted
Credit Score: a score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360 - 840: a lower score meaning a person is a higher risk, while a higher score means that there is less risk.
Debtor: The person or entity that borrows money. The term debtor may be used interchangeably with the term borrower.
Debt-to-Income Ratio: a comparison or ratio of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.
Deed: a document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner's signature. Also known as the title.
Default: the inability to make timely monthly mortgage payments or otherwise comply with mortgage terms. A loan is considered in default when payment has not been paid after 60 to 90 days. Once in default the lender can exercise legal rights defined in the contract to begin foreclosure proceedings
Deposit (Earnest Money): money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.
Down Payment: the portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference of the sale price and the actual mortgage loan amount. Mortgage insurance is required when a down payment less than 20 percent is made.
Due on Sale Clause: a provision of a loan allowing the lender to demand full repayment of the loan if the property is sold.
Easements: the legal rights that give someone other than the owner access to use property for a specific purpose. Easements may affect property values and are sometimes a part of the deed.
EEM: Energy Efficient Mortgage; an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase
Encroachments: a structure that extends over the legal property line on to another individual's property. The property surveyor will note any encroachment on the lot survey done before property transfer. The person who owns the structure will be asked to remove it to prevent future problems.
Encumbrance: anything that affects title to a property, such as loans, leases, easements, or restrictions.
Equity: an owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loon(s)from the fair market value of the property.
Escrow: funds held in an account to be used by the lender to pay for home insurance and property taxes. The funds may also be held by a third party until contractual conditions are met and then paid out.
Escrow Account: a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.
Estate: the ownership interest of a person in real property. The sum total of all property, real and personal, owned by a person.
Exclusive Listing: a written contract giving a real estate agent the exclusive right to sell a property for a specific timeframe.
FSBO (For Sale by Owner): a home that is offered for sale by the owner without the benefit of a real estate professional.
Fair Market Value: : the hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
Fannie Mae: Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. Also known as a Government Sponsored Enterprise (GSE).
FHA: Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.
First Mortgage: the mortgage with first priority if the loan is not paid.
Fixed-Rate Mortgage: a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
Fixture: personal property permanently attached to real estate or real property that becomes a part of the real estate.
Forbearance: a lender may decide not to take legal action when a borrower is late in making a payment. Usually this occurs when a borrower sets up a plan that both sides agree will bring overdue mortgage payments up to date.
Foreclosure: a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower. Foreclosure laws are based on the statutes of each state.
Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers. Also known as a Government Sponsored Enterprise (GSE).
Good Faith Estimate: an estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.
Grantee: an individual to whom an interest in real property is conveyed.
Grantor: an individual conveying an interest in real property.
Gross Income: money earned before taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.
Hazard Insurance: protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.
Home Equity Line of Credit: a mortgage loan, usually in second mortgage, allowing a borrower to obtain cash against the equity of a home, up to a predetermined amount.
Home Equity Loan: a loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.
Home Inspection: an examination of the structure and mechanical systems to determine a home's quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.
Home Warranty: offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure.
Homeowner's Insurance: an insurance policy, also called hazard insurance, that combines protection against damage to a dwelling and its contents including fire, storms or other damages with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is generally not included in standard policies and must be purchased separately.
HUD: the U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.
HUD1 Statement: also known as the "settlement sheet," or "closing statement" it itemizes all closing costs; must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, points, and escrow amounts.
Indemnification: to secure against any loss or damage, compensate or give security for reimbursement for loss or damage incurred. A homeowner should negotiate for inclusion of an indemnification provision in a contract with a general contractor or for a separate indemnity agreement protecting the homeowner from harm, loss or damage caused by actions or omissions of the general (and all sub) contractor.
Index: the measure of interest rate changes that the lender uses to decide how much the interest rate of an ARM will change over time. No one can be sure when an index rate will go up or down. If a lender bases interest rate adjustments on the average value of an index over time, your interest rate would not be as volatile. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.
Interest: a fee charged for the use of borrowing money.
Interest Rate: the amount of interest charged on a monthly loan payment, expressed as a percentage.
Joint Tenancy (with Rights of Survivorship): two or more owners share equal ownership and rights to the property. If a joint owner dies, his or her share of the property passes to the other owners, without probate. In joint tenancy, ownership of the property cannot be willed to someone who is not a joint owner.
Lease: a written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period of time.
Lease Purchase (Lease Option): assists low to moderate income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.
Lender: A term referring to an person or company that makes loans for real estate purchases. Sometimes referred to as a loan officer or lender.
Lien: a legal claim against property that must be satisfied when the property is sold. A claim of money against a property, wherein the value of the property is used as security in repayment of a debt. Examples include a mechanic's lien, which might be for the unpaid cost of building supplies, or a tax lien for unpaid property taxes. A lien is a defect on the title and needs to be settled before transfer of ownership. A lien release is a written report of the settlement of a lien and is recorded in the public record as evidence of payment.
Lien Waiver: A document that releases a consumer (homeowner) from any further obligation for payment of a debt once it has been paid in full. Lien waivers typically are used by homeowners who hire a contractor to provide work and materials to prevent any subcontractors or suppliers of materials from filing a lien against the homeowner for nonpayment.
Line of Credit: an agreement by a financial institution such as a bank to extend credit up to a certain amount for a certain time to a specified borrower.
Loan Fraud: purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.
Loan Officer: a representative of a lending or mortgage company who is responsible for soliciting homebuyers, qualifying and processing of loans. They may also be called lender, loan representative, account executive or loan rep.
Loan Origination Fee: a charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent of the mortgage amount is common.
Loan Servicer: the company that collects monthly mortgage payments and disperses property taxes and insurance payments. Loan servicers also monitor nonperforming loans, contact delinquent borrowers, and notify insurers and investors of potential problems. Loan servicers may be the lender or a specialized company that just handles loan servicing under contract with the lender or the investor who owns the loan.
Loan to Value (LTV) Ratio: a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.
Market Value: the amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.
Mortgage: a lien on the property that secures the Promise to repay a loan. A security agreement between the lender and the buyer in which the property is collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.
Mortgage Acceleration Clause: a clause allowing a lender, under certain circumstances, demand the entire balance of a loan is repaid in a lump sum. The acceleration clause is usually triggered if the home is sold, title to the property is changed, the loan is refinanced or the borrower defaults on a scheduled payment.
Mortgage Insurance: a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. Insurance purchased by the buyer to protect the lender in the event of default. Typically purchased for loans with less than 20 percent down payment. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is maintained on conventional loans until the outstanding amount of the loan is less than 80 percent of the value of the house or for a set period of time (7 years is common). Mortgage insurance also is available through a government agency, such as the Federal Housing Administration (FHA) or through companies (Private Mortgage Insurance or PMI).
Mortgage Insurance Premium (MIP): a monthly payment -usually part of the mortgage payment - paid by a borrower for mortgage insurance.
Mortgagee: the lender in a mortgage agreement. Mortgagor - The borrower in a mortgage agreement.
Mortgagor: the borrower in a mortgage agreement
Multiple Listing Service (MLS): within the Metro Columbus area, Realtors submit listings and agree to attempt to sell all properties in the MLS. The MLS is a service of the local Columbus Board of Realtors?. The local MLS has a protocol for updating listings and sharing commissions. The MLS offers the advantage of more timely information, availability, and access to houses and other types of property on the market.
Offer: indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.
Owner Financing: a home purchase where the seller provides all or part of the financing, acting as a lender.
Ownership: ownership is documented by the deed to a property. The type or form of ownership is important if there is a change in the status of the owners or if the property changes ownership.
Owner's Policy: the insurance policy that protects the buyer from title defects.
PITI:Principal, Interest, Taxes, and Insurance: the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.
PITI Reserves: a cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.
PMI: Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.
Personal Property: any property that is not real property or attached to real property. For example furniture is not attached however a new light fixture would be considered attached and part of the real property.
Planned Unit Development (PUD): a development that is planned, and constructed as one entity. Generally, there are common features in the homes or lots governed by covenants attached to the deed. Most planned developments have common land and facilities owned and managed by the owner's or neighborhood association. Homeowners usually are required to participate in the association via a payment of annual dues.
Points: a point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $95,000, one point means you pay $950 to the lender. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages in order to increase the yield on the mortgage and to cover loan closing costs. These points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.
Power of Attorney: a legal document that authorizes another person to act on your behalf. A power of attorney can grant complete authority or can be limited to certain acts or certain periods of time or both.
Pre-Approval: a lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
Predatory Lending: abusive lending practices that include a mortgage loan to someone who does not have the ability to repay. It also pertains to repeated refinancing of a loan charging high interest and fees each time.
Prepayment: any amount paid to reduce the principal balance of a loan before the due date or payment in full of a mortgage. This can occur with the sale of the property, the pay off the loan in full, or a foreclosure. In each case, full payment occurs before the loan has been fully amortized.
Prepayment Penalty: a provision in some loans that charge a fee to a borrower who pays off a loan before it is due.
Promissory Note: a written promise to repay a specified amount over a specified period of time.
Property Tax: a tax charged by local government and used to fund municipal services such as schools, police, or street maintenance. The amount of property tax is determined locally by a formula, usually based on a percent per $1,000 of assessed value of the property.
Quitclaim Deed: a deed transferring ownership of a property but does not make any guarantee of clear title.
RESPA: Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships
Radon: a radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.
Real Estate Agent: an individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.
Real Property: land, including all the natural resources and permanent buildings on it.
REALTOR?: a real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS, and its local and state associations.
Recording Fees: charges for recording a deed with the appropriate government agency.
Reverse Mortgage (HECM): the reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.
Sale Leaseback: when a seller deeds property to a buyer for a payment, and the buyer simultaneously leases the property back to the seller.
Settlement: another name for closing.
Settlement Statement: a document required by the Real Estate Settlement Procedures Act (RESPA). It is an itemized statement of services and charges relating to the closing of a property transfer. The buyer has the right to examine the settlement statement 1 day before the closing. This is called the HUD 1 Settlement Statement.
Survey: a property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc. Surveys are conducted by licensed surveyors and are normally required by the lender in order to confirm that the property boundaries and features such as buildings, and easements are correctly described in the legal description of the property.
Title Company: a company that specializes in examining and insuring titles to real estate.
Title Defect: an outstanding claim on a property that limits the ability to sell the property. Also referred to as a cloud on the title.
Title Insurance: insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. An insurance policy guaranteeing the accuracy of a title search protecting against errors. Most lenders require the buyer to purchase title insurance protecting the lender against loss in the event of a title defect. This charge is included in the closing costs. A policy that protects the buyer from title defects is known as an owner's policy and requires an additional charge.
Title Search: a check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.
Transfer of Ownership: any means by which ownership of a property changes hands. These include purchase of a property, assumption of mortgage debt, exchange of possession of a property via a land sales contract or any other land trust device.
Truth-in-Lending: a federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.
Underwriting: the process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.
Up Front Charges: the fees charged to homeowners by the lender at the time of closing a mortgage loan. This includes points, broker's fees, insurance, and other charges.
VA (Department of Veterans Affairs): a federal agency, which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.
VA Mortgage: a mortgage guaranteed by the Department of Veterans Affairs (VA).
Walk Through: the final inspection of a property being sold by the buyer to confirm that any contingencies specified in the purchase agreement such as repairs have been completed, fixture and non-fixture property is in place and confirm the electrical, mechanical, and plumbing systems are in working order.
Warranty Deed: a legal document that includes the guarantee the seller is the true owner of the property, has the right to sell the property and there are no claims against the property.
Zoning: local laws established to control the uses of land within a particular area. Zoning laws are used to separate residential land from areas of non-residential use, such as industry or businesses. Zoning ordinances include many provisions governing such things as type of structure, setbacks, lot size, and uses of a building.
KNOW YOUR CLOSING COSTS
The following is a list of the most likely fees to be paid by you out of your closing:
- Origination fee to the lender
- Credit Report – if not already paid
- Appraisal – if not already paid
- Flood Certification
- Interest from the closing date through the end of the month
- Home owners insurance – if not already paid
- New Escrow Account Cushion – if escrowing taxes and homeowners insurance
- Upcoming real estate tax installment – if within 60 days of the next tax due date
- Settlement Fee for Attorney
- Title Search Fee
- Owners Title Insurance
- Lenders Title Insurance
- Recording Fees for documents to be recorded on land records
- Adjustments to Seller for taxes, sewer, and oil already paid in advance
While this list may seem overwhelming, the majority of these fees have already been accounted for by your lender when they issued a Good Faith Estimate and will not be a surprise.
Stewart Title Guaranty
First American Title Insurance Company
Connecticut Attorney’s Title Insurance Company
Title Resources Group
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