Q: What services should a Buyer's Agent be able to provide?
Many years ago, realtors exclusively represented sellers in a real estate transaction. The term “caveat emptor,” or "let the buyer beware" was the lay of the land. But today more than ever, buyers need the same representation afforded the seller. He/she has a duty to the buyer to show all properties listed by any broker, as well as for sale by owners (FSBOs), foreclosures, short sales and properties for sale that for one reason or another, are not currently listed on the Multiple Listing Service (MLS).
More than likely, the first stop for buyers is the internet, and it’s a great way to start. But soon it will be time to go deeper into deciding your true wants and needs, and narrowing down that huge number of properties you feel could be the “perfect home.” What about schools, crime, traffic, access to retail and services?
Q: Can you help me buy a new home from a builder?
If you’re considering new construction, it still pays to work with a realtor, because there are still negotiations that will take place, for which you will need to be represented by someone who will protect your interests. As with any private seller’s buyer-broker relationship, it costs nothing for you to get personal, professional representation. In this case, it’s the builder who pays the commission fees to the buyer’s realtor
Q: Can you help me with homes for sale by owner?
In today’s market, there are many home sellers trying to sell their own homes, since profit margins are thin, and they hope to save the realtor fee for selling their property. However, more often than not, it’s a real estate agent that brings a buyer in to look at the property. And, as is the case with builders or private sellers represented by an agent, you will need that negotiating power and knowledge that a buyer’s realtor can bring to bear.
Q: How do I know if I'm ready to buy a home -- how much home can I afford?
Take a time out, put the kids to bed, and (if applicable) sit down with your significant other and start by asking yourself some questions:
• Do I have a steady source of income – and that’s either a paycheck from your employer or, if you’re self-employed, a solid record of your earnings (usually an IRS 1099 form).
• How long have I enjoyed this steady income? Two or three years is an excellent track record to validate that your income is reliable.
• How’s my record when it comes to paying bills on time?
• What about outstanding long-term debt? A few loans or a few too many? Car payments, revolving credit on large purchases. Consider your “must pay” monthly payments and take them into account
• Do I have the ability to pay a mortgage every month, plus additional costs?
• How much in savings do I have to make a down payment?
If you answered “yes” to these questions, read on. There’s some very basic information you’ll need to get you started.
Q: How do I begin the process of buying a home?
Assess the situation. If you answered “yes” to the above financial questions, start by thinking the physical aspects. How much space do you need? What areas of town do you like? Make a list and start doing some online research. Maybe consult with friends and family, troll through some neighborhoods and see what jumps out at you.
Q: How does purchasing a home compare with renting?
Renting is great way to avoid maintenance costs, and a good short term solution. For example, if you’ve just moved to a new city and want to get a feel for the place, and you’re not ready to commit to one neighborhood, perhaps due to your job location. But there is no tax advantage for mortgage interest paid, and rents can increase at the end of a lease term. You could be faced with making an unwanted move at an inconvenient time.
By owning a home and making those mortgage payments, and you’re building equity. It’s not just a place to hang your hat, it’s an investment. In investment that affords you freedom, stability and security, not to mention, pride of ownership.
Q: How does the lender decide the maximum loan amount that can afford?
The lender going to look at your debt-to-income ratio. It’s a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include: long-term debts like car or student loan payments, alimony, child support. A good rule of thumb is that your mortgage payments should be no more than 29% of your gross income. Your lender will also consider how much cash you have available for the down payment and closing costs, and your credit history, when determining the maximum loan amount they will provide.
Q: How do I select the right real estate agent?
Start by asking people you trust, like family, friends, co-workers. Start a list of agents and talk to each one, and get a feel for the culture of their firm before make your choice. Your agent should have intimate knowledge of the local area. Most of all, you need to feel comfortable. You’re going on a journey together, so the relationship is about trust, comfort level, and whether or not you “click.” They’re not just your agent, they are your partner.
Q: How can I determine my housing needs before I begin the search?
For a place to fit the way you live, the spaces, features, common areas, amenities should appeal to the whole family. Before you even begin the search, sit down with your realtor and make priorities. The two big ones will be location and size. But look deeper: schools, job, public transportation, amenities. There are “must-haves” and there are “nice-to-haves” that are nice, but not essential. Know the difference. Recognize what the minimum requirements are, and then decide if you can include the items on your wish list.
Q: How can I find out about local schools?
Your Bloom Realty agent will get you all the information and options you need to make the most informed decisions about local public and private elementary, middle and high schools. We can even help you with researching daycare facilities in the area.
Q: How can I find out how much homes are selling for in certain communities and neighborhoods?
Your realtor will give you a good average by showing you comparable listings, often referred to as Comparable Market Analysis (CMA) reports. If you are working with a real estate professional, they should provide these as part of their menu of services.
Q: How can I find information on the property tax liability?
Usually the amount of the previous year's property taxes is usually included in the listing information. If it's not, your realtor will request tax receipts from the seller, or contact the local assessor's off ice. Tax rates can change from year to year, so you there is no guarantee that this year’s taxes will be the same as last year’s.
Q: What other tax issues should I take into consideration?
The good news is that mortgage interest and real estate taxes will be deductible from your Federal income taxes. There are other tax issues that can get complicated, so it’s wise to consult with your Bloom Realty agent who can give you more details on other tax benefits and liabilities.
Q: Is an older home a better value than a new one?
No definite answer here. You should look at each home for its individual characteristics. Generally, older homes may be in more established neighborhoods, offer more ambiance, and have lower property tax rates. People who buy older homes, however, shouldn't mind maintaining their home and making some repairs. Newer homes tend to use more modern architecture and systems, are usually easier to maintain, and may be more energy-efficient. People who buy new homes often don't want to worry initially about upkeep and repairs.
Q: What should I look for when walking through a home?
In addition to comparing the home to your minimum requirement and wish lists, use the HUD Home Scorecard and consider the following:
• Is there enough room for both the present and the future?
• Are there enough bedrooms and bathrooms?
• Is the house structurally sound?
• Do the mechanical systems and appliances work?
• Is the yard big enough?
• Do you like the floor plan?
• Will your furniture fit in the space? Is there enough storage space? (Bring a tape measure to better answer these questions.)
• Does anything need to repaired or replaced? Will the seller repair or replace the items?
• Imagine the house in good weather and bad, and in each season. Will you be happy with it year-round?
Take your time and think carefully about each house you see. Ask your real estate agent to point out the pros and cons of each home from a professional standpoint.
Q: What questions should I ask when looking at homes?
Many of your questions should focus on potential problems and maintenance issues. Does anything need to be replaced? What things require ongoing maintenance (e.g., paint, roof, HVAC, appliances, carpet)? Also ask about the house and neighborhood, focusing on quality of life issues. Be sure the seller's or real estate agent's answers are clear and complete. Ask questions until you understand all of the information they've given. Making a list of questions ahead of time will help you organize your thoughts and arrange all of the information you receive. The HUD Home Scorecard can help you develop your question list.
Q: How can I keep track of all the homes I see?
If possible, take photographs of each house: the outside, the major rooms, the yard, and extra features that you like or ones you see as potential problems. And don't hesitate to return for a second look. Use the HUD Home Scorecard to organize your photos and notes for each house.
Q: How many homes should I consider before choosing one?
There isn't a set number of houses you should see before you decide. Visit as many as it takes to find the one you want. On average, homebuyers see 15 houses before choosing one. Just be sure to communicate often with your real estate agent about everything you're looking for. It will help avoid wasting your time.
Q: What does a home inspector do, and how does an inspection figure in the purchase of a home?
An inspector checks the safety of your potential new home. Home Inspectors focus especially on the structure, construction, and mechanical systems of the house and will make you aware of only repairs, that are needed.
The Inspector does not evaluate whether or not you're getting good value for your money. Generally, an inspector checks (and gives prices for repairs on): the electrical system, plumbing and waste disposal, the water heater, insulation and Ventilation, the HVAC system, water source and quality, the potential presence of pests, the foundation, doors, windows, ceilings, walls, floors, and roof. Be sure to hire a home inspector that is qualified and experienced.
It's a good idea to have an inspection before you sign a written offer since, once the deal is closed, you've bought the house as is." Or, you may want to include an inspection clause in the offer when negotiating for a home. An inspection t clause gives you an 'out" on buying the house if serious problems are found, or gives you the ability to renegotiate the purchase price if repairs are needed. An inspection clause can also specify that the seller must fix the problem(s) before you purchase the house.
Q: Do I need to be there for the inspection?
It's not required, but it's a good idea. Following the inspection, the home inspector will be able to answer questions about the report and any problem areas. This is also an opportunity to hear an objective opinion on the home you'd I like to purchase and it is a good time to ask general, maintenance questions.
Q: Are other types of inspections required?
If your home inspector discovers a serious problem a more specific Inspection may be recommended. It's a good idea to consider having your home inspected for the presence of a variety of health-related risks like radon gas asbestos, or possible problems with the water or waste disposal system.
Q: How can I protect my family from lead in the home?
If the house you're considering was built before 1978 and you have children under the age of seven, you will want to have an inspection for lead-based point. It's important to know that lead flakes from paint can be present in both the home and in the soil surrounding the house. The problem can be fixed temporarily by repairing damaged paint surfaces or planting grass over effected soil. Hiring a lead abatement contractor to remove paint chips and seal damaged areas will fix the problem permanently.
Q: Do I need a lawyer to buy a home?
Laws vary by state. Some states require a lawyer to assist in several aspects of the home buying process while other states do not, as long as a qualified real estate professional is involved. Even if your state doesn't require one, you may want to hire a lawyer to help with the complex paperwork and legal contracts. A lawyer can review contracts, make you aware of special considerations, and assist you with the closing process. Your real estate agent may be able to recommend a lawyer. If not, shop around. Find out what services are provided for what fee, and whether the attorney is experienced at representing homebuyers.
Q: Do I really need homeowner's insurance?
Yes. A paid homeowner's insurance policy (or a paid receipt for one) is required at closing, so arrangements will have to be made prior to that day. Plus, involving the insurance agent early in the home buying process can save you money. Insurance agents are a great resource for information on home safety and they can give tips on how to keep insurance premiums low.
Q: What steps could I take to lower my homeowner's insurance costs?
Be sure to shop around among several insurance companies. Also, consider the cost of insurance when you look at homes. Newer homes and homes constructed with materials like brick tend to have lower premiums. Think about avoiding areas prone to natural disasters, like flooding. Choose a home with a fire hydrant or a fire department nearby.
Q: Is the home located in a flood plain?
Your real estate agent or lender can help you answer this question. If you live in a flood plain, the lender will require that you have flood insurance before lending any money to you. But if you live near a flood plain, you may choose whether or not to get flood insurance coverage for your home. Work with an insurance agent to construct a policy that fits your needs.
Q: What other issues should I consider before I buy my home?
Always check to see if the house is in a low-lying area, in a high-risk area for natural disasters (like earthquakes, hurricanes, tornadoes, etc.), or in a hazardous materials area. Be sure the house meets building codes. Also consider local zoning laws, which could affect remodeling or making an addition in the future. Your real estate agent should be able to help you with these questions.
Q: How do I make an offer?
Your real estate agent will assist you in making an offer, which will include the following information:
• Complete legal description of the property
• Amount of earnest money
• Down payment and financing details
• Proposed move-in date
• Price you are offering
• Proposed closing date
• Length of time the offer is valid
• Details of the deal
Remember that a sale commitment depends on negotiating a satisfactory contract with the seller, not just Making an offer.
Other ways to lower ins-insurance costs include insuring your home and car(s) with the same company, increasing home security, and seeking group coverage through alumni or business associations. Insurance costs are always lowered by raising your deductibles, but this exposes you to a higher out-of-pocket cost if you have to file a claim.
Q: What is earnest money? How much should I set aside?
Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal, you may forfeit the entire amount.
Q: What are "home warranties", and should I consider them?
Home warranties offer you protection for a specific period of time (e.g., one year) against potentially costly problems, like unexpected repairs on appliances or home systems, which are not covered by homeowner's insurance. Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home, a time when many people find themselves cash-strapped.
Q: First things First. What is a Mortgage?
Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.
Q: What is a loan to value (LTV) how does it determine the size of my loan?
The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay, $2,500 as a down payment.
The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy.
Q: What types of loans are available and what are the advantages of each?
Several. Here’s a breakdown.
• Fixed Rate Mortgages: Usually 15-year or 30-year loans wherein the payments remain the same for the the life of the loan. Advantages: Predictable. Housing cost remains unaffected by interest rate changes and inflation.
• Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates or specific indices (S&P 500, for example). These rates are capped, and there are Two major categories of ARMs
• Balloon Mortgage: Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically)
• Two-Step Mortgage: Interest rate adjusts only once and remains the same for the life of the loan. They offer generally offer lower initial interest rates and may allow borrower to qualify for a larger loan amount
Q: When do ARMs make sense?
An ARM may make sense If you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates.
Q: What are the advantages of 15- and 30-year loan terms?
For 30-year loans, in the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions. As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.
On a 15-year loan, the loan is usually made at a lower interest rate. Equity is built faster because early payments pay more principal.
Q: Can I pay off my loan ahead of schedule?
Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details.
Q: Are there special mortgages for first-time homebuyers?
Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities.
Q: How large of a down payment do I need?
There are mortgage options now available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you'll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you'll also need money for closing costs, moving expenses, and - possibly -repairs and decorating.
Q: What is included in a monthly mortgage payment?
The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner's insurance, and mortgage insurance (if applicable).
Q: What factors affect mortgage payments?
The amount of the down payment, the size of the mortgage loan, the interest rate, the length of the repayment term and payment schedule will all affect the size of your mortgage payment.
Q: How does the interest rate factor in securing a mortgage loan?
A lower interest rate allows you to borrow more money than a high rate with the some monthly payment. Interest rates can fluctuate as you shop for a loan, so ask-lenders if they offer a rate "lock-in" which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan.
Q: What happens if interest rates decrease and I have a fixed rate loan?
If interest rates drop significantly, you may want to investigate refinancing. Most experts agree that if you plan to be in your house for at least 18 months and you can get a rate 2% less than your current one, refinancing is smart. Refinancing may, however, involve paying many of the same fees paid at the original closing, plus origination and application fees.
Q: What are discount points?
Discount points allow you to lower your interest rate. They are essentially prepaid interest, With each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or .125) of a percentage point. When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases With each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.
Q: What is an escrow account? Do I need one?
Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner's insurance, mortgage insurance (if applicable), and property taxes. Escrow accounts are a good idea because they assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner's insurance, make sure you are not penalized for late payments since it is the lender's responsibility to make those
Q: What steps need to be taken to secure a loan?
The first step in securing a loan is to complete a loan application. To do so, you'll need the following information.
• Pay stubs for the past 2-3 months
• W-2 forms for the past 2 years
• Information on long-term debts
• Recent bank statements
• tax returns for the past 2 years
• Proof of any other income
• Address and description of the property you wish to buy
• Sales contract
During the application process, the lender will order a report on your credit history and a professional appraisal of the property you want to purchase. The application process typically takes between 1-6 weeks.
Q: How do I choose the right lender for me?
Choose your lender carefully. Look for financial stability and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel comfortable. A lender that has the authority to approve and process your loan locally is preferable, since it will be easier for you to monitor the status of your application and ask questions. Plus, it's beneficial when the lender knows home values and conditions in the local area. Do research and ask family, friends, and your real estate agent for recommendations.
Q: How are pre-qualifying and pre-approval different?
Pre-qualification is an informal way to see how much you maybe able to borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.
Pre-approval is a lender's actual commitment to lend to you. It involves assembling the financial records mentioned in Question 47 (Without the property description and sales contract) and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.
Q: How can I find out information about my credit history?
There are three major credit reporting companies: Equifax, Experian, and Trans Union. Obtaining your credit report is as easy as calling and requesting one. Once you receive the report, it's important to verify its accuracy. Double check the "high credit limit," "total loan," and "past due" columns. It's a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender. Fees, ranging from $5-$20, are usually charged to issue credit reports but some states permit citizens to acquire a free one. Contact the reporting companies at the numbers listed for more information.
CREDIT REPORTING COMPANIES
Q: What if I find a mistake in my credit history?
Simple. Mistakes are easily corrected by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders are usually understanding about legitimate problems.
Q: What is a credit bureau score and how do lenders use them?
A credit bureau score is a number, based upon your credit history, that represents the possibility that you will be unable to repay a loan. Lenders use it to determine your ability to qualify for a mortgage loan. The better the score, the better your chances are of getting a loan. Ask your lender for details.
Q: How can I improve my score?
There are no easy ways to improve your credit score, but you can work to keep it acceptable by maintaining a good credit history. This means paying your bills on time and not overextending yourself by buying more than you can afford.
Q: How do I choose the best loan program for me?
Your personal situation will determine the best kind of loan for you. By asking yourself a few questions, you can help narrow your search among the many options available and discover which loan suits you best.
• Do you expect your finances to changeover the next few years?
• Are you planning to live in this home for a long period of time?
• Are you comfortable with the idea of a changing mortgage payment amount?
• Do you wish to be free of mortgage debt as your children approach college age or as you prepare for retirement?
Your lender can help you use your answers to questions such as these to decide which loan best fits your needs.
Q: What is the best way to compare loan terms between lenders?
First, devise a checklist for the information from each lending institution. You should include the company's name and basic information, the type of mortgage, minimum down payment required, interest rate and points, closing costs, loan processing time, and whether prepayment is allowed.
Speak with companies by phone or in person. Be sure to call every lender on the list the same day, as interest rates can fluctuate daily. In addition to doing your own research, your real estate agent may have access to a database of lender and mortgage options. Though your agent may primarily be affiliated with a particular lending institution, he or she may also be able to suggest a variety of different lender options to you.
Q: Are there any costs or fees associated with the loan origination process?
Yes. When you turn in your application, you'll be required to pay a loan application fee to cover the costs of underwriting the loan. This fee pays for the home appraisal, a copy of your credit report, and any additional charges that may be necessary. The application fee is generally non-refundable.
Q: What is RESPA?
RESPA stands for Real Estate Settlement Procedures Act. It requires lenders to disclose information to potential customers throughout the mortgage process, By doing so, it protects borrowers from abuses by lending institutions. RESPA mandates that lenders fully inform borrowers about all closing costs, lender servicing and escrow account practices, and business relationships between closing service providers and other parties to the transaction.
Q: What is a good faith estimate, and how does it help me?
It's an estimate that lists all fees paid before closing, all closing costs, and any escrow costs you will encounter when purchasing a home. The lender must supply it within three days of your application so that you can make accurate judgments when shopping for a loan.
Q: Besides RESPA, does the lender have any additional responsibilities?
Yes. Lenders are not allowed to discriminate in any way against potential borrowers. If you believe a lender is refusing to provide his or her services to you on the basis of race, color, nationality, religion, sex, familial status, or disability, contact HUD's Office of Fair Housing at 1-800-669-9777 (or 1-800-927-9275 for the hearing impaired).
Q: What responsibilities do I have during the lending process?
To ensure you won't fall victim to loan fraud, be sure to follow all of these steps as you apply for a loan:
• Be sure to read and understand everything before you sign
• Refuse to sign any blank documents.
• Do not buy property for someone else.
• Do not overstate your income.
• Do not overstate how long you have been employed.
• Do not overstate your assets.
• Accurately report your debts.
• Do not change your income tax returns for any reason. Tell the whole truth about gifts. Do not list fake co-borrowers on your loan application.
• Be truthful about your credit problems, past and present.
• Be honest about your intention to occupy the house
• Do not provide false supporting documents.
Q: What happens after I've applied for my loan?
It usually takes a lender between 1-6 weeks to complete the evaluation of your application. Its not unusual for the lender to ask for more information once the application has been submitted. The sooner you can provide the information, the faster your application will be processed. Once all the information has been verified the lender will call you to let you know the outcome of your application. If the loan is approved, a closing date is set up and the lender will review the closing with you. And after closing, you'll be able to move into your new home.
Q: What should I look out for during the final walk-through?
This will likely be the first opportunity to examine the house without furniture, giving you a clear view of everything. Check the walls and ceilings carefully, as well as any work the seller agreed to do in response to the inspection. Any problems discovered previously that you find uncorrected should be brought up prior to closing. It is the seller's responsibility to fix them.
Q: What makes up closing costs?
There may be closing cost customary or unique to a certain locality, but closing cost are usually made up of the following:
• Attorney's or escrow fees (Yours and your lender's if applicable
• Property taxes (to cover tax period to date)
• Interest (paid from date of closing to 30 days before first monthly payment)
• Loan Origination fee (covers lenders administrative cost)
• Recording fees
• Survey fee
• First premium of mortgage Insurance (if applicable)
• Title Insurance (yours and lender's)
• Loan discount points
• First payment to escrow account for future real estate taxes and insurance
• Paid receipt for homeowner's insurance policy (and fire and flood insurance if applicable)
• Any documentation preparation fees
Q: What can I expect to happen on closing day?
You'll present your paid homeowner's insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proofs of any inspection, warranties, etc.
Once you're sure you understand all the documentation, you'll sign the mortgage, agreeing that if you don't make payments the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses. You'll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.
You'll pay the lender's agent all closing costs and, in turn, he or she will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage will then be recorded in the state Registry of Deeds, and you will be a homeowner.
Q: What do I get at closing?
The Settlement Statement, or “HUD-1 Form” itemizes services provided and the fees charged; it is filled out by the closing agent and must be given to you at or before closing. You will also receive:
• Truth-in-Lending Statement
• Mortgage Note
• Mortgage or Deed of Trust
• Binding Sales Contract (prepared by the seller; your lawyer should review it)
• Keys to your new home
Q: What is Mortgage Insurance?
Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It's required primarily for borrowers making a down payment of less than 20%.
Q: How does mortgage insurance work? Is it like home or auto insurance?
Like home or auto insurance, mortgage insurance requires payment of a premium, is for protection against loss, and is used in the event of an emergency. If a borrower can't repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.
Q: Do I need mortgage insurance? How do I get it?
You need mortgage insurance only if you plan to make a down payment of less than 20% of the purchase price of the home. The FHA offers several loan programs that may meet your needs. Ask your lender for details.
Q: What is PMI?
PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMIs usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.