Real Estate Services and Information

1.Why Get Credit Approved?
2. Financial Advisors
3. Lenders
4. Why Get An Appraisal?
5. Home Inspection
6. Warranty And Insurance
7. Escrow Company
8. Glossary of Terms
9. Document Checklist


WHY GET CREDIT APPROVED?

Getting a pre-qualification letter might not be enough these days. Often times the Bank can sadly change their approval if you have not provided them with comprehensive information needed to complete a specific mortgage program. Conditions could occur that might disqualify you partially or entirely (i.e. Low appraisal, reduced credit rating, inability to verify job history, etc.).

Documents needed for most conventional/conforming programs usually require W2's for the last 2 years, current pay-stubs, tax-returns (all schedules), bank-statements (2 to 24 months), and a completely executed loan application. Other mortgage programs are also available that do not require as much documentation. This type of "stated/reduced documentation" program is often based upon your individual credit, (FICO) scores, the property type (i.e. Condo, leasehold, etc.), and the amount of down-payment.

It would be a waste of time for both you and the owner's time if you discover, near the end of the mortgage contract, that you can not get loan approval or funding!! Avoid delays and take the correct initiative by getting credit approved. Find out what your "prior to documentation conditions" and your "prior to funding conditions" are.

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FINANCIAL ADVISORS

A Financial Advisor is a person who provides professional advice when it comes to income strategy like diversification of money via investing in stocks or bonds, etc. Their goal is to maximize the owner's wealth and provide knowledge and tactics to best reach your goals based on the assessed situation.
Please consider consulting with an attorney, public accountant, insurance agent or other licensed official before considering a transaction regarding real estate acquisition.

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LENDERS

Bank. Provides both conventional and government loans to the borrower. It has direct access to Freddie Mac/ Fannie Mae loans and other special programs based on pre-set guidelines. Interest rates are normally better than the higher risk lenders such as sub-prime finance companies. All banks are competitively priced and usually offer great incentives or customization for 1st time homebuyers. Programs and rates are subject to change.

Mortgage Company. They have access to many lenders who could provide you a better rate and term for your loan transaction. Unlike some banks, the local mortgage broker has the ability to check with various lenders to ensure the loan you are looking for is the best. Many are competitively priced to reach your closing cost expectations or long/short term goals.

Any lender should be able to assist you on your transaction.

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WHY GET AN APPRAISAL?

The purpose of getting an appraisal is to give a fair, un-bias and estimated value to an item based on current market conditions or worth. The appraised value can easily give a benchmark or mid-ground in finding a suitable sales price. This especially holds true in a real estate transaction. When buying a home it is necessary in many states to have an estimated appraisal done when using a lending institution. The bank, for example, simply wants to know how much they are going to lend the borrower before the real estate property is acquired. The bank wisely would NOT accept the current owner's appraisal because the lender must assign their own appraiser. This protects the lender's vested interest!!! It is also important for the BUYER and SELLER to agree on a neutral appraiser if a lending company is not involved.

SCENARIO: Jon wants to buy Allyson's home. Allyson is asking for $350,000. He doesn't have cash to buy it completely so he has contacted a local bank to assist him with his financing. The bank orders an appraiser to inspect the property only after a loan pre-approval has been granted.

HOWEVER… the appraised value comes in at $325,000 !!!

What went wrong? Was the appraiser way off the mark? Was there something wrong with the home? Is Allyson asking for too much? These are all reasonable questions. Let's study each question…

• What went wrong? Nothing. In fact the value if given from a competent appraiser is deemed the estimated value. ESTIMATE is the keyword. The word "estimated" itself signifies a slight variance from precision.
• Was the Appraiser way off the mark? Probably not. Often times the appraiser is restricted to given events such as current market conditions. Perhaps other homes in the given area have degraded in value or have a hard time meeting the quality of newer developments. Often times getting comparable data is unavailable until another home sells in that area. A similar model may have to sell to help validate new listed prices.
• Was there something wrong with the home? Depends. An appraisal is not a HOME INSPECTION but it can still note negative issues (i.e., Wood Deterioration, which may be caused by termite infestation).
• Is Allyson asking for too much? Maybe the market is currently a "seller's market'". This may incline some sellers to ask for more due to the high demand of their property. At this point you may wish to re-negotiate the sales price or pay the difference because most banks will only lend on the LOWER of the following: the Sales Price -versus- the Appraisal Value.

WHAT IF: the appraisal value had come in higher… like $375,000 … would you have given Allyson more money for the home? Remember, the appraisal is your paid measuring tool, so Allyson would never know its appraised value unless you told her. Furthermore, most Banks would only lend you at most the $350,000 (the sales price).

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HOME INSPECTION

The true purpose of the home inspection is to find potential problems or errors in the subject real estate property. It also encompasses a rather detailed investigation of the electrical or mechanical issues related to the building or the land. Unlike the Appraiser who is giving a descriptive value for the property, the Home Inspector is basically seeking out negative factors that exist in the home such as an electrical malfunction.

Other known inspections which may not be included in your home inspection:

Flat Roof Inspections investigate the wear and tear on a roof since damage is more prone to occur on this type of design as opposed to a slanted roof.

Termite Inspections check for those wood eating insects which could make saw dust of your purchased home!!! The FHA and VA both deem this inspection as mandatory.

Mold/Mildew Inspections search for biologically related fungi that can effect the air quality of the property.

Lead Based Paint or Asbestos. Some homes built before the late 70's had these potentially dangerous substances in the paint . Some properties have been encapsulated as a protective measure for home-owners.

Please consider other Inspection types not listed here as a preventative measure in protecting yourself. You should ask for a seller's disclosure form for any known dangers that could be harmful or has been known to be harmful to one's health. Documents of this nature are readily available with Real Estate Agents, Attorneys, Property Management Companies, or Condo/Townhouse Association, etc.

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WARRANTY and INSURANCE

A Home Warranty is optional. It is very much like an insurance coverage for the contents within the home you have acquired such as the refrigerator, washer-dryer, range oven, air-conditioner, etc. It should not be confused with a policy known as HOMEOWNER'S INSURANCE.

Home Owner's Insurance is a policy provided to protect your home from possible disastrous events such as FIRE, FLOOD, or HURRICANE, etc. The insurance policy premiums are based on the cost to rebuild the subject property. This information is indicated on most appraisal reports. Additional coverage is available. Please contact a Home Insurance Provider like USAA, State Farm, Liberty Mutual, HIC, etc.

Mortgage Insurance (MI). This is the monthly fee charged to the borrower to protect the lender only. Most lenders who charge a mortgage insurance premium will base their charges on a concept called Loan To Value (LTV). Any amount higher than 80% LTV will be subject to a monthly premium. The MI premium at 100% LTV will obviously be higher than an LTV of 85%. Think of it this way, if the bank lends someone $80,000 dollars to buy a home valued at $100,000 dollars, then the bank is giving them 80% of the loan to value. If someone defaulted on the loan, then the bank could easily reclaim the loss because the home can be sold for the money originally given. Lending someone the full amount of money for the current value is simply lending at 100% LTV. This is a higher risk for the lender, so essentially interest rates can be justifiably higher.

Some lenders offer 100% financing and DO NOT charge a mortgage insurance premium by creatively separating the loan into 2 mortgages. The borrower could get a first mortgage for 80% LTV and a 2nd mortgage at 20% LTV. Also called an 80/20 loan. This combining of mortgages is identified as a Combined Loan To Value (CLTV). The borrower in this situation does not pay a premium because the 1st mortgage is at 80% LTV. Loans could also get set up as an 80/15/5. Whereas 80 is the first mortgage, while the 15 is your second and the 5 is the down-payment on the mortgage loan.

There are many other strategies to help avoid MI premiums. FHA/VA loans provide the opportunity to pay your MI upfront or have it built into your loan amount. Or you may consider getting a Tax Advantage Mortgage Insurance (TAMI) which is intended to increase the borrower's interest rate but allows the owner occupant a possibly greater tax deduction. After all, Mortgage Insurance is not tax deductible.

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ESCROW COMPANY

The purpose of an escrow company, which is a neutral 3rd party, is to handle the transfer of property between the seller and buyer. The duties of an escrow company besides the fair transfer and documentation of funds can also encompass the utilization of a TITLE INSURANCE POLICY. This policy will ensure that the buyer and the providing mortgage company are the primary lien on the subject property. Title insurance can only be issued after investigating any special encroachments or pending litigation. A lien check and review via the Bureau of Conveyances will normally reveal any payment penalties, tax liens or arrearages which may have been filed against the subject property. Also, an escrow officer can notarize the mortgage documents for official use.

A few escrow companies to consider would be: Title Guaranty of Hawaii, Old Republic, and 1st American Title.