Real Estate – Basics

Title Insurance: 2 Types

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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.

So what exactly is “Title Insurance?”

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So what exactly is “title insurance?” Well, when a property is financed, bought or sold, a record of that transaction is generally filed in public archives. Likewise, records of other events that may affect the ownership of a property, like liens or levies, are also archived.

When you buy title insurance for your property, a title company searches these records to find – and remedy, if possible – several types of ownership issues. First, the title company searches public records to determine the property’s ownership status. After this search, the underwriter will determine the insurability of the title.

Even the most skilled title professionals may not find all problems associated with a property, though. Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify. So after the title company finishes its searching, it also provides a title insurance policy that will help protect you from a variety of issues that might be uncovered later.

What is mortgage insurance?

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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.

Your home sale could trigger capital gains taxes. Here’s how to calculate your bill

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  • More home sellers now owe capital gains taxes after selling their primary residence, but it is possible to reduce the bill.
  • There are no taxes on the first $250,000 of profit if you are single, or $500,000 for married couples filing jointly, assuming you meet IRS rules.
  • You can lower profits above those thresholds by adding to your home’s “basis,” or original purchase price, with closing costs and eligible improvements.

There are strict IRS rules to qualify for the $250,000 or $500,000 exemptions. Any profit above those limits is subject to capital gains taxes, levied at 0%, 15% or 20%, based on your earnings.

“It is important to track your cost basis of the home,” which is your original purchase price plus closing costs from the purchase, according to Thomas Scanlon, a certified financial planner at Raymond James in Manchester, Connecticut.

You can reduce your home sale profit by adding often-forgotten costs and fees to your basis, which minimizes your capital gains tax liability.

For example, you can start by tacking on fees and closing costs from the purchase and sale of the home, according to the IRS. These may include:

  • Title fees
  • Charges for utility installation
  • Legal and recording fees
  • Surveys
  • Transfer taxes
  • Title insurance
  • Balances owed by the seller

These could be small amounts individually but have a significant effect on the basis when tallied.

The average closing cost nationwide is $4,243, according to a report from Assurance, but fees vary widely. In the priciest state, New York, the average is $8,039, while California is a close second at $8,028.

“You also get credit for the expenses for the sale of the property,” added Scanlon, who is also a certified public accountant. That includes your real estate commissions and closing costs.

However, there are some fees and closing costs you cannot add to your basis, such as home insurance premiums or rent or utilities paid before your closing date, according to the IRS.

Similarly, loan charges such as points, mortgage insurance premiums, the cost to pull your credit report or appraisals required by your lender will not count.

Original Article

Why Be Pre-Approved For a Home Loan?

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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?

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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.

Instant Offers and iBuyers

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With advances in technology and new ways to utilize data, some companies have sprouted up to create different ways to sell your property.

Basically, they utilize automated valuation models (AVMs) to make quick offers on homes, allowing

them to close in a much faster than typical timeframe, and then resell them.

From a seller’s standpoint, it can eliminate some hassle and uncertainty, but with high “transaction fees” ranging from 7% to 14%, and the likelihood that they will sell the home for more than they paid you for it, you are simply exchanging that smooth and quick transaction for a portion of your equity.

Companies that offer this kind of service are only in limited markets across the country right now. They operate by having homeowners fill out a short questionnaire with information on their home. They feed that data into their AVM, which kicks back an offer price. They make the homeowner a cash offer to close in a short timeframe (typically about a week) and specify what the fee will be to proceed through to closing. Once they own the home, they will repair and spruce it up, and list it for sale on the open market.

It may be tempting to consider such an offer, but keep in mind that this is a straight numbers play. They are determining a price that allows them the room to cover the costs of the transactions as well as the repairs, while still making some profit. Their profit will either come from the fee you’ve paid or from acquiring your home at a below market price – although it could possibly be a combination of the two.

 n analysis on one company’s transactions showed they were selling homes at an average 5.5% appreciation, on top of their transaction fee. That’s a lot of money to leave on the table for a little convenience.

There are other companies beginning to test alternative listing models as well, utilizing technology and AVMs to make ‘instant offers’ on homes, or to help buyers acquire and move into their next home before selling their current one. As always, it’s important to read the fine print and understand what you are agreeing to before using the service.

Hi folks,
If you are going to be selling your home in the near future or are just curious about its value in today’s market, give me a call or use the button below. I will email you a comprehensive market analysis of your home. There is no obligation on your part and it is totally free.

My phone number is 760.476.9560.

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Overview of the Mortgage Loan Application and Approval Processing

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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?

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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:

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