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Home » FAQs

FAQs

Buyers

Questions you might have as a buyer

1 . What is a REALTOR®?

A REALTOR® is an agent or agency that belongs to the local or state board of REALTORS and is affiliated with the “National Association of REALTORS” (NAR). They follow a strict code of ethics beyond state license laws and also sponsor the Multiple Listing System (MLS), which is used to list houses for sale. REALTOR is a trademark of the National Association of Realtors.
2. Can a home depreciate in value?

Generally, real property never depreciates in value, or more so, it is not very common for property to depreciate.  This is why it’s a great investment. Make sure you carefully consider location and community when choosing a home, it can effect the homes future value greatly.

If you are in a newly developed area, do some research on the construction of the surrounding areas being developed to determine if they may effect your homes value.

3. What are closing costs?

Closing costs are expenses incurred by buyers and sellers in transferring ownership of a property.
4. What does FSBO mean?

FSBO stands for For Sale By Owner. A for sale by owner property usually indicates that the property is being sold without a real estate agent.
5. What is a broker?

An agent who is authorized to open and run his/her own agency. All real estate offices have one principal broker.
6.  What is a contingency?

A contingency is a provision included in a sales contract stating that certain events must occur or certain conditions must be met before the contract is valid.
7. What is a debt-to-income ratio?

A debt-to-income ratio is the percentage of a person’s monthly earnings used to pay off all debt obligations.
8 . What is homeowners association (HOA)?

Homeowners association is a nonprofit association that manages the common areas of a condominium or “planned unit development” (PUD). Unit owners pay a fee to the association in order to maintain areas such as a pool or playground that are owned jointly.
9. What is the difference between being prequalified and preapproved for a loan?

If you’re prequalified it means that you POTENTIALLY could get a loan for the amount stated to you, assuming that all of the information you provide to the bank is accurate and true. This is not as strong as a preapproval.

If you’re preapproved, it means that you have undergone the extensive financial background check, which includes looking at your credit history, previous tax returns and verifying your employment – and the lender is willing to give you a loan, basically meaning you’re approved!

You will usually be provided an accurate figure which shows the maximum amount that you are approved for.  Most sellers prefer buyers that have been preapproved because they know that there will not be any problems with the purchase of their home.

10. What’s the Difference between a “Listing Agent” and “Selling Agent”?

Listing Agents usually deal with sellers, and are the ones who will list a property for sale on the Multiple Listing Service.

Selling Agents (also Buyers Agents) mostly deal with the homebuyers, usually only listing just a few homes for sale. They will sell the homes (which have been placed in the MLS) via the listing agents.

The majority of agents will focus on one or the other. Some agents will also divide their time between sellers and buyers and are usually regarded as the best ones since they are dealing with both sides of the coin.

If you phone an agent from a magazine or newspaper ad, you are usually contacting the listing agent. These agents will place ads to show the seller that they are making an effort to sell their home. Also their advertising efforts can draw others who may decide to sell their homes.

11. Why should I use a real estate agent?

A real estate agent is more than just a sales person.  A real estate agent may act on your behalf, providing you with advice and guidance when buying or selling a home. Due to the constant changing of the market, the information available on listings is not always 100% accurate.  There are times when you need the most current information about what has sold or is for sale, and the only way to get that is with a real estate agent.

If you are in the market to buy, it would be advisable to use a Buyer’s Agent.  They can make recommendations on what terms and prices to offer as well as negotiating a deal with your best interest in mind.

 

Mortgage

Questions about mortgages you may have

1. Are lenders limited in the amount of escrow funds they can collect from borrowers?

The Real Estate Settlement Procedures Act (RESPA) sets standards for the calculation of the amount mortgage lenders require borrowers to deposit into the escrow account. RESPA limits the initial deposit into an escrow account to an amount equal to the sum sufficient to pay taxes, insurance premiums, and other charges on the mortgaged property for the first payment period, plus a cushion.

An escrow cushion is an amount of money held in the escrow account to prevent the account from being overdrawn when increases in disbursements occur.

On a monthly basis, mortgage lenders may not require borrowers to pay more than one-twelfth of the total amount of the estimated annual taxes, insurance premiums, and other charges, plus an amount necessary to maintain the allowable cushion.

2. Can I pay my own taxes and insurance?

When a loan is originated, the mortgage documents specify the escrow conditions. This has become a standard practice for all mortgages, including FHA, VA and conventional mortgages.  Occasionally on conventional loans, FRFCU waives the collection of escrow requirement at closing if the member has a minimum 20% equity position in the property.
3. How is interest calculated on a mortgage loan?

Most mortgages originated today calculate interest in arrears, unlike consumer loans which calculate interest to the date of payment receipt. As an example, when borrowers pay their February mortgage payments, they are paying the January interest. This method of calculating interest is based on a 360 day year in which each month has 30 days.
4. How long does the loan process take?

The number of days from application to closing can vary from just a few days to 45 or more days, depending on a number of factors. Some of the factors include: loan type, whether an appraisal is needed, and title clearance. Time delays also occur if outside sources or the borrowers do not promptly provide documents to the lender.
5. Is there a minimum credit score?

This answer depends largely upon the type of mortgage you are trying to obtain. The most attractive and most common type of mortgage financing is FNMA & FHLMC also known as agency paper. To get an agency approval, the rumored acceptable credit score is 620. This can vary widely depending on other factors when underwriting the buyer (down payment, income, liquid assets…). To offer a range, consider the following: below 620 is poor, 620-650 marginal, 650-680 nothing special, 680-700 fairly good, 700-720 good, 720-750 very good, above 750 is excellent. Many loans are closed every day with credit scores less than 620. More than likely they are not on agency paper. Alternatives to agency paper are government loans (FHA & VA) and sub-prime money.
6. What are the benefits of doing a first and second lien combination?

By doing a first and second lien you will avoid private mortgage insurance, get a larger tax deduction, have a better equity position, and you will also be able to waive escrows if desired.
7. What benefits do I receive from private mortgage insurance?

Prior to the existence of private mortgage insurance, individuals typically could not purchase a home unless they had a down payment of at least 20% of the purchase price. Private mortgage insurance benefits the mortgage lender directly by reducing the costs associated with borrower default. It also benefits consumers by lowering down payments, thereby allowing more people to achieve home ownership.
8. What does Prepaid Interest mean?

Prepaid interest is typically paid at loan closing. It is the interest paid on a new loan from the day of closing through the end of the month. All future interest on a mortgage loan is then paid in arrears. For example, if your new loan closes on February 19th, prepaid interest would be paid at closing from February 19th through the end of the month of February. Interest would then be paid monthly with your first payment beginning April 1st which would pay March interest. Your payment on May 1st would pay April interest, etc.
9. What is an escrow account?

When borrowers make their monthly mortgage payments, they generally also pay one-twelfth of the anticipated annual amount needed to pay taxes and insurance premiums. These additional funds are deposited into an escrow account until the lender pays the taxes and insurance premiums as they come due. The borrower benefits for budgeting reasons because costs are spread through the year rather than as a lump sum. This method allows the lender greater control in avoiding tax delinquencies or lapses of hazard insurance coverage on the property. Mortgage documents often stipulate lenders that establish an escrow account.
10. What is my credit score and how is it calculated?

Your credit score is a one look number at your overall credit rating. The calculation formula for this score is somewhat of a mystery and a secret held by the credit reporting bureaus. We do know that the major variables to derive this score are: public records, late payments, how recent and the number of late payments, amount of credit open, balances on credit open compared to available credit, and inquiries into your credit history. Each of the three major credit bureaus (Experian, TransUnion, and Equifax) offer a credit score for each borrower. So for a married couple there are six credit scores.
11. Why did my mortgage payment amount change?

There may be several reasons. Some mortgages, such as ARM loans, provide for periodic adjustments to your principal and interest payment amount. A second reason for a change may be due to an annual analysis of your escrow account. In compliance with the Real Estate Settlement Procedures Act (RESPA), you will receive an Annual Escrow Disclosure Statement, which shows the adjustment to your escrow payment based on current tax and insurance amounts.
12. Why does the title have to be cleared before I can get a mortgage?

When a lender makes a mortgage loan (other than a home equity loan), the lender typically requires a first lien position. This means there can be no other outstanding liens against the property that are superior to the new mortgage. Liens can result from a variety of sources, such as home equity loans or lines of credit, child support judgments, divorce settlements, delinquent taxes, and special assessments. Most realtors, mortgage companies, title companies, and escrow companies will assist the seller and/or borrower in clearing title. The ultimate responsibility, however, lies with the sellers of the property who are warranting clear title to the buyers. It is important the buyers receive clear title from the sellers so there are no future claims against their property ownership rights.
13. Why is the Annual Percentage Rate (APR) on the Truth in Lending Disclosure higher than the rate shown on my note, which is the rate I thought I chose?

All lenders are required by the Real Estate Settlement and Procedures Act (RESPA) to show the rate which will be charged on the note signed at closing, including the total cost to obtain the loan. This includes, but is not limited to, the total interest paid over the life of the loan, assuming the full term is carried out at the note rate, plus certain closing costs. Closing costs could include prepaid interest, Private Mortgage Insurance/FHA Mortgage Insurance Premium/ or VA Funding fee, whichever may be applicable, and various miscellaneous costs including, but not limited to, underwriting fee and tax service fee, may be charged. All of these “Finance Charges” are taken into consideration when calculating the APR to give a more accurate picture of the total cost of the loan.

 

Sellers

Questions that you may have as a seller

1. Can I back out of my contract with one buyer and accept a new, higher offer from a second buyer?

It would be very unwise to try to back out of the contract because a purchase offer that’s accepted is a legal contract that the buyer can seek legal remedies to enforce.
2. Do I have to sell to the person with the highest offer?

No. If you prefer a lower-priced offer, perhaps with a better-qualified buyer and/or more attractive terms, you can accept that offer instead. Or you can give counteroffers to one or more of the buyers.

Beware, however, that if you turn down a full-priced offer, you may owe your agent a full commission even if you decide not to sell your home.

3. How should I price my home?

You must take into account the prevailing state of the real estate market and especially local market conditions. The real estate market continually changes, and market fluctuations affect property values. So it is critical to determine your listing price based on the most recent comparable sales in your neighborhood.

It would be a good idea to get a Home Value Request, or CMA, also known as Comparable Market Analysis.

4. What are comparables or comps?

These are referred to as recently sold properties that are similar in size, location, and amenities to the home for sale. These properties help an appraiser determine the fair market value of a property.
5. What are disadvantages of pricing my home on the high end?

Well, several factors may come into play:

You might help sell similar homes that are priced lower.

Your home may be on the market longer.

You could lose market interest and qualified buyers.

You might create a negative impression of the property.

You could lose money as a result of making extra mortgage payments while incurring taxes, insurance and unplanned maintenance costs.

You may have to accept less money.

A potential buyer may face appraisal and financing problems resulting from the inflated price.

It is not recommended to sell your home any higher than the appraised value unless demand is high in your area. Ask you real estate agent which price would be right for your home. Also make sure you get a Home Value Request to assist in determining the best sales price for your home.

6. What does an appraisal mean?

A report made by a qualified person setting forth an opinion or estimate of value. The term also refers to the process by which this estimate is obtained.

In conventional mortgages and in the HUD-FHA Direct Endorsement Program, the lender receives a copy of the complete report, showing the basis for the appraiser’s estimate.

In VA cases and in HUD applications processed by HUD, the lender receives only a statement of the estimate of value, without any detailed supporting data.

7. What is a counteroffer?

A counteroffer is an offer made by one party that makes changes to the original or latest offer of the other party.
8. What is an “Exclusive Right to Sell” listing?

This type of listing is the most commonly used and is the most effective. With this type of listing the agent does the most work to sell your home they will usually advertise your home, place it into the MLS, market your home to other agents and even hold open houses for your home. Only with this type of listing does an agent expect to earn money back on their investments on selling your home.
9. What is an “Exclusive Agency Listing”?

An Exclusive Agency listing allows your agent to market your home and enter it into the MLS. The agent will receive a commission if your home sells through any real estate company or by another agent. He will NOT receive a commission if you, the seller, find a buyer on your own. Because a commission is not guaranteed, your agent may not be highly motivated to market your property. Thus, this type of listing is not common and should be avoided.
10. Who is responsible for making repairs, if any, as a result of home inspection reports conducted for the buyer?

Because the buyer orders one or more home inspections doesn’t obligate the seller to make repairs or modifications as a result of those inspections. Typically, however, inspection reports are used to negotiate repairs of major problems, or environmental or safety hazards that may be noted. The purchase contract should provide guidance for these negotiations.
11. Why should I use a real estate agent?

A real estate agent is more than just a sales person.  A real estate agent may act on your behalf, providing you with advice and guidance when buying or selling a home. Due to the constant changing of the market, the information available on listings is not always 100% accurate.  There are times when you need the most current information about what has sold or is for sale, and the only way to get that is with a real estate agent.

You don’t need to use a commissioned real estate agent to sell your home, but you may want to consider the benefits of having a real estate agent versus not using a real estate agent.

In addition, many people would rather use an Agent due to the complexities of modern Real Estate transactions since they usually incorporate legal and financial attributes, which takes them well beyond more simple transactions, such as the sale of an automobile.

There are several advantages when using a real estate agent to sell your home, such as – your listing will be added to the Multiple Listing Service (MLS) so that large numbers of buyers will have access to the seller’s property. In addition, your real estate agent absorbs all of the cost of advertising and marketing, and the screening that will be done of potential buyers by Agents. The Agent will also handle the details of negotiation.

Deciding whether to use an Agent or not depends on if you feel fully confident that you can handle all of the details, then you may well want to attempt selling your house on your own. If not, you most likely will want to use a real estate agent and leave the details to them.

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