Questions/Answers - Ed Journee

Frequently Asked Questions & Answers

Often times buyers and sellers in the early stages of planning to buy or sell homes begin to gather information on how and where to start with their goals of buying or selling property. To assist with some of the most common concerns and questions we have devoted this page to our patrons to supply the answers to their questions to improve their knowledge on preparing to buy or sell a home. If you don't see the answer to a question that you would like to know scroll to the extreme bottom of the page and submit your question and we will respond as soon as possible to your question. We may also add your question along with our answer to the database to be displayed on this page for others to benefit from as well! Also, further down the page is a glossary of Real Estate terms to help with education on commonly used terms in the professional Real Estate Industry. This professional service is yours FREE to use as frequently as you like with no obligation!

Frequently Asked Questions & Answers to Them!!

A poor score will haunt me forever.
Fact: Just the opposite is true. A score is a "snapshot" of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes. Lenders request a current score when you submit a credit application, so they have the most recent information available. Therefore by taking the time to improve your score, you can qualify for more favorable interest rates.

Credit scoring is unfair to minorities.
Fact: Scoring considers only credit-related information. Factors like gender, race, nationality and marital status are not included. In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders from considering this type of information when issuing credit. Independent research has been done to make sure that credit scoring is not unfair to minorities or people with little credit history. Scoring has proven to be an accurate and consistent measure of repayment for all people who have some credit history. In other words, at a given score, non-minority and minority applicants are equally likely to pay as agreed.

My score will drop if I apply for new credit.
Fact: If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple requests for your credit report information (called "inquiries") will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.

Requesting my personal credit report lowers my scores.
Fact: The score does not count "consumer-initiated" inquiries - requests you have made for your credit report, in order to check it. It also does not count "promotional inquiries" - requests made by lenders in order to make you a "pre-approved" credit offer - or "administrative inquiries" - requests made by lenders to review your account with them. Requests that are marked as coming from employers are not counted either.

What Types of Inquiries count toward my score.
Fact: There is only one type of credit inquiry that counts toward your score. When you apply for a mortgage, auto loan or other credit, you authorize the lender to request a copy of your credit report. These types of inquiries, prompted by your own actions, appear on your credit report and are included in your score.

Are Credit Repair Agencies Legitimate for Improving Scores?

Fact: Credit repair companies are regulated by the credit repair organization act and can legally repair or fix consumer credit reports that contain inaccurate or outdated information. Legitimate credit repair companies do exist and they can do what they claim. Some of the items they can remove are:

Late Payments
Collection Actions
Charge Offs
Bankruptcy Actions
Accounts closed by Grantor
Judgements and Liens
Lost/Stolen Credit Cards
Settlement on Various Debts
Vehicle Repossessions
Bank Foreclosures
Accounts placed in dispute
General negative Information
Wage garnishment actions

WARNING! Read the fine print because none of the above information can be removed or changed unless it is outdated. statue of limitations expired or inaccurate! Negative information that is accurate cannot be removed . . . period! Credit repair companies are regulated by a federal law called the Credit Repair Organizations Act. Agents use this law to legally repair your credit by forcing credit bureaus to remove inaccurate or outdated information from your credit report. They cannot get valid accurate information removed - that's illegal!

If you decide to hire a credit repair company then you need to know that under the Credit Repair Organizations Act, credit repair agents:

cannot require you to pay until they have completed promised services;
cannot make false claims about their services;
must, provide a copy of the Consumer Credit File Rights; before you sign a contract,
must allow you three days to cancel the contract without paying any fees;
must not perform any services until they have your signature on a written contract and have completed the three-day waiting period;

Am I required to pay a creditor or lender if I never was Contacted or sent a bill?

Fact: Billing statements are sent to you as a convenience, and you are obligated to make payments even if you do not receive any notice from the holder of the loan. If you have not received any billing statements, you may not have properly notified the servicing agency of your current address. You should do so immediately.

What is a Mortgage?

Fact: Likely the largest debt you'll ever take on, a mortgage is a loan to finance the purchase of your home. Your home is collateral for the loan, which is also a legal contract you sign to promise that you'll pay the debt, with interest and other costs, typically over 15 to 30 years. If you don't pay the debt, the lender has the right to take back the property and sell it to cover the debt. To repay the debt, you make monthly installments or payments that typically include the principal, interest, taxes and insurance, together known as PITI.

What is Principal?

Fact: The principal is simply the sum of money you borrowed to buy your home. Before the principal is financed you can give the lender a sum of cash called a down payment to reduce the amount of money that will be financed.

What is interest?

Fact: Usually expressed as a percentage called the interest rate, interest is what the lender charges you to use the money you borrowed. As well as the given rate, the lender could also charge you points, and additional loan costs. Each point is one percent of the financed amount and is financed along with the principal.

Do I have to have Home Insurance to buy my home?

Fact: Yes, Lenders won't let you close the deal on your home purchase if you don't have home insurance, which covers your home and your personal property against losses from fire, theft, bad weather and other causes. Even if you pay cash for your home, you should buy home insurance unless you can afford to repair or rebuild your home if it's damaged or destroyed. If your home is in a federally designated high flood risk zone within a flood plain and you are signing for a federally insured loan, federal law mandates that you must buy flood insurance. If you are not in a high flood risk zone, you still may buy the coverage.

Do I have to get a Home Inspection?

Fact: No it is not required by law but should be done to protect the buyer from unknown items that could cost in the long run. Structural inspections are particularly important. During these examinations, an inspector comes to the property to determine if there are material physical defects and whether expensive repairs and replacements are likely to be required in the next few years. Such inspections for a single-family home often require two or three hours, and buyers should not waive this option since a purchase acceptance cannot be reversed after 7 to 10 days of its acceptance. This is an opportunity to have a professional examine the property's mechanics and structure, which usually answers questions that are of importance in a major purchase like a home. Usually the buyer learns far more about the property than is possible with an informal walk-through and can finalize the decision to purchase the home within an allotted time.

What is title insurance?

Fact: -- Purchased with a one-time fee at closing, title insurance protects owners in the event that title to the property is found to be invalid. Coverage includes "lenders" policies, which protect buyers up to the mortgage value of the property, and "owners" coverage, which protects owners up to the purchase price. In other words, "owners" coverage protects both the mortgage amount and the value of the down payment.

Does the buyer of a home that is more than one year old get a warranty on the house?

Fact: -- Although the original warranty on the home from the builder has expired the buyer can purchase a 1 year warranty or more depending on the warranty provider selected. Generally the cost of a warranty is under $500 depending on the type of warranty selected. It is not uncommon for the seller to agree to pay for this if negotiated in the original purchase offer.

What is meant by Debt Ratio?

Fact: DEBT RATIOS: Debt Ratios are the relationship between ones income and ones expenses. Ratios are generally expressed as two numbers like 29 over 41 or 29/41. These are standard FHA ratios. The first number, the 29, represent the relationship between the borrowers income and his new housing expense of principal, interest, taxes, insurance and homeowner dues. A borrower who makes $3,000 per month and has a housing expense of $870 would have a 29% top end ratio.

The other number of 41% represents the total monthly debt, including the housing expense and all other debt such as credit cards, loans, child support, etc. Thus in our example of the borrower that makes $3,000 per month and had a total expense of $1,230, would have a 41% bottom ratio.

Do I have to be a first time home buyer to qualify for FHA Loans?

Fact: Many people make the mistake and assume that FHA loans are only available for first time home buyers. This is not true. FHA loans are available to anyone, whether your first or fifth home and can be used to purchase a home or refinance a home. If refinancing a home the current loan DOES NOT have to be an FHA loan.

Is there a limit on how much the house costs when using FHA Loans?

Fact: Yes -

The current basic standard mortgage limits for FHA insured loans are:
One-family	Two-family	Three-family	Four-family
$160,176.00	$205,032.00	$247,824.00	$307,992.00

How is Debt Ratio Computed by lenders?

Fact: Their guideline is that your total payment, including principal, interest, and escrow payments, should not be more than 28% of your gross (pre-tax) monthly salary. To calculate this for yourself, take your annual salary and multiply it by .28, then divide it by 12. This number is your maximum total mortgage payment per month. Banks also check how much of your gross income is required to pay all of your debts combined. This is called your back-end ratio and includes the mortgage as well as car payments, credit card payments, student loans, and child support and alimony payments. Their guideline for this ratio is that your total debt payments should not be more than 36% of your gross income. To calculate this for yourself, take your annual salary and multiply it by .36, then divide it by 12. This is the maximum allowable amount of your total monthly debt payments.

Glossary

Amortization

Calculated monthly payments on your mortgage, including principal and interest; the payments are designed to cover the current interest and to pay off the principal by the end of the loan term. An amortization schedule shows the payment amounts, interest, principal, and remaining balance for each month of the loan.

Annual percentage rate (APR)

A number that represents the total annual cost of a mortgage. It includes the interest rate as well as all other fees and costs associated with the loan, which usually means that the APR is higher than the declared interest rate. Comparing the APR for several lenders allows you to compare actual costs and not just interest rates.

Appraisal

An analysis by a licensed appraiser that estimates the property's current fair market value. An appraiser may consider replacement cost as well as the sale price of similar properties in the same area. A lender generally requires an appraisal before issuing a loan in order to make sure that they are not lending more than the property is worth.

Appreciation

Increasing value of a property because of factors such as inflation, improvements, or market conditions. It is the opposite of depreciation.

Assessment

Setting a value for a property specifically to determine the amount of taxes required on the property. This is usually done by the county assessor's office.

Assumable mortgage

A clause in a mortgage that allows another buyer to take over the existing loan if the home is sold. This is a positive selling point if interest rates have gone up since the loan was originally made. The buyer may have to qualify and pay a fee to assume the loan.

Bankruptcy

A legal declaration that you are unable to pay all of your bills. A court will allow you to clear your debts by paying a percentage of each of them. Federal taxes, student loans, and child support payments are not included in these provisions. Declaring bankruptcy is a serious decision; it severely damages your credit rating and remains on your record for ten years.

Biweekly mortgage

A mortgage requiring payment two times a month rather than monthly. Each payment is half of what a monthly payment would be. This can reduce a 30-year mortgage to 19 years and significantly reduces the amount of interest you pay over the life of the loan.

Closing

A meeting that concludes the sale of a piece of real estate. At this meeting, all documents are signed and closing costs paid, and the buyer officially takes on the debt and receives the title and possession of the property from the seller. It is also called a settlement.

Collateral

An asset that is used as a pledge to repay a loan. If you do not repay the loan according to the loan terms, the lender has the right to take the asset and sell it in order to cover the costs of your loan.

Co-signer

A person who promises to pay the loan if the primary borrower is unable to do so and signs a statement to this effect. While they share the responsibility for the debt, they may not necessarily share ownership of the property. A co-signer is commonly a spouse or parent.

Conforming loan

A mortgage that complies with all underwriting guidelines established by Freddie Mac or Fannie Mae and is therefore eligible to be purchased by either of them. The maximum amount for a conforming loan is $300,700 for a single-family home.

Construction loan

A temporary loan used to pay for construction costs. The lender gives the builder cash advances as the construction progresses; when construction is completed the borrower must pay the loan off or get permanent financing for the balance due.

Contingency

A stipulation in a purchase agreement that must be met before the contract is legally binding. For instance, a buyer may state that their offer is dependent on a satisfactory home inspection, or that they must sell their current home or be approved for a mortgage before the contract is actually in effect.

Contract for deed

A method of selling a home where the buyer agrees to purchase the property, pays an agreed upon amount and get possession, but the seller keeps the title until all payments have been made and any other contract terms have been satisfied.

Deed of trust

A document used in place of a mortgage in some states. Under this scenario, the property is transferred to a third party, a trustee, by the borrower until the lender has been paid in full. If the buyer defaults on the loan, the trustee can sell the property to pay the debt without having to go to court to foreclose on the property.

Depreciation

The decrease in value of a property for reasons such as wear and tear or negative changes in the neighborhood. The opposite of appreciation.

Earnest money

A deposit given to the seller to show that the buyer is sincerely interested in buying the property. If the sale is completed the earnest money goes toward the down payment; if the sale is not completed, the potential buyer loses the money. It is usually between 5% and 10% of the proposed purchase price and is placed in a trust account rather than given to the seller.

Equity

The difference between the market value of a home and the balance on the mortgage for that home. An owner's equity grows as they pay down the mortgage and as the home appreciates.

Escrow

An account created by the lender where money is collected from mortgage payments to cover annual expenses such as property taxes and insurance. The lender then makes these payments for you from the account when the bills become due.

Foreclosure

The procedure by which a lender takes property away from a borrower who has defaulted on that loan and sells it in order to cover the debt. The terms of the mortgage state how this will be authorized in case it becomes necessary.

Good Faith Estimate

A written estimate of all the costs for closing a mortgage loan. A lender must send it to you within three days of receiving your loan applications. It is a good idea to compare this estimate with the final fees at closing and inquire about any discrepancies.

Home inspection

An professional evaluation of the condition of a home and all of its systems, including plumbing, heating and cooling, and electrical systems, structural elements such as the roof and foundation, and pest problems such as termite damage or infestation. It is intended to reveal problems not apparent to an average buyer and should be done before closing so that repairs can be completed before the home is purchased.

Interest

The amount a lender charges for borrowing money. It is calculated as a percentage of the principal borrowed and may be fixed or variable. Rates are usually tied to some standard index such as the Prime Rate or United States Treasury Bills.

Jumbo mortgage

A mortgage for any amount over the limit set by Fannie Mae and Freddie Mac regulations. The limit is currently $322,700 for single-family homes. It is also called a non-conforming loan.

Lien

Any claim against a property that must be paid when the property is sold. A mortgage is considered a lien, but it can also be put in place for things like unpaid taxes or subcontractor bills. If the amount due is not paid, the lien holder can sometimes force the property to be sold in order to pay the debt.

Liquid assets

Cash and any other assets that can easily be changed to cash, include certificates of deposit, money market accounts, and money in checking and savings accounts.

Note

A written document signed by borrowers that says they legally recognize a debt and promise to repay it. The note may include terms such as the interest rate and repayment schedule.

Owner financing

A way to buy property where some or all of the financing is supplied by the seller rather than a third party lender. A seller must have a lot of equity in the property in order to do this, and may choose to do so when a buyer cannot qualify for a bank loan.

Points

Fees charged by the lender based on the loan amount. One point is equal to one percent of the principal amount. Discount points are considered prepaid interest and reduce the interest rate on the loan; origination points cover the lenders cost of making the loan. Discount points are tax deductible in the year you pay them.

Prepaid expenses

Funds collected at closing to fund an escrow account and cover upcoming expenses such as property taxes, insurance, PMI, and special assessments.

Principal

The original loan amount, or the amount of the loan that has not been paid yet. It does not include interest, which is charged as a percentage of the principal.

Private mortgage insurance (PMI)

Insurance that safeguards the lender in case the borrower defaults on their mortgage. It is usually required when borrowers put less than 20% down, and they must pay the insurance premiums themselves.

Purchase agreement

A written contract between a buyer and seller that specifies all terms and conditions for the sale of a piece of property, including the purchase price and any contingencies. It is also called a sales contract or sales agreement.

Recorder

A public representative responsible for keeping records of all real estate transactions in an area. Also known as the Registrar of Deeds or the County Clerk.

Repossession

- A lender exercising their legal right to take back a piece of property and sell it because a borrower has defaulted on the loan.

Rescission

The option given to borrowers to back out of a refinance agreement within three business days after closing. The funds are not distributed until after this period has passed.

Secured loan

A loan with collateral pledged to guarantee repayment. If the loan is not paid according to its terms, the lender can take the collateral to cover the unpaid debt. In a mortgage, the house and property is used as collateral.

Settlement statement

A written statement signed by both the buyer and seller at closing. It lists the purchase price, the buyer's loan amount, the amount received by the seller, and all other costs and fees associated with the transaction. It is also called a closing statement.

Sub-prime mortgage

A mortgage made to a borrower with a poor credit rating. Lenders may charge higher interest rates or fees to offset potential losses from borrowers who might default.

Survey

A precise map of a piece of property created by a registered surveyor. It includes all legal boundaries, easements, rights of way, and encroachments, as well as all buildings or structures on the property.

Title

A legal document that is used to show ownership and possession of a piece of property.

Title insurance

Insurance to cover the lender and buyer against loss which may be caused by title problems, such as mistakes in the title search or disputes over ownership. It is issued by a title insurance company and based on the amount of the loan.

Title search

An examination of title records to verify that the seller is the actual owner of the property for sale and that there are no liens against the property. It is carried out before closing to make sure that the seller can turn over a clear title.

Underwriting

The evaluation of a loan application to decide whether or not to approve the loan. It involves a review of the credit history of the borrower and the value of the property and then dictates loan terms and rates to make sure that the loan will meet the lenders guidelines.

Variable interest rate

An interest rate that rises and falls according to economic conditions. Variable rate loans are usually tied to an index such as the Prime Rate or United States Treasury Bill and may change quarterly or annually.

Verification of employment

A document signed by the borrower's employer that corroborates the employment, title, salary, start date, and likelihood of continued employment. Lenders generally require two years of continuous stable employment before making a loan.

Walk-through

A final examination of the property by the buyer to make sure that the seller has moved out, that the condition of the property has not changed, and that any required repairs have been completed.

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Frequently Asked Questions & Answers