Why You Need a Real Estate Attorney

Hiring a real estate attorney is a critical part of your real estate purchase process.

Some transactions require buyers to have one. For those who get to choose, opting for a real estate attorney is a wise choice.

Why exactly would you need a real estate attorney? For the same reason that you would need one for any other legal matter – to protect your interests.

An attorney provides a second set of eyes, which you should have from the very beginning of the purchase process.

Before you sign any sales contract, regardless of your impulse or what others may be telling you, make sure that it contains verbiage that allows for an attorney review period. This allows time for your attorney to thoroughly go through it and see if there is anything of concern.

He or she can also clarify details such as what items (fixtures, appliances, etc.) are part of the purchase agreement.

There should also be verbiage in the contract that allows you to have a home inspection performed. The results of that home inspection should also be given to and reviewed by your real estate attorney.

In addition to the points discussed above, there are aspects of the transaction that you would want to discuss only with an attorney. These include matters related to the ownership of the property.

An example of this might be an incorrectly drawn lot line. That lot line, if erroneously moved three feet further out from the home, could make you the owner of a fence.

From this point forward, you would be on the hook to maintain that fence. Neither a real estate agent nor a lender should ever attempt to take on something like this.

To ensure you partner with someone familiar with all of these matters, look for an attorney who solely handles real estate transactions. Your mortgage professional is a good source for referrals.

Lender Points: What Are They, and Should You Pay Them?

In the world of lending, one point is 1% of a loan amount. So, one point on a $150,000 loan would be $1,500. Points, in general, may be referred to as either discount points or loan origination points.

You may have heard the term points used in a couple of different ways. One of them is probably in mortgage loan advertisements, referring specifically to how many points a lender is charging for a given rate on a loan.

For example, Lender A is offering a 5.0% interest rate on a 30-year, fixed-rate mortgage and is charging no points. Lender B is offering the same loan at a lower rate of 4.5% but is charging one point, or $1,500. Why is this?

The answer is that lenders, like any other business, need to make money to be able to stay in business. Lenders make money on loans in one of two ways.

One way is via the interest rate they charge. The higher the rate, the more money they make when they sell the loan after it closes. The other way they make money is to charge fees.

However, to remain competitive with each other in the marketplace, lenders need to offer you, the consumer, the best possible terms.

As you consider your loan options, your long-term ownership plan as well as your willingness to pay points will help determine your best strategy.

A consultation with your mortgage professional can help determine which option is best for you.

What Is Title Insurance and Why Do I Need It?

To answer this question, we must first ask: what is title?

Title is simply who owns a property. A person whose name is on title has ownership rights to a property.

A person on title may be different than those on the loan document (those who are paying for it). This difference may occur in the case of married couples, when one spouse earns the entire income for the family, but they both have ownership rights to the property.

So, what does title insurance have to do with any of this? Title insurance is designed to protect you and your lender from third-party claims toward ownership of the property.

What are third-party claims? If you’re buying a house from someone who was sued while he or she owned it, the party suing the owner is making a third-party claim.

A common example is a contractor who wasn’t paid by the owner. If that contractor were to put a claim against the property, and you were to find out about it after you took ownership, you could potentially be involved in a lengthy and expensive legal process.

This is where your title insurance comes into play. The title insurance company researches the title of a home before your lender will agree to lend money on it and before you close on the home. This research includes court records and other sources. Then, if a situation like the one above comes up, your title insurance will bear the brunt of addressing it.

There are, in fact, two types of title insurance policies. The first is the Lender’s Policy. This is to protect your lender up to the loan amount. This policy is required in many states.

The other policy, an Owner’s Policy, can cover up to the purchase price of the property. For more details on this important coverage, contact your mortgage professional.

What Is an Assumable Mortgage?

An assumable mortgage involves the transfer of loan ownership from one party to another. Why would anyone be interested in this method of purchase? The answer to this question lies in mortgage interest rates, which are generally going up in today’s market.

Here’s how it works. Let’s say you wanted to purchase one of two identical homes in the same area, for the same price. One has an assumable 30-year mortgage, with an interest rate of 3.5%. The current mortgage has been in place for four years, and the original loan amount was $150,000. Home #2 would require you to obtain a new mortgage, with market rates of 5.0%.

The current mortgage has a monthly principal and interest payment of $673.53. With 26 years left, this would mean that your monthly payments over that time would total $210,153.84. A new mortgage for the same $150,000 at 5.0% would generate a monthly payment of $805.23. Over the life of the loan, this would set you back $289,882.80.

Keep in mind that you may pay a higher initial price for the home with the assumable mortgage, because the lower rate will make it very attractive to other buyers looking for the same thing.

Restrictions: While both FHA and VA loans are assumable, those taken out under Fannie Mae and Freddie Mac guidelines are ineligible for transfer from seller to buyer. Also note that anyone wanting to assume a mortgage must qualify for it under current lender guidelines. Your mortgage professional can lead you through this process.

What’s Your Number? How Credit Scores Work

When you apply for a mortgage, your credit profile is often more important than the income and assets you can show a lender.

Your credit report is a picture, over time, of how you have managed credit. This gives a lender an idea of how you’ll manage the loan if it grants you a mortgage.

How does the lender get this report? Three credit bureaus manage credit data: Experian, Equifax, and TransUnion. When you borrow money, charge something, or make a payment, your creditor notifies one or all of these bureaus.

When you apply for a mortgage, your lender orders a credit report, which contains data from all three bureaus. Each of the three bureaus generates a credit score using a scoring model (they all use the same model), and this is included on the report.

At times, different bureaus may have different information, and hence will report different scores. The lender will use the middle score of the three as your “credit score” when evaluating your borrower profile.

There are many components that make up your credit score. Two of the most significant are your recent payment habits and your balance-to-limit ratio.

Your recent payment habits (the past one to two years) give the lender an idea of how well you stay on top of your monthly obligations. The balance-to-limit ratio takes a different perspective. It shows how much debt you have in relation to how much credit you have available.

An example of this would be multiple maxed-out credit cards. Even if you are paying all of your bills on time 100% of the time, you still may be overextended, and this will lower your credit score.

If you’d like to find out more about how credit scores are calculated or what you can do to affect your score, contact your mortgage professional for details.

What Is an Escrow Account, and How Does It Work?

There are two types of costs involved in taking out a mortgage.

First, there are the initial outlays such as down payment, appraisal cost, and lender fees.

Second, once you own the property, you’ll have ongoing expenses such as property taxes and homeowner’s insurance.

To help you manage these ongoing expenses, your mortgage servicer (which may be different than your lender) will set up an escrow account. You’ll pay into it each month as part of your mortgage payment. Your servicer will then pay certain expenses out of the escrow account on your behalf when they are due.

You may wonder why you can’t simply pay all of this on your own. In some cases, especially with larger down payments, you can. In many instances, though, particularly with FHA loans, this account is required.

There are several reasons lenders do this. The first is that it forces you to plan for expenses that will be payable eight, ten, or twelve months down the road. It also protects you from defaults. For example, if you were to stay current on your mortgage payments but fall behind on the property taxes, your taxing body could take ownership of the property.

Over time, expenses such as homeowner’s insurance may change. To adjust for these changes, once a year your escrow payment is adjusted. If too much was collected, a refund is issued. If there is a shortage, money is collected or added to future payments.

For more information on escrow accounts, contact your mortgage professional.

What Exactly Is a HELOC?

A HELOC is a home equity line of credit. Equity in a property is the difference between its market value and what you owe on it.

For example, a homeowner who has a property worth $150,000 and has a mortgage balance of $120,000 has $30,000 of equity in the property. To access some of this equity for your own use, you could look into taking out a HELOC.

A HELOC is a mortgage, separate from the one you may already have. To get one, you would go through a similar process as you would for a traditional mortgage. Income, assets, and credit are all considered.

Common uses for HELOC funds include home improvements and college tuition. Because it is a line of credit, as opposed to a loan, a HELOC works more like a credit card.

As with a credit card, you are able to purchase items and then pay down the balance over time. As you reduce that balance, you are then able to borrow the same money again and again.

While they operate in a similar fashion, HELOCs offer two advantages over credit cards. The first is a lower interest rate. The second concerns taxes. Often, the interest paid on a HELOC is tax-deductible.

The HELOC is a line of credit, which is different from a home equity loan. The equity loan has a fixed payment over time.

With a HELOC, the interest rate can fluctuate, so the payment amount can also change. This means that your qualifying income must be high enough that you can make the payments when they are high.

Interest rates are also typically higher on HELOCs than they are on fixed-rate mortgages. This is because, in the case of default, the first mortgage lender will get paid back first. This puts more risk on the HELOC lender.

For additional information on HELOCs, contact your mortgage professional.

Mortgage Insurance 101: What You Need to Know

Mortgage insurance is insurance that lenders take out and borrowers pay for, to help offset losses that lenders incur.

There are two types of mortgage insurance. The first covers conventional mortgages. These mortgages use guidelines from Fannie Mae or Freddie Mac.

With this type of loan, if you put down less than 20% of the purchase price, you’ll be required to pay for mortgage insurance. In the case of a refinance, if you have less than 20% equity (market value minus financed amount), you will also pay mortgage insurance.

The cost of mortgage insurance is based on the amount of equity you have in the property and other factors, such as credit scores.

At some point in the life of the loan, you will be able to remove this mortgage insurance. This typically occurs once you have built up more than 20% equity.

The second type covers FHA loans. With FHA loans, there are actually two types of mortgage insurance. One of them you pay as a one-time fee.

This is called the upfront premium and can either be paid at closing or financed into your loan. As of early 2018, this premium was 1.75% of the amount being financed.

The other type of FHA mortgage insurance is called an annual premium. It is paid on a monthly basis. Unlike with conventional loans, this premium will likely remain on the loan until the loan is paid off through the sale of the property or a refinance.

Contact your mortgage professional for more details.

What Exactly Is a HELOC?

A HELOC is a home equity line of credit. Equity in a property is the difference between its market value and what you owe on it.

For example, a homeowner who has a property worth $150,000 and has a mortgage balance of $120,000 has $30,000 of equity in the property. To access some of this equity for your own use, you could look into taking out a HELOC.

A HELOC is a mortgage, separate from the one you may already have. To get one, you would go through a similar process as you would for a traditional mortgage. Income, assets, and credit are all considered.

Common uses for HELOC funds include home improvements and college tuition. Because it is a line of credit, as opposed to a loan, a HELOC works more like a credit card.

As with a credit card, you are able to purchase items and then pay down the balance over time. As you reduce that balance, you are then able to borrow the same money again and again.

While they operate in a similar fashion, HELOCs offer two advantages over credit cards. The first is a lower interest rate. The second concerns taxes. Often, the interest paid on a HELOC is tax-deductible.

The HELOC is a line of credit, which is different from a home equity loan. The equity loan has a fixed payment over time.

With a HELOC, the interest rate can fluctuate, so the payment amount can also change. This means that your qualifying income must be high enough that you can make the payments when they are high.

Interest rates are also typically higher on HELOCs than they are on fixed-rate mortgages. This is because, in the case of default, the first mortgage lender will get paid back first. This puts more risk on the HELOC lender.

For additional information on HELOCs, contact your mortgage professional.

Mortgage Insurance 101: What You Need to Know

Mortgage insurance is insurance that lenders take out and borrowers pay for, to help offset losses that lenders incur.

There are two types of mortgage insurance. The first covers conventional mortgages. These mortgages use guidelines from Fannie Mae or Freddie Mac.

With this type of loan, if you put down less than 20% of the purchase price, you’ll be required to pay for mortgage insurance. In the case of a refinance, if you have less than 20% equity (market value minus financed amount), you will also pay mortgage insurance.

The cost of mortgage insurance is based on the amount of equity you have in the property and other factors, such as credit scores.

At some point in the life of the loan, you will be able to remove this mortgage insurance. This typically occurs once you have built up more than 20% equity.

The second type covers FHA loans. With FHA loans, there are actually two types of mortgage insurance. One of them you pay as a one-time fee.

This is called the upfront premium and can either be paid at closing or financed into your loan. As of early 2018, this premium was 1.75% of the amount being financed.

The other type of FHA mortgage insurance is called an annual premium. It is paid on a monthly basis. Unlike with conventional loans, this premium will likely remain on the loan until the loan is paid off through the sale of the property or a refinance.

Contact your mortgage professional for more details.