Our team often receives inquiries regarding neighborhood information including detailed demographics data. Below is a link to a powerful system that allows you to search by street and city to get a detailed report on everything from population to unemployment to school information. This information is provided through a third party to The Orange County Association of Realtors. The Orange County Association of Realtors has additional information available for consumers. If you are interested in more information about the Orange County Association of Realtors, you may visit their website: www.OCAR.org
Our team often receives inquiries regarding the meaning of various terms used in the Real Estate Industry. Below is a list of definitions of common real estate terms compiled by the California Association of Realtors. If you are interested in more consumer information from the California Association of Realtors, you may visit their website: www.CAR.org
|7/23 and 5/25 Mortgages||Mortgages with a one-time rate adjustment after seven years and five years, respectively.|
|3/1, 5/1, 7/1 and 10/1 ARMs||Adjustable-rate mortgages in which the rate is fixed for three-year, five-year, seven-year and 10-year periods, respectively, but may adjust annually after that.|
|Acceleration||The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgager (borrower), or by using the right vested in the due-on-sale clause.|
|Adjustable-Rate Mortgage (ARM)||A loan on which the monthly payments will increase or decrease over time, based on changes in the ARM?s interest rate index. ARM payments typically are adjusted every six months or once a year. Common indices to which ARMs are tied include the 11th District Cost of Funds, one-year T-note and six-month T-bill.|
|Adjusted Basis||The cost of a property plus the value of any capital expenditure for improvements to the property minus any depreciation taken.|
|Adjustment Date||The date that the interest rate changes on an adjustable-rate mortgage.|
|Adjustment Interval||The interval between changes on an adjustable-rate mortgage in the interest rate and/or monthly payment; typically one, three or five years depending on the index.|
|Adjustment Period||The period elapsing between adjustment dates for an adjustable-rate mortgage.|
|Affordability Analysis||An analysis of a buyer?s ability to afford the purchase of a home. Reviews income, liabilities and available funds. Considers the type of mortgage you plan to use, the area where you want to purchase a home and the probable closing costs.|
|Amortization||The gradual repayment of a mortgage through monthly (e.g. installment) payments. In the early years of a mortgage, most of the monthly payment goes toward interest. Later in the mortgage, more of the payment goes toward reducing the loan?s principal balance.|
|Amortization Term||The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.|
|Annual Percentage Rate (APR)||The annual cost of a mortgage, including interest, loan fees and other costs, stated as a percentage of the loan amount.|
|Appraisal/Appraised Value||An opinion of the market value of a home expressed by a real estate appraiser.|
|Arbitration||The term used to describe a form of dispute resolution that occurs outside of the court system, usually by private agreement between parties. Basically, arbitration is a dispute resolution system where the parties submit arguments and evidence to a neutral person, known as the arbitrator, who then renders a decision, called an award, based upon the evidence and arguments presented.|
|Assessment||A local tax levied against a property for a specific community purpose, such as a sewer or streetlights.|
|Assignment||The transfer of a contractual interest or obligation from one person to another such as, but not limited to, a transfer of a mortgage obligation. Assignment is a legal term used to transfer interest from one contract to another.|
|Assumable Mortgage||An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, a new buyer may not assume the mortgage.|
|Assumption||The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money by acquiring an existing mortgage debt, instead of obtaining a new mortgage where closing costs and market-rate interest charges will apply.|
|Assumption Fee||The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.|
|Balloon Mortgage||A loan that is amortized for a longer period than the term of the loan. Usually this refers to a 30-year amortization and a five-year term. At the end of the term of the loan, the remaining outstanding principal on the loan is due.|
|Balloon Payment||The final lump sum paid at the maturity date of a balloon mortgage.|
|Biweekly Payment Mortgage||A plan to make mortgage payments every two weeks (instead of the standard monthly payment schedule). The 26 (or 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial saving in interest.|
|Blanket Mortgage||A mortgage covering at least two pieces of real estate as security for the same mortgage.|
|Borrower (Mortgager)||One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.|
|Bridge Loan||A second trust for which the borrower?s present home is collateral, allowing the proceeds to be used to close on a new house before the present home is sold. Also known as a “swing loan.”|
|Broker||An individual who assists with arranging funding or negotiating contracts for a client but who does not loan the money himself or herself. Brokers usually charge a fee or receive a commission for their services.|
|Buy-down||When the lender and/or the homebuilder subsidize a mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.|
|Caps||Provisions of an adjustable-rate mortgage limiting how much the interest rate can change at each adjustment period (e.g., every six months, once a year) or over the life of the loan (rate cap). A payment cap limits how much the payment due on the loan can increase or decrease.|
|Cash Flow||The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income-producing property (mortgage payment, maintenance, utilities, etc.).|
|Certificate of Eligibility||The document given to qualified veterans entitling them to VA-guaranteed loans for homes, businesses and mobile homes. Certificates of eligibility may be obtained by sending form DD-214 (Separation Paper) to the local Veterans Affairs office with VA form 1880 (request for Certificate of Eligibility).|
|Certificate of Reasonable Value (CRV)||An appraisal issued by Veterans Affairs showing the property?s current market value.|
|Certificate of Veteran Status||The document given to veterans or reservists who have served 90 days of continuous active duty (including training time). It may be obtained by sending DD 214 to the local Veterans Affairs office with form 26-8261a (request for certificate of veteran status; this document enables veterans to obtain lower downpayments on certain FHA-insured loans).|
|Change Frequency||The frequency (in months) of payment and/or interest rate changes on an adjustable-rate mortgage.|
|Closing||The meeting at which a home sale is finalized. The buyer signs the mortgage, pays closing costs and receives title to the home. The seller pays closing costs and receives the net proceeds from the home sale.|
|Closing Costs||Expenses in addition to the price of the home incurred by buyers and sellers when a home is sold. Common closing costs include escrow fees, title insurance fees, document recording fees and real estate commissions.|
|COFI||An adjustable-rate mortgage with a rate that adjusts based on a cost-of-funds index, often the 11th District Cost of Funds.|
|Construction Loan||A short-term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he or she progresses.|
|Consumer Reporting Agency (or Bureau)||An organization that handles the preparation of reports used by lenders to determine a potential borrower?s credit history. The agency gets data for these reports from a credit repository and other sources.|
|Contingency||A condition that must be fulfilled before a contract is binding.|
|Contract Sale or Deed||A contract between purchaser and seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.|
|Conventional Mortgage||A loan not guaranteed, insured or made by the federal or state government.|
|Conversion Clause||A provision in an adjustable-rate mortgage allowing the loan to be converted to a fixed-rate mortgage at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.|
|Counteroffer||An offer in response to an original offer.|
|Credit Report||A report documenting the credit history and current status of a borrower?s credit standing.|
|Credit Risk Score||A credit risk score is a statistical summary of the information contained in a consumer?s credit report. The most well-known type of credit risk score is the Fair, Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.|
|Default||Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.|
|Deferred Interest||When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.|
|Delinquency||Failure to make payments on time. This can lead to foreclosure.|
|Department of Veterans Affairs (VA)||An independent agency of the federal government that guarantees long-term, low- or no-downpayment mortgages to eligible veterans.|
|Debt-To-Income (DTI) Ratio||The ratio of monthly debt payments to monthly gross income. Lenders use a housing DTI ratio (house payment divided by monthly income) and a total DTI ratio (total debt payments including the house payment divided by monthly income) to determine whether a borrower?s income qualifies him or her for a mortgage.|
|Deed||A legal document conveying ownership of property.|
|Downpayment||The portion of the home?s purchase price the buyer pays in cash.|
|Due-on-Sale-Clause||A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.|
|Earnest Money||The deposit given by a buyer to a seller to show that the buyer is serious about purchasing the home. Earnest money usually is refundable to homebuyers in the event a contingency of the sales contract cannot be met.|
|Entitlement||The Veterans Affairs home loan benefit (i.e., entitlement for a VA-guaranteed home loan). This is also known as eligibility.|
|Equal Credit Opportunity Act (ECOA)||A federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.|
|Equity||The difference between a home?s value and the mortgage amount owed on the home.|
|Escrow||The holding of documents and money by a neutral third party prior to closing.|
|Escrow Disbursements||The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance and other property expenses as they become due.|
|Escrow Payment||The part of a mortgager?s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due.|
|Exclusive Right to Sell Listing||A contract giving an agent the exclusive right to market a property under a certain time frame.|
|Exclusive Agency Listing||A contract giving the broker the right to market an owner?s property for a certain period of time, but also allowing the owner to sell the property during that period without paying a commission.|
|Farmers Home Administration (FmHA)||Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.|
|Federal Housing Administration (FHA)||A division of the Department of Housing and Urban Development whose main activity is insuring residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.|
|Federal National Mortgage Association (Fannie Mae)||A privately owned corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by Federal Housing Administration or guaranteed by Veterans Affairs. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable. Fannie Mae and Freddie Mac are the key secondary mortgage-market agencies.|
|FHA Loan||A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderately priced homes almost anywhere in the country.|
|FHA Mortgage Insurance||Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the downpayment, the more years the fee must be paid.|
|Firm Commitment||A promise by Federal Housing Administration to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.|
|First Mortgage||The primary lien against a property.|
|Fixed Installment||The monthly payment due on a mortgage loan, including payment of both principal and interest.|
|Fixed-Rate Mortgage (FRM)||A loan on which the interest rate and monthly payment do not change.|
|For Sale By Owner (FSBO)||The owner sells his or her home without a REALTOR® to avoid paying a sales commission.|
|Foreclosure||A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.|
|Federal Home Loan Mortgage Corporation (Freddie Mac)||A quasi-governmental, privately owned agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers. Fannie Mae and Freddie Mac are the key secondary mortgage-market agencies|
|Fully Amortized ARM||An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.|
|Graduated-Payment Mortgage (GPM)||A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.|
|Growing-Equity Mortgage (GEM)||A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.|
|Guaranty||A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.|
|Guarantee Mortgage||A mortgage that is guaranteed by a third party.|
|Hazard Insurance||A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.|
|Homeowner?s Warranty||A policy that covers certain repairs (e.g. plumbing or heating) of a newly purchased home for a certain period of time.|
|Housing Expenses-to-Income Ratio||The ratio, expressed as a percentage, which results when a borrower?s housing expenses are divided by his or her gross monthly income.|
|HUD-1 statement||A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points and initial escrow amounts. A separate number within a standardized numbering system represents each item on the statement. The totals at the bottom of the HUD-1 statement define the seller?s net proceeds and the buyer?s net payment at closing.|
|Impound Account||An account established by a lender to collect a borrower?s property tax and insurance payments. Impound accounts are normally required on mortgages with down payments of 10 percent or less.|
|Index||A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one-, three- and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.|
|Indexed rate||The sum of the published index plus the margin. For example if the index were 9 percent and the margin 2.75 percent, the indexed rate would be 11.75 percent. Often, lenders charge less than the indexed rate the first year of an adjustable-rate mortgage.|
|Initial Interest Rate||This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It?s also known as “start rate” or “teaser.”|
|Installment||The regular periodic payment that a borrower agrees to make to a lender.|
|Insured Mortgage||A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).|
|Interest||The fee charged for borrowing money.|
|Interest Accrual Rate||The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.|
|Interest Rate Buydown Plan||An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor?s monthly payments during the early years of a mortgage.|
|Interest Rate Ceiling||For an adjustable-rate mortgage, the maximum interest rate as specified in the mortgage note.|
|Interest Rate Floor||For an adjustable-rate mortgage, the minimum interest rate as specified in the mortgage note.|
|Interim Financing||A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.|
|Investor||A money source for a lender.|
|Lease-Purchase Mortgage Loan||An alternative financing option that allows low- and moderate-income homebuyers to lease a home with an option to buy. Each month?s rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a downpayment.|
|Liabilities||A person?s financial obligations. Liabilities include long-term and short-term debt.|
|Lien||A claim upon a piece of property for the payment or satisfaction of a debt or obligation.|
|Lifetime Payment Cap||For an adjustable-rate mortgage, a limit on the amount that payments can increase or decrease over the life of the mortgage.|
|Lifetime Rate Cap||For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease over the life of the loan.|
|Listing||A property placed on the market by a listing agent.|
|Loan||A sum of borrowed money (principal) that is generally repaid with interest.|
|Loan-to-Value (LTV) Ratio||The ratio of the amount of money owed on a home to the home?s value. The LTV ratio for a $100,000 home financed with a $90,000 mortgage would be 90 percent, for example.|
|Lock||Lender?s guarantee that the mortgage rate quoted will be good for a specific number of days from day of application.|
|Margin||The amount a lender adds to the index on an adjustable-rate mortgage to establish the adjusted interest rate.|
|Market Value||The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.|
|Maturity||The date on which the principal balance of a loan becomes due and payable.|
|Mediation||A process used to resolve disputes. In mediation, the parties to the dispute are assisted by a neutral third person called a mediator. The mediator is not empowered to impose a settlement or decision on the parties; rather, the mediator facilitates discussions and negotiation between the parties with the goal of assisting the parties in reaching a mutually acceptable settlement of their dispute.|
|MIP (Mortgage Insurance Premium)||Insurance from FHA to the lender against incurring a loss on account of the borrower?s default.|
|Monthly Fixed Installment||That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn?t cover all of the interest. The loan balance therefore increases instead of decreasing.|
|Mortgage||A legal document that pledges a property to the lender as security for payment of a debt.|
|Mortgage Banker||A company that originates mortgages for sale into the secondary mortgage market (e.g., Fannie Mae and Freddie Mac).|
|Mortgage Broker||An individual or company that arranges mortgage financing between a borrower and a lender.|
|Mortgage Insurance||Money paid to insure the mortgage when the down payment is less than 20 percent.|
|Mortgage Life Insurance||A type of term life insurance specifying that in the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.|
|Mortgage Interest Deduction||The ability of mortgage borrowers to deduct the interest paid on a home loan for purposes of federal and state income taxes.|
|Mortgager||The borrower or homeowner.|
|Multiple Listings Service (MLS)||The service combines the listings for all available homes in an area, except for For-Sale-By-Owner properties, in one directory or database.|
|Negative Amortization||Occurs when monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.|
|Net Effective Income||The borrower?s gross income minus federal income tax.|
|Net Listing||A listing agreement in which the broker?s commission consists of the amount above a net price set by the owner. If the net price is not met, a commission is not earned.|
|Non-assumption Clause||A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.|
|Note||A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.|
|One-year Adjustable||Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin chosen by the lender.|
|Open Listing||A property marketed by more than one agent at a time.|
|Origination Fee||A fee charged by a lender for making a mortgage.|
|Owner Financing||A property purchase transaction in which the party selling the property provides all or part of the financing.|
|Payment Change Date||The date when a new monthly payment amount takes effect on an adjustable-rate mortgage or a graduated-payment mortgage. Generally, the payment change date occurs in the month immediately after the adjustment date.|
|Periodic Payment Cap||A limit on the amount that payments can increase or decrease during any one adjustment period.|
|Periodic Rate Cap||A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.|
|Permanent Loan||A long-term mortgage, usually 10 years or more. Also called an “end loan.”|
|PITI||Principal, interest, taxes and insurance — the primary components of a monthly mortgage payment.|
|Pledged-account Mortgage (PAM)||Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.|
|Points||One point equals 1 percent of the mortgage amount. Points are charged by lenders to increase the lender?s return on the mortgage. Typically, lenders may charge anywhere from zero to two points. Loan points are tax-deductible.|
|Power of Attorney||A legal document authorizing one person to act on behalf of another.|
|Pre-approval||The process of determining how much money you will be eligible to borrow before you apply for a loan.|
|Prepaid Expenses||Necessary to create an escrow account or to adjust the seller?s existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.|
|Prepayment||A privilege in a mortgage permitting the borrower to make payments in advance of their due date.|
|Prepayment Penalty||Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.|
|Primary Mortgage Market||Lenders, such as savings-and-loan associations, commercial banks and mortgage companies, who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to the secondary mortgage markets.|
|Principal||The loan amount borrowed or still owed.|
|Private Mortgage Insurance (PMI)||Insurance issued by private insurers that protects lenders against a loss if a borrower defaults on a mortgage with a low downpayment (e.g., less than 20 percent).|
|Qualifying Ratios||Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations|
|Rate Lock||A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.|
|Real Estate Settlement Procedures Act (RESPA)||A consumer protection law that requires lenders to give borrowers advance notice of closing costs. RESPA is a federal law that, among other things, allows consumers to review information on known or estimated settlement cost after application and prior to or at settlement. The law requires lenders to furnish the information after application only.|
|REALTOR®||A real estate broker or agent who, as a member of a local association of REALTORS®, a state association of REALTORS® and the NATIONAL ASSOCIATION OF REALTORS® (link to www.onerealtorplace.com), adheres to high standards of professionalism and a strict code of ethics.|
|Recission||The cancellation of a contract by putting all parties back to the position before they entered the contract. In some mortgage financing situations involving equity in the home as security, the law gives the homeowner three days to cancel a contract.|
|Recording Fees||Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.|
|Refinance||Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.|
|Renegotiable Rate Mortgage||A loan in which the interest rate is adjusted periodically.|
|Reverse Annuity Mortgage (RAM)||A form of mortgage in which the lender makes periodic payments to the borrower using the borrower?s equity in the home as collateral for and repayment of the loan.|
|Revolving Liability||A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services.|
|Satisfaction of Mortgage||The document issued by the mortgagee when the mortgage loan is paid in full. Also called a “release of mortgage.”|
|Second Mortgage||A mortgage made subsequent to another mortgage and subordinate to the first one.|
|Secondary Mortgage Market||The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.|
|Security||The property that will be pledged as collateral for a loan.|
|Seller Carry-back||An agreement in which the seller provides financing, often in combination with an assumable mortgage.|
|Seller Financing||A financing agreement in which a seller provides part (or all) of the financing needed by a buyer to purchase the seller?s home.|
|Servicer||An organization that collects principal and interest payments from borrowers and manages borrowers? escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.|
|Servicing||All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.|
|Shared-Appreciation Mortgage (SAM)||A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to a mortgage where the borrower shares the monthly principal and interest payments with another party in exchange for part of the appreciation.|
|Simple Interest||Interest that is computed only on the principle balance.|
|Standard Payment Calculation||The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.|
|Step-Rate Mortgage||A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.|
|Survey||A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.|
|Sweat Equity||Equity created by a purchaser performing work on a property being purchased.|
|Third-Party Origination||When a lender uses another party to completely or partially originate, process, underwrite, close, fund or package the mortgages it plans to deliver to the secondary mortgage market.|
|Title||A legal concept relating to ownership of property.|
|Title Insurance||Insurance to protect the buyer and lender against losses arising from disputes over the ownership of a property.|
|Title Search||An examination of public records to determine the legal ownership of property. Usually the records are recorded with the County Recorders office. The search is usually performed by a title company using computerized records.|
|Total Expense Ratio||Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.|
|Truth In Lending Act||A federal law requiring disclosure of the annual percentage rate to homebuyers shortly after they apply for the loan. Also known as Regulation Z.|
|Two-Step Mortgage||A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years.|
|Underwriting||The process of evaluating a loan application to determine if it meets the lender?s standards.|
|Usury||Interest charged in excess of the legal rate established by law.|
|VA Loan||A long-term, low- or no-downpayment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.|
|VA Mortgage Funding Fee||A premium of up to 1.5 percent (depending on the size of the downpayment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.|
|Verification of Deposit (VOD)||A document signed by the borrower?s financial institution verifying the status and balance of that person?s financial accounts.|
|Warehouse Fee||Many mortgage firms must borrow funds on a short-term basis in order to originate loans that are to be sold later in the secondary mortgage market or to investors. When the prime rate of interest is higher on short-term loans than on mortgage loans, the mortgage firm has an economic loss that is offset by charging a warehouse fee.|
|Wraparound Mortgage||Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.|
|This information is deemed reliable but is not guaranteed. This information is provided by a third party. Information provided is subject to change without notice.|
Our team often receives inquiries regarding Title Insurance. Below is a directory of documents to answer some of your questions. These documents have been created and provided to us by our preferred title insurance provider, California Title Company. California Title Company has additional resources available. If you are interested in more information about California Title Company, you may visit their website: www.CalTitle.com
|Why You Need Title Insurance||What Is A Payoff?|
|20 Reasons For Title Insurance||Reconveyance Of Title|
|Common Ways To Hold Title In CA||What Is An Easement?|
|About Title Insurance||About Property Encroachments|
|50 Ways To Lose Your Property||About “Right Of Survivorship”|
|Comparison Of Title Coverage||Why Refinancing Requires Insurance|
|The life Of A Title Search||Bankruptcy And Judgement Liens|
|About Preliminary Title Reports||Why Documents Get Rejected|
|Common Title Obstacles||Undisclosed And Missing Heirs|
|Closing & Title Costs||Sub Escrow As A Service Of Title|
|Sell With A Binder To Insure A Sale||About Statements Of Information|
|Requirements For Insuring Living Trusts||Statement of Facts|
|ALTA Residential Policy||Information About A “Section Of Land”|
|This information is deemed reliable but is not guaranteed. This information is provided by a third party. Information provided is subject to change without notice.|
Our team often receives inquiries regarding the Escrow process. Below is a directory of documents to answer some of your questions. These documents have been created and provided to us by our preferred escrow service, Pickford Escrow. Pickford Escrow has additional resources available. If you are interested in more information about Pickford Escrow, you may visit their website: www.PickfordEscrows.com
|A Brisk Walk
Through The Basics
|The Life of
|The Life of an
|The Loan Process and
|Your Escrow Officer
|This information is deemed reliable but is not guaranteed. This information is provided by a third party. Information provided is subject to change without notice.|
Located in South Orange County in the Saddleback Valley, Mission Viejo’s population just exceeds 100,000.
Named the safest city in the US in 2007 by Morgan Quitno Press, this mainly residential community features a large number of single family homes, a community college, a man-made recreational lake, regional hospital and a popular mall in addition to other shopping and entertainment areas.
As the first successful master planned community in the United States, Mission Viejo has proven to be a major success story.
City amenities include access to the Mission Viejo Lake, many parks and sports fields, community swimming pools and spas, access to miles of hiking and biking trails, golf, tennis and more!
The City of Rancho Santa Margarita amenities include access to the Santa Margarita Lake and Beach Club, many parks and sports fields, community swimming pools and spas, access to miles of hiking and biking trails, golf, tennis and more! This wonderful master-planned city also includes a community center, huge central park that plays host to a summer concert series, and repeatedly finds itself at the top of the FBI’s list of “safest cities in America”.
Mayor Delivers Good News About the State of the City
“At a time when our nation, state and many local government agencies are drowning in debt and deficits, the City of Rancho Santa Margarita continues to thrive.”
Mayor Tony Beall
- Despite the economic challenges facing our nation and state, the City of Rancho Santa Margarita finished the 2010-2011 Fiscal Year with a budget surplus of $1,002,174 and $19.4 million in reserve.
Safest City in the State
- For ten consecutive years, the City of Rancho Santa Margarita has been ranked as one of the safest communities in California.
- This year, for the second year in a row, according to the FBI Uniform Crime Report, Rancho Santa Margarita was ranked as the #1 safest city in the State of California for cities with a population greater than 20,000 residents!
- In fact, in 2010 Rancho Santa Margarita experienced its lowest crime rate since becoming a City in 2000!
Transparent and Open Government
- Especially during these challenging times, when so many in our country have lost faith in their government officials, the City of Rancho Santa Margarita has promoted openness and transparency by redesigning the City’s website to make it more user-friendly. For example, we’ve added:
- Audio streaming to allow residents to listen to meetings
- E-comment feature allowing electronic submission of comments on all agenda items
- Twitter, YouTube, and Flickr
- Mello-Roos Information Search Tool
Innovative Leaders Achieve Success
- One of the first cities in the State to adopt a two-tiered Pension Reform Plan to ensure future solvency and sustainability.
- Successfully negotiated the sale of Rancho Santa Margarita’s total allocation of “Rule 20A funding credits” with the City of Laguna Beach and Southern California Edison, converting those seemingly worthless credits into nearly half a million dollars cash for Rancho Santa Margarita.
- Successfully completed an update audit of every Mello-Roos tax district in the City and confirmed Rancho Santa Margarita is entitled to receive more than $500,000 in reimbursement for infrastructure costs previously paid for with City funds.
- Despite the challenges posed by the national and state economic situation, many existing local businesses have expanded or have plans to further expand their operations, including Verizon, Applied Medical, Selma’s, Hanna’s, Tilly’s, and Cinnamon Productions.
- Numerous new businesses have opened to become part of Rancho Santa Margarita this past year, including BJ’s Restaurant and Brewhouse, Ulta, Sears Home Appliance Showroom, Academic Learning Labs, LNF Home Creative Transformations, Marque Urgent Care, Togo’s and Embarcadero Restaurant.
- In-n-Out Burger has also made a commitment to invest in Rancho Santa Margarita and plans to open a location on Santa Margarita Parkway next year.
- The City is seeking to engage a project manager for development of the “Chiquita Ridge Property,” a project that would include the largest regional sports park in O.C. and significant new commercial/retail business opportunities.
- New Year’s Eve “Celebrating Family and Friends” – Brings together thousands of children and adults to enjoy good food, low-cost activities, and free entertainment in an alcohol-free setting.
- Summer Concert Series – Thousands gathered in Central Park to relax and enjoy the evening, and their city, to the sounds of their favorite bands.
- Hyundai Hope on Wheels 5K – The City partnered with Hyundai to bring back to Rancho Santa Margarita this signature community event which was entirely underwritten by the generous support of Hyundai Motor Corporation. Best of all, the event raised $50,000 to benefit CHOC Children’s Hospital to fund pediatric cancer research!
- Support for the City’s Adopted 2/5 Marine Battalion – The City partnered with Santa Margarita Ford to host a 2/5 Ooh-Rah! Car Wash to assist families during the long periods of deployment.
- Solemn Patriot Day Ceremony – This year’s event was a special observance of the 10th anniversary of the 9-11 terrorist attacks, as well as a special tribute to Corporal Jordan Stanton, a hometown hero who gave his life defending freedom in Afghanistan as part of Operation Enduring Freedom.
- Flag Retirement Ceremony – The City partnered with the American Legion to retire worn flags in a sacred and honored ceremony.
- Community Emergency Preparedness Academy – The City sponsored program provides residents with critical information and skills to sustain themselves and their families for up to 72 hours without the support of emergency responders.
- Student Recognition Program – The City Council recognizedoutstanding students from virtually all Rancho Santa Margarita public and private schools for their academic and citizenship achievements.
- Programs and Classes – More than 200 programs were offered for preschoolers, youth, adults and seniors with topics ranging from arts to fitness and guitar to sewing.
- Summer Camps – Nearly 30 different camps engaged children in learning about engineering, cheerleading, art, animation, cooking and magic.
Welcomed the Prime Minister of Latvia to Rancho Santa Margarita
- Prime Minister Dombrovskis and a trade delegation of 40 business and political officials were welcomed at City Hall to celebrate the opening of a Latvian Honorary Consulate in Rancho Santa Margarita and the appointment of Honorary Consul Dr. Juris Bunkis, to promote political dialogue and economic development between the business communities.
- Recipient of the prestigious Certificate of Achievement in Financial Reporting by the Government Finance Officers Association of the United States and Canada.
- Named the “Best Family-Friendly City” by Parenting OC Magazine.
Located adjacent to the Saddleback Mountains, Coto de Caza is a magnificent 5,000 acre private guard-gated community in South Orange County. Miles of unspoiled natural beauty abound in this community making it one of the most prestigious master-planned communities in the United States.
The community of Coto de Caza is truly “one of a kind” and offers its residents a distinctive way of life through its countless ammenities.
Enjoy the sprawling natural landscape, the winding trails that take you to the reaches of the Cleveland National Forest, the countless sports fields and courts complete with recreational activities, clubhouses, golf, swimming, tennis, and the tranquil parks that makes Coto one of the most sought after communities to live and play.
As of the 2000 census, Coto de Caza had a total population of 13,057. This rural community consists of about 4000 homes, it is one of Orange County’s oldest planned communities.
Community amenities additionally include parks with picnic tables, barbecues, and playgrounds, and even a dog park! Enjoy the equestrian center and access to miles of hiking and horse trails. Residents of Coto de Caza can relax comfortably in this 24 hour guard gated community. Coto de Caza Golf and Racquet Club additionally offer Optional golf or social memberships.
Coto de Caza Area Tour Video + Nearby Rancho Santa Margarita
With rolling hillside and valley terrain boasting picturesque views of mountains, streams, lush trails, pristine parks and city lights, Aliso Viejo is the envy of other cities throughout Orange County. The City offers a bevy of amenities that mirror its motto of “Live, Work, Learn, Shop and Play” and its City slogan: “Aliso Viejo – Experience it All.” Aliso Viejo is well-known as a strong and lively community designed to meet the growing needs of individuals, families, professionals and enterprising businesses. It is a balanced community with opportunities for housing, jobs, future-planned multi-modal transportation and recreation. An abundance of parks and trails, cultural and recreational activities and youth sports programs further enhance the quality of life for a community with a vision to ensure long-term viability.
Aliso Viejo Area Tour Video
Dove Canyon is a very private community tucked away in the foothills below Saddleback Mountain. From the frequently photographed waterfall a half mile before the grand entrance through wrought-iron gates to all the roses planted throughout the community, Dove Canyon has created the inviting, high-end lifestyle most communities only dream about. Community amenities include a Jr. Olympic swimming pool, spa, 4 lighted tennis courts, a park with full basketball court, grass area for playing, picnic tables, barbeques, and a playground. Enjoy access to miles of hiking and horse trails and relax comfortably in this 24 hour guard gated and patrolled community. Optional golf or social memberships to Dove Canyon Country Club may be available.
Dove Canyon Area Tour Video + Nearby Rancho Santa Margarita
Below you will find video animations that explain what is a short sale, how a short sale works, advantages of a short sale, and more short sale information.
VIDEO – What is a Short Sale?
VIDEO – Short Sale VS. Foreclosure
“Short sale” is one of the most misunderstood terms in the real estate industry. Whether you are a buyer looking for a bargain or a seller looking to get out from under a troubling loan situation, it pays to understand what short sales represent and the things you need to know before making any crucial decisions.
A Growing Trend
With the aftermath of the sub-prime mortgage meltdown and the subsequent fallout from so many questionable loans, more and more listings on today’s market are categorized as “short sales.” This is one of the most misunderstood terms in the real estate industry. As a real estate professional working with both sellers and buyers, I come across short sale situations every day. I’ve found that people who know what they are doing are able to avoid the common pitfalls and make good financial decisions for their future, whether you are a buyer looking to find a good deal on a home or a seller looking to get out from under your upside-down loan.
The Definition of a Short Sale
Let’s start with a basic definition of a short sale. A short sale (also known as a “short payoff”) occurs when a lender or lenders accept a discounted payoff on an existing mortgage. Generally, they agree to minimize—and sometimes completely eliminate—closing costs for the homeowner in order for the bank to avoid the costs and hassles of foreclosure. In other words, when a homeowner owes more than can be collected through the traditional sale of their property, a short sale allows them to sell the property before it gets foreclosed upon, thus lessening—and in some cases, eliminating—the negative impact on the individual’s credit rating.
The Definition of a Compromise Sale
If the seller has other assets or is gainfully employed, the lender might choose to do a compromise sale. In a compromise sale, the lender will place a short demand into escrow that allows the sale to close, but will require a payoff from the seller for the balance still owed. This note may be secured by other real property or it may be a personal note.
Know How to Make the Right Decisions
Though it’s important to know about the compromise sale option, my focus in this special report is on short sales. My goal is to provide you with the education and insights you need before going down the complex path of the short sale. Whether you are a buyer looking to purchase a short sale property or a seller looking for short sale approval on your property that may be worth less than you still owe, this report will outline the pros and cons of short sales. Here, you will find 10 of today’s most common myths about short sales along with the accurate information you need to know to make educated real estate decisions.
You will find that the first five myths are geared toward sellers and the last five are geared toward buyers, but I highly recommend studying all of them in order to have a full understanding of how short sales will affect every facet of your real estate experience.
Seller Myth #1:
It’s Easy to Get Approval from Your Bank to Conduct a Short Sale
Perhaps the biggest misconception about short sales is that it is easy to get the bank to agree to a reduced payoff on the loan. Many homeowners figure that as long as they are in a situation where their property is worth less than they owe, they are a candidate for a short sale—with the hopes of “breaking even” at the very least.
The truth is, it’s not that easy to get approved for a short sale. The thing to remember is that banks are always looking out for their own best interests. Nobody is more tuned into current property values than banks and they will generally do what’s best for their bottom line. Whether they foreclose or go to a short sale, they are taking a hit financially. So, if it makes more sense for them to foreclose on your property for any number of reasons, there is a good chance they will pursue that option. Rarely can the bank be swayed emotionally by your financial situation. Most times it comes down to this: if they feel they can save additional time and costs by approving a short sale, then they will be more willing to work it out with you.
The first thing you should do is consult with a real estate agent who understands short sales and has a strong grasp of the subtle intricacies of banks’ approval processes. A knowledgeable agent can offer you guidance throughout the short sale approval process. Then, once you and your agent have a good understanding of what you are asking for, contact your lender as soon as possible to discuss your situation, research your options and ultimately ask for a short sale approval on your property.
Seller Myth #2:
The Agreed-Upon Short Sale Price is the FINAL Price
This is where many sellers—and the buyers making offers—get caught off-guard by short sales. Though the initial short sale approval process is quite detailed and in-depth by the bank, they are primarily looking at the bottom line (that a short sale will cost them the least amount of extra time and money). Basically, with the initial price approval, they are willing to put the property out there as a short sale to see what they can get in return. They will determine a price range at that point, usually with a “bottom-end” price they are willing to accept.
Where it gets confusing is after a buyer makes an offer that is accepted by the seller and listing agent. That’s when the “real” short sale approval process begins. At this point, the bank will re-review the current market value of the property, including a full appraisal. They will also fully review the financial situations of both the seller and the buyer to ensure that their investment is safe. Through this detailed—and often quite lengthy—process, the bank will determine if they are still willing to accept the price. And so begins the frustrating part of the short sale roller coaster. They may choose to come back with a counter-offer or pull the plug on the listing altogether. Ideally, they will accept the offer and it will most likely go smoothly after that. But you always have to remember the bank will hold the cards as long as they want through what can be a lengthy process.
Seller Myth #3:
Defaulted Payments and Home Equity Loans Will Not Impact Short Sale Approval
Unfortunately, many sellers seeking short sale approval from their bank are under the impression that this is an opportunity to “cut the cord” and get out of their property clean and scot-free. As you can tell from reading this report, it’s not as simple as that.
In many cases, homeowners have defaulted on loan payments and/or Homeowner Association dues. If this is your situation, don’t go into the short sale process assuming that you will be absolved of these back payments. In fact, any money you owe will certainly factor into the short sale approval by your bank. You may come out of the short sale process still owing them money, it may become a compromise sale or you may not be approved for a short sale at all. Rather, the bank may opt for foreclosure if the payment situation is severe enough.
If you are considering seeking a short sale at all, it’s important that you keep your mortgage payments and HOA dues current. This will greatly improve your chances of getting your short sale approved. It will also help your credit rating. If all your payments are up to date, then a short sale will not have as much of a negative impact—and in some rare cases, not at all—on your credit score. If you have defaulted on payments, then it could have more of a negative impact on your rating.
If your payments are all up to date, then another option you can ask your real estate agent and lender about is offering your deed in lieu of foreclosure. In a nutshell, this is when you simply hand over your title deed to the bank before the foreclosure process begins. This can be a viable option to consider depending on your situation, but make sure you have the information and guidance you need from industry experts. Nothing is ever as simple as it seems.
Another factor that can come into play is if you have an outstanding home equity loan or second/third mortgage. If there are multiple lenders involved, it greatly complicates the approval process and lessens your likelihood of attaining short sale approval. The bank that holds your first loan will have the biggest say, but the more lenders and loans that are involved, the harder it will be to get a short sale agreement that is to everyone’s liking. In many cases the bank holding the second loan will not recover much—if any—money in a short sale. If your second loan is held by the same bank that holds the first, then it slightly increases your chances for approval.
Seller Myth #4:
Once Approved for a Short Sale, Your Worries of Slipping into Foreclosure Are Over
As we’ve discussed in previous myths, you must keep in mind the bank is always in control and always doing what’s in its best interest. Even though the bank has indicated it is willing to approve your short sale and allow your agent to put the listing on the market, they will always reserve the right to retract the offer and begin the foreclosure process. This can be a very frustrating experience for sellers looking to avoid the unpleasant foreclosure process.
Rarely will this happen once your short sale is approved, but it’s important to know that it can. Banks don’t like going through the foreclosure process any more than homeowners do, but they will do what they have to in order to do what they think will be best for their bottom line. So, if your listing stays on the market for a really long time or they begin to feel that the short sale listing price is too high to sell in the current market, then they may choose to pursue foreclosure of the property.
Again, it’s vital to know what you are getting into when selling your property via short sale. Make sure you read the paperwork thoroughly and look out for any deadlines or loopholes that might be included in the contracts. Don’t be afraid to speak with a real estate agent and lender in order to better understand the playing field when it comes to short sales and foreclosures.
Seller Myth #5:
Real Estate Agents Are “Cleaning Up” in the Short Sale Market
While it’s been a tough time for the majority of real estate agents out there in today’s market, some agents have been able to find business in the short sale and foreclosure markets of recent years. But it’s not a bed of roses. Listing agents are generally getting less commission in a short sale because of the bank’s heavy involvement and in order to keep seller’s closing costs to a minimum. With that said, it is often a lot more work for an agent to represent the listing because they are dealing with both the bank and the seller. There is a lot of going back and forth. They have to manage both sides to keep everyone as happy and informed as possible throughout the process, oftentimes acting as more than a regular agent. They are more like an interpreter, intermediary and peacekeeper.
Some agents do have relationships directly with specific banks and are representing any number of short sale or bank-owned (REO) properties at one time. Keep in mind that when working with an agent like this, their primary customer is generally the bank, so they may not be as attentive to the needs of the seller as they would like. It’s not always the case, but it can be. In fact, one of the most frustrating parts of short sales for agents and clients is the waiting game because it takes longer to get the information reviewed by all the parties involved.
That’s why it’s important to develop a relationship with an agent before you pursue a short sale approval—an agent who not only knows how the short sale market works, but is definitely on your side throughout the listing process (including escrow and closing). An experienced real estate professional—with the help of your lender—can help you explore all your options before you make decisions that will greatly impact your immediate financial future, as well as your credit rating for future purchases.
Short Sale Seller Tips:
1. CURRENT PAYMENTS. Keep your loan and HOA payments current to avoid credit problems and increase chances of short sale approval.
2. LENDER CONSULTATION. Talk to your lender as soon as possible to see what your short sale options are.
3. REALTOR® CONSULTATION. Talk to a real estate professional who understands short sales and can guide you through the approval and listing processes.
4. DO YOUR HOMEWORK. Be flexible in your expectations. Don’t automatically say “yes” or “no” to the first offer from the bank. Do your homework and make sure to consider all aspects of the offer against your financial situation to make the right decision.
5. EMOTIONAL VALUE. Don’t get over-attached to what you think your home is worth. In today’s changing market, values are always shifting. You have to set realistic expectations and be willing to accept what you can get
6. PROPERTY DAMAGE. No matter what, do not damage the property on the way out. In some cases, it can result in civil and sometimes even criminal litigation.
Buyer Myth #1:
Buyers Will Find the Short Sale Market Teeming with Incredible Values and Even Some Downright “Steals”
It is true that you can find some good deals with short sale properties. Unfortunately, most buyers go into their home search thinking they will save 10 percent, 20 percent or more when they purchase a short sale property. On average, most short sales will close at about 0-5 percent off the full market value.
The important thing to remember is just how savvy banks are. They are not going to approve a short sale if it’s not going to net a decent return for them. They are losing money no matter what, so they are going to try to lose as little money as possible. They know market values better than anyone and will set the price based on what they feel will be just low enough to sell, but will be closest to full market value.
So what does this mean to buyers? It means you can save a little money by buying a short sale property, but don’t always expect to find a “steal.” You must also be sure to factor in any renovation costs that may be associated with the property. With most short sale properties, it is truly “as-is” and there is rarely any “wiggle-room” in the negotiations for concessions or repairs. Because the seller is largely removed from the process, you will not easily be able to negotiate with the bank to make necessary fix-ups, replace carpet, paint, etc. If you know the property needs a lot of work, make sure to do a thorough evaluation of all the costs associated with renovating the property before you make your offer. Determine whether the reduction in selling price is worth what it will take to make the property livable for you.
A short sale transaction can be a long, laborious and time-consuming process and can sometimes fall through completely at different points in the process. As a buyer, it’s important not to get completely “wrapped up” in one short sale transaction while watching other buying opportunities pass you by. Work with your agent to leave yourself some “outs” in the offer process in case you decide to pursue something else.
Buyer Myth #2:
Banks Are Desperate to “Unload” Their Short Sale Properties
On the heels of Myth #6, it’s always crucial to keep in mind that the banks are motivated by the bottom line. Many buyers go into a short sale offer thinking that the process will go quicker because they think the banks are desperate to unload the property. This is the perception for buyers when it comes to foreclosure properties, as well.
The fact of the matter is that banks are extremely careful with every aspect of the short sale, from initial approval of the price all the way through to the close of escrow. When you submit an offer, they will scrutinize every detail. They will fully review the seller’s situation and your financial stability to make sure there will be no problems with the transfer of the property or payoff of the loan. Again, these are the types of things that can often draw out the buying process.
With that in mind, you need to make sure you are covered on your end before submitting an offer on a short sale property. Be sure to talk to a real estate professional and a knowledgeable lender. It is best to get pre-qualified for your loan and submit a pre-qualification letter with your offer. This will show the bank that you are not only serious about buying, but willing and able to pay for your loan. If you want to take it one step further, you can consider getting pre-qualified by the bank that holds the title. Quite simply, the more information they have about you, the more faith they’ll have in you as a buyer and thus, the more likely you will be to have your offer accepted.
Buyer Myth #3:
“Short” Sale Implies a “Shorter” Closing Period
This is where many people have misguided perceptions about short sales. People hear the term and they think it means that the process will be “shorter” because both the bank and seller want to sell the property as quickly as possible. That is true in one sense, because they do want to get it off their books sooner rather than later. However, they will still take whatever time they need to get the best return on their investment. In addition to the extra diligence they will take to make the decision, keep in mind a lot of banks are now too understaffed to handle the growing number of short sales and foreclosures in a timely manner.
Because most banks are so stringent in the short sale approval process after you’ve submitted an offer, it can often drag on for several extra weeks—if not months. You just need to go in knowing that it could be a quick close or it could take much longer. The frustrating part is that it can be hard to tell until you make the offer. This is where an agent can help “scout” the listing for you by speaking with the listing agent (and sometimes the bank itself) to feel out the situation and see what the desired terms may be.
When I am working with buyers making a short sale offer, I always recommend that they put a relatively short close period (30 days or less) in the contract. Why? Because it shows the bank you are ready and willing to close quickly. They will be drawn to your offer because they know you are more serious. It also gives you an “out” later if they choose to drag on the escrow process.
But even though the bank may be more apt to accept your offer because of a short close period, it does not necessarily mean that the escrow will close within that timeframe. Most times it does not. They can extend the process as long as they need in order to make their financial decision. This is very important to know and understand before you make your offer, especially if you are in the process of selling your current property and trying to “time it” accurately. Make sure your agent stays on top of the listing agent—and even the bank, if needed—to keep the process moving forward and to avoid having your contract get lost in the shuffle.
Buyer Myth #4:
The Listing Price is What the Bank Will Most Likely Accept When You Make Your Offer
Before a short sale is ever put on the market, the listing agent and bank will determine an undisclosed price range for the property. The high-end will be what the bank would ideally like to get back. The low-end is the minimum they would be willing to accept at the time of approval. The listing will generally go on the market at a price that is closer to the high-end of the range.
A lot of buyers will make the mistake of making a real “low-ball” offer. If it’s below the low-end of the accepted price range, they will likely dismiss such an offer immediately. Remember, banks are not as desperate to sell as most people think, and they will do whatever they can to have the property sell at the highest possible price. So, if you are serious about the property, make a reasonable offer. An experienced and market-savvy real estate agent will be able to help you determine what a “winning” offer is on any specific property, short sale or otherwise.
Even if the seller accepts your offer and the bank accepts the offer initially, they will still go through the full short sale approval process before anything is finalized. They will appraise the property once more and review all aspects of the contract to make sure it is to their liking. If they determine that the property is worth more than you are offering, they can—and usually will—make a counter-offer asking for something more. This can include a higher selling price, a larger down payment from you, reduced agent commissions or, in some rare cases, a stipulation that you must secure your home loan through them.
When you submit your offer and pre-qualification letter, make sure the amount in the letter is the same as the offer price. Even though you may be qualified for more, have your lender put in the exact price you are submitting. If they see you are qualified for more, there is an increased chance that they will ask for more. Even though they will eventually review your full financial situation, you don’t want to advertise upfront that you can afford more than you are offering. This is a good strategy when making any real estate offer, but especially important to remember when purchasing a short sale property.
Buyer Myth #5:
Short Sales Are a “Goldmine” Opportunity and a Can’t-Miss Investment
As you can tell from reading this report, there are many upsides and downsides to short sale real estate. If you know what you are doing and are prepared for the process that often comes along with purchasing a short sale property, opportunities can certainly be found. You will be able to save a little money on the purchase price, but you have to make sure that you are covered elsewhere. Be sure to factor in the fix-up costs, property taxes, HOA dues, any land lease fees and other things that will impact the overall price of the property.
Here’s a good rule of thumb to consider when looking at a short sale or foreclosure purchase: Add up the selling price and the “fix-up” price. If together, they are equal-to or ideally less than what you perceive to be regular market value for that property, then it is probably a viable investment. To determine the regular market value for the property, consult with a real estate agent who can provide you with a Comparative Market Analysis (CMA) using similar properties and recent sales in the neighborhood as “measuring sticks” to estimate the home’s worth.
Short Sale Buyer Tips:
1. LOAN PRE-APPROVAL. Before you make an offer, get pre-approved for your loan and submit a pre-qualification letter with your offer.
2. PRE-QUAL LETTER AMOUNT. Have the exact offer amount put in the pre-qualification letter by your lender. Don’t advertise upfront that you can afford to pay more.
3. PERSONAL STATEMENT. Submit a brief (2-3 paragraphs) personal bio with your offer to gain more trust with the listing agent and bank. Tell them about yourselves, your work and finanical situations and your intent to be a good homeowner.
4. LENDER CHOICE. Though you don’t have to use them, consider getting pre-qualified by the lender that is holding the title on the property. The more they know about your financial situation, the better.
5. QUICK CLOSE. On your offer, put the closing date at 30 days or less to show you are serious. Just go in knowing that the escrow process will probably be extended by the bank, but the shorter terms will make you a more attractive buyer.
6. PROPERTY COST. Make sure to have a full assessment of property damage and understand costs associated with the property before you make your offer.
7. CONTINGENCY OFFERS. If you make an offer that is contingent on the sale of your current property, you will be a less attractive buyer to the bank approving the short sale. It is best to sell your property—or at least have it in escrow—before submitting an offer on a short sale property.
8. FIND THE RIGHT AGENT. Talk to a real estate professional who understands short sales and can guide you through the purchasing process.
We hope you found this special report helpful in understanding the myths and common pitfalls of short sales. In our experience, we’ve found that the more you know about every aspect of the situation, the better decisions you will be able to make.
If you have further questions about short sales after reading this report or want to pursue a short sale purchase or sale, feel free to give us a call at any time. We would be happy to help you explore your options.
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When borrowers have less than 20% down payment they are required to have mortgage insurance on their loan. There was a time when financing was available with second loans at high loan to values and the borrowers would finance an 80-10-10 or 80-15-05 to avoid mortgage insurance. This was known as Piggy-Back financing. That option is currently not available.
However, there is a way to finance up to 95% loan to value and not have a monthly mortgage insurance payment. There is mortgage insurance only instead of paying it each month, the insurance is paid in one lump sum at closing known as a single premium. The single premium can be paid by the borrower, as a seller credit or by the lender.
The lender paid single premium is how most borrowers prefer and the easiest method to cover the expense. When a borrower wants a lower interest rate they have the option to pay points to buy the rate down. If the borrower takes a higher rate, the lender gets a credit from the secondary market (points in reverse) which must be given as credit to the borrower. This credit is used to pay the single premium mortgage insurance.
As an example, let’s say the borrower purchases a home in the amount of $625,000 and puts 10% down for a 90% loan in the amount of $562,500. Typically, the monthly mortgage insurance would be $300 per month. In this example the single premium would be $9,956. If you think that is a lot, multiply $300 times 60 monthly payments (5 Years) and the cost is $18,000.
Had the borrower chosen the monthly premium the interest rate is 4.0% with a principal & interest payment of $2,685. The single premium paid by the lender the interest rate is 4.5% with a principal & interest payment of $2,850. The .5% increase in interest rate to cover the credit for the premium amounts to a higher payment of $165 a month. This is less than the $300 premium and is tax deductible as well. At 4.5% the lender uses the credit from the secondary market and pays the $9,956 single premium. Nothing is added to the loan amount which stays at $562,500.
Borrowers have stated that they want to hold off buying until they can save enough for the down payment to avoid mortgage insurance. Now there is a way to avoid mortgage insurance payments and purchase with less than 20% down.
The link below is a document with the facts about how long buyers must wait before obtaining financing. A common question homebuyers have today is:
How long must I wait before obtaining financing after bankruptcy, foreclosure or short sale?
Document covers Fannie Mae, FHA and VA waiting periods.