You have decided to make your dream of owning a home into a reality. As your journey towards a prized goal, you may encounter problems along the way. Title365 is here to help you leap the hurdles, navigate the obstacles or smooth the snags that might impede your journey for opening the door to your new home.
Before you begin, let's look at some important issues that will provide you with the answers and the steps that will make your journey a pleasant and rewarding experience.How much can you reasonably afford on your next home?
Consider how much you can reasonably afford before you begin your search for a home. Mortgage lenders will take into consideration all of the following:
Know your credit score as it will impact the amount and rate of your loan. Under federal law, you are entitled to get a free copy of your credit report every 12 months from each of the following reporting companies:
Lenders often use the following guidelines to decide how much of a loan you can manage:
Monthly housing expenses — mortgage payment, property taxes, insurance, etc. These expenses should total no more than 28 percent of your monthly gross income.
Monthly living expenses and any long-term debts — utilities, car and school loan, child support, health and car insurance, etc. These expenses should be no more than 36 percent of your monthly gross income.
Check with several mortgage companies and use one or more reporting services in order to find the lender that can give you the best deal. If there isn't a reporting service covering your area, begin the search at your own bank or through any of the following sources:
Credit Unions make up close to one-third of all first-mortgage loans, but you must be a member.
Banks are active in residential lending and are also a major supplier of loans for mobile-home buyers.
An employer may subsidize the interest or even act as a lender. Unions are another possibility. The AFL-CIO "Union Privilege." Unions that sign on can make first-time home loans available to eligible members for as little as three percent down.
These mortgage companies make up just over half of all home mortgages, including most VA-guaranteed and FHA-insured loans.
Brokers act as intermediaries and keep tabs on the mortgage market through ties to local, regional and national lenders. They can refer a prospective borrower to a mortgage banker, savings institution or a commercial bank. Brokers don't lend money and can't approve loans.
State and local finance agencies make below-market-rate financing available to eligible low- and moderate-income first-time buyers through the sale of tax-exempt bonds.
Savings and loan associations and savings banks originate close to a quarter of home mortgages. Most are conventional loans (those not guaranteed by the VA or FmHA, or insured by the FHA).
The following list contains the mortgages you are most likely to see. Do your research and ask questions to understand which type of loan will best fit with your financial profile. Knowing how much you can afford and getting pre-qualified for a loan will help you find the right mortgage.
This is the standard mortgage model. It is the oldest and most easily understood type of mortgage. The main benefit is that the interest rate and the amount of payment remain fixed for the life of the loan, typically either 15 or 30 years. However, if rates fall, the holder cannot benefit from the new, lower rate unless they refinance.
With this type of mortgage, the interest rate you pay rises and falls along with other rates charged throughout the economy. Therefore, you, the borrower, assume the risk of rising rates, and you stand to benefit should rates fall.
An essential question to ask about an ARM is whether there are limits on how much your rate can be raised, both at each review and over the term of the loan. Without rate caps, you'll have no way to predict how much your monthly payments might change.
VA loans have most of the advantages of FHA loans, but they also have eligibility restrictions. They are available only to veterans of the armed services, those currently in the service and their spouses. VA loans are typically half a percent or more below market rates and they can be obtained with without putting money down.
FRM and ARM represent the primary options available to homebuyers today. The convertible mortgage represents something of a compromise between the two. It is designed for those who want the advantages of the ARM, but also want to limit the risk of rising rates.
Under this arrangement, the buyer starts out with an ARM, but has the option of converting to an FRM at specified points during the loan term. You may want to ask the lender these questions: When can you convert? Are there any up-front fees involved? Will you have to pay more for an ARM with the conversion feature than for an ARM without it? Are there additional fees due if and when you decide to convert? Also be sure to find out the lender's conversion rate.
A fixed-rate GPM starts out with low payments, usually below that of a fixed-rate and possibly that of an ARM, but rise gradually (usually over five to ten years), then level off for the remaining years of the loan.
This option is designed for borrowers whose main goal is to pay off their mortgage as soon as possible. Therefore, the interest rate remains fixed, but the amount of the monthly payment increases according to a prearranged schedule, with the higher payments going to reduce the principal balance. This mortgage can be appealing to someone who is expecting regular income growth and wants to build equity quickly.
Like the GEM, the fifteen-year mortgage enables borrowers to repay their loan quickly, which means they build equity faster and pay less interest over the life of the mortgage.
Another option for people who want to repay their loans sooner is the biweekly mortgage. Instead of making a single mortgage payment each month, borrowers who choose this option make two equal payments monthly.
FHA, also known as the Federal Housing Administration, operates under the control of the Department of Housing and Urban Development (HUD) and has the primary responsibility for administering the government home loan insurance program. This program allows buyers who might otherwise not qualify for a home loan to obtain one because FHA removes the risk from the lender.
The Federal Housing Administration, generally known as "FHA", provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.
FHA is the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing. The proceeds from the mortgage insurance paid by the homeowners are captured in an account that is used to operate the program entirely.
A few notable FHA home loan programs are:
Do not be afraid to ask questions. Your real estate agent will be very happy to provide you with as much information as possible. Be aware that this is a financial investment and to be as impassive as possible when viewing homes. Remember, this is potentially the largest purchase you will ever make — ask questions until you are satisfied with the answers.
Don’t ever be pushed into making a decision before you are ready.
Find out the selling prices of similar properties to use as a guideline to set your sales price. These comparable properties should:
Once you, your real estate agent and the owner have come to an agreement on the sale price of the house, make sure you get the agreed price documented.
You are ready to make an offer. With the help of your real estate agent, offer the seller a written contract setting out the commitments and promises that you and the seller need to agree on and fulfill in order to make the sale. A well-drawn contract should protect all parties.
The first contract you submit should be comprehensive and include everything of any importance. Keep in mind, once the seller accepts the contract, it may be too late to add or change anything. In some states, there may be standard real estate contracts. However, you should make sure that your contract includes at least the following:
When it comes to buying your new home, everything is negotiable. Your real estate agent can be very helpful with this process. A partial list of what's negotiable when purchasing your new home may include:
Negotiation gives you — the buyer — incredible power in making a favorable transaction. As in any negotiation, be prepared to do some give and take. Let your real estate agent help you and work with you and the seller to come to the best possible terms for everyone.
As an added precaution, you also should have a professional inspector go through the house to look for potential problems. Even though you have made a complete walk-through, asked the right questions and discussed the offer with your real estate agent, a professional may see things that would be easy for you to overlook. Even if they are not things the seller is expected to repair, at least you will have foreknowledge of any potential problems.
Once you receive the inspection, you will want to allow yourself sufficient time to review and approve the report. If you do not approve the report, you may negotiate with the sellers on which repairs should be performed and who should pay for those repairs. Otherwise, you can cancel the purchase without penalty, provided you have included timetables in your offer. Allow a maximum of ten to fifteen days to receive the report and five days to review it.
To show that an offer is serious and made in good faith, it's traditional for the prospective home buyer to accompany it with a check for a modest amount -- often a small percentage of the purchase price -- known as an "earnest money deposit." The amount of the earnest money deposit varies by state, but is typically in the range of 1-2% of the purchase price.
The seller can't rush out and cash this check right away -- in fact, the check should be made out to the escrow company, not the seller. But the seller may get to keep the money if you pull out of the deal for a reason that wasn't allowed under the purchase contract -- for example, if you simply change your mind, or perhaps get lazy about taking steps to finalize your loan, as opposed to legitimately refusing to remove the inspection contingency after inspections revealed dry rot.
Having a deposit on hold acts as a disincentive against buyers who file frivolous offers, and ultimately compensates a seller who has to put a house back on the market. As a practical matter (and under the terms of the standard real estate contract), however, the escrow company can't turn the money over to the seller without both the buyer and seller agreeing to allow that. Take a look at your contract before you sign it to make sure you're satisfied with how it disposes of the earnest money in the event of a dispute.
If the deal goes ahead as planned, the earnest money is normally applied toward your down payment.
Here are a few tips on how to set the right price on your property by combining an objective evaluation of your property with a realistic assessment of market conditions.
Title insurance protects a property owner from certain defects in title. Unlike casualty insurance (which insures against future events like car accidents), title insurance eliminates risk or loss caused by past events like liens or judgments or fraud. Title insurance provides owners and lenders coverage for title problems and insures against loss if the title is not as reported.
Issuing a title policy is an extensive and exacting process. Title365 works to eliminate risks by performing a painstaking search of the public records to determine the current recorded ownership, any recorded liens or encumbrances, or other matters of public record which could affect title to the property. Once a title search is complete, Title365 issues a preliminary report detailing the current status of title.
The most important reason to conduct a title search is to eliminate risk to you and your lender of future title claims and loss against the home or property you are buying. If the title search uncovers problems, you can deal with it before you close on the home or property. The title insurer and the seller may obtain payoff releases, court orders, paid assessment letters or waivers to resolve most problems. But even the most careful preventive work cannot always locate hidden issues.
False impersonation of the true owner of the property
The preliminary report contains vital information which includes ownership of the subject property, the manner in which the current owners hold title, matters of record which specifically affect the subject property or the owners of the property as well as a legal description of the property and an informational plat map.
The owner's policy assures a buyer that the title to the property is vested in that buyer and that it is free from all defects, liens and encumbrances except those listed as exceptions in the policy or are excluded from the scope of the policy's coverage. It also covers losses and damages suffered if the title is unmarketable. The policy also provides coverage for loss if there is no right of access to the land. Although these are the basic coverage's, expanded forms of residential owner's policies exist that cover additional items of loss. It insures you are the owner of the property, you against losses from prior liens or judgments on the property, you have legal access to your property, and a subsequent buyer does not reject your title because it is unmarketable due to a title defect or lien. It does not protect you from losses caused by problems you created or losses not directly related to resolving or paying the claim. It also does not cover losses listed under your policy's exclusions or exceptions.
The lender's policy, sometimes called a loan policy, protects your lender against any loss that might occur due to unknown title defects. It also guarantees the lender to have a valid first lien against the property.
What are the ways to hold title?
Individuals, either in Sole Ownership or in Co-Ownership, may hold title to real property. Co-Ownership of real property occurs when two or more persons hold title. There are several variations as to how title may be held in each type of ownership. The following brief summaries reference seven of the more common examples of Sole Ownership and Co-Ownership.
Example: John Doe, a single man.An Unmarried Man/Woman
A man or woman, who having been married, is legally divorced.
Example: John Doe, an unmarried man.
When a married man or woman wishes to acquire title as their sole and separate property, the spouse must consent and relinquish all right, title and interest in the property by deed or other written agreement.
Example: John Doe, a married man, as his sole and separate property.
Property acquired by husband and wife, or either during marriage, other than by gift, bequest, devise, descent or as the separate property of either is presumed community property.
Example: John Doe and Mary Doe, husband and wife, as community property.
Example: John Doe and Mary Doe, husband and wife.
Example: John Doe, a married man
Joint and equal interests in land owned by two or more individuals created under a single instrument with right of survivorship.
Example: John Doe and Mary Doe, husband and wife, as joint tenants.
Under tenancy in common, the co-owners own undivided interests; but unlike joint tenancy, these interests need not be equal in quantity and may arise at different times. There is no right of survivorship; each tenant owns an interest, which on his or her death vests in his or her heirs or devisee.
Example: John Doe, a single man, as to an undivided 3/4th interest, and George Smith, a single man as to an undivided 1/4th interest, as tenants in common.
Title to real property in California may be held in trust. The trustee of the trust holds title pursuant to the terms of the trust for the benefit of the trustor/beneficiary.
The preceding summaries are a few of the more common ways to take title to real property are provided for informational purposes only. There are significant tax and legal consequences on how you hold title. It is suggested that you contact an attorney and/or CPA for specific advice on how you should actually vest your title.
Endorsements amend and typically broaden the coverage given under a basic policy of title insurance.
Some states do not regulate the premiums (cost) for title insurance. However, the vast majority of state governments do individually regulate the insurance premiums charged for properties located in the state. The regulation runs from requiring the filing of rates by the insurers (and requiring their use while they are in effect) to promulgating the rates that will be used by all title insurers within the states. In most states, there is an approval requirement. This varies from rates being deemed approved if no complaints are filed within a specified period of time after filing, to the requirement of approval by the state's insurance regulator before use of the rates is allowed. The rates may include discounts if title insurance is ordered within a specified time after the last policy issued or if the mortgage being insured is a refinance of an earlier mortgage. In the states employing any of these regulations, it is illegal for title insurance companies to charge a higher or lower rate than the regulated rate. It's a good idea to compare prices as well as service when shopping for title insurance. Each company's loss experience, expenses, and rates will differ.
Once. The fee is due when you buy. You will never pay it again. Title policy insurance is the best insurance policy you can ever buy.
Forever, theoretically. If you are planning to resell the property within a couple years, ask about "binder" coverage. A binder is good for two years, often can be extended beyond that time, and the fee charged for the new buyer's policy will be the difference between what you bought the property for and the price at which it sold. In other words, you will get a credit for the amount of coverage you purchased under your own Owner's Title policy.
In essence, by acquiring your policy, you derive the important knowledge that recorded matters have been searched and examined so that title insurance covering your property can be issued. Because we are risk eliminators, the probability of exercising your right to make a claim is very low. However, claims against your property may not be valid, making the continuous protection of the policy all the more important. When a title company provides a legal defense against claims covered by your title insurance policy, the savings to you for that legal defense alone will greatly exceed the one-time premium.
First, only you, the policy owner, can make a claim on your policy. And second, the process to submit a claim is strictly governed by the terms of your policy. If you are the policy owner, please call 1-877-365-9365 to speak to our claims department.
Escrow is a service whereby a neutral third party handles legal documents and monies on behalf of the buyer and seller of real property pending the closure of the transaction.
The process of escrow assures that no funds or property will change hands until all of the transaction instructions have been faithfully followed and completed. Acting as an unbiased and impartial third party, the escrow agent protects all funds and documents and distributes each only after all escrow conditions are achieved.
Escrow instructions are detailed instructions provided to an escrow agent, typically an escrow officer or attorney. Escrow instructions include all the terms and conditions that must be met by each party before a property can change hands.
By law, the escrow agent cannot do anything beyond the scope of the instructions. This is done to protect all parties in the transaction, but it means that the instructions must be very precise and must account for eventualities so that escrow isn't held up because the escrow agent is unable to act.
Escrow instructions identify the parties in the deal, along with the escrow agent. They tell the agent what must be done to complete the deal. This includes describing the terms of the agreement, how funds should be held, when funds can be disbursed, how pro-rating should be handled if it comes up, and so forth. Escrow instructions also typically identify the time period of the escrow and provide any other information, which may be relevant.
The buyer, seller, lender, borrower, the principals, will create escrow instructions, generally in writing, to be signed and delivered to the escrow officer. Normally, if a broker is involved, she/he will provide the escrow officer all necessary information for the creation of your escrow instructions and documents. At that point, the escrow officer processes the escrow according to the prepared instructions. Upon completion, and only when all required escrow conditions have been met, the escrow will be closed.
The Escrow Officer performs many duties, which may include, but are not limited to:
First, be sure to read and understand your escrow instructions so you know what to expect. Direct any questions regarding your instructions to your escrow officer. The officer is chartered to follow the instructions set forth by the principals to the escrow. To ensure the timely close of your transaction, always try to respond to requests and correspondence promptly. Procedures differ, but you will be required to deliver funds into the escrow in the form required by your escrow officer. If you have any immediate or special need on the day of closing, such as checks, title issuance, policies, wires or statements, proactively advise your escrow officer.
Your escrow officer provides your lender with the escrow instructions, the preliminary report and any requested documents. The escrow holder is required to comply with the lender's instructions when processing your closing. With a new loan, many lenders forward loan documents to escrow to facilitate signing of lender documents. Because these are lender documents, your escrow officer cannot interpret or explain them. Therefore, you can request that a lender representative be present at your signing to clarify any questions you have pertaining to the loan arrangements or documents.
The closing statement is a straightforward, written financial record compiled at the close of escrow that lists itemized charges and credits to your account. When you receive your closing paperwork, examine the closing statement carefully and direct any questions you may have to your Escrow Officer.
A home is usually the largest single investment any of us will ever make. When you purchase a home, you will purchase several types of insurance coverage to protect your home and personal property. Homeowners insurance protects against loss from fire, theft or wind damage. Flood insurance protects against rising water. And a unique coverage known as title insurance protects against hidden title hazards that may threaten your financial investment in your home.
Title insurance is not as well understood as other types of home insurance, but it is just as important. You see, when purchasing a home, instead of purchasing the actual building or land, you are really purchasing the title to the property – the right to occupy and use the space. That title may be limited by rights and claims asserted by others, which may limit your use and enjoyment of the property and even bring financial loss. Title insurance protects against these types of title hazards. Other types of insurance that protect your home focus on possible future events and charge an annual premium. On the other hand, title insurance protects against loss from hazards and defects that already exist in the title and is purchased with a one-time premium.
Most lenders require mortgagee title insurance as security for their investment in real estate, just as they may call for fire insurance and other types of coverage as investor protection. When title insurance is provided, lenders are willing to make mortgage money available in distant locales where they know little about the market.
Owner’s title insurance lasts as long as you, the policyholder – or your heirs – has an interest in the insured property. This may even be after you have sold the property.
Depending on local practices and state law where the property is located, you may pay an additional premium for an owner’s policy or you may pay a simultaneous issue charge – usually a smaller amount – for the separate lender coverage. You may even split settlement costs with the seller for the lender or owner’s policy.
In today’s competitive market, professionals need the support of a team that provides not only best in class title and escrow services, but is also a resource for products and services that can give you a competitive advantage and help you thrive. Below are some help resources for you and your customers.
Title365 offers services ranging from title insurance and settlement services to loss mitigation and REO asset management. Our network of local Title365 Company offices, independent title agencies and our national lender services company are ready to assist you with specialized real estate services delivered by the most dedicated professionals in the industry.