ancing Finding the Right Home When You Find the Right me Next Steps Completing the Purchase Financing Fin Right Home When you Find the Right Home Next Steps ing the Purchase Home Buyer s Guide Financing Finding COLDWELL BANKER RESIDENTIAL BROKERAGE ColdwellBankerHomes.com
Congratulations on your decision to invest in a new property. All of us at Coldwell Banker Residential Brokerage are committed to providing you with an exceptional home purchasing experience. Congratulations on your decision to invest in a new home and thank you for choosing a Coldwell Banker sales associate to assist you in the process. Whether you re purchasing your first home or have been through the process many times, you deserve a dedicated professional who will guide you and represent your interests. We have prepared this guide to help provide an overview of the buying process and also detailed insight into each step of purchasing a home. We are confident that you will find it both informative and useful. At Coldwell Banker Residential Brokerage, we are committed to making your real estate experience both enjoyable and efficient by providing the very best in real estate service. Your sales associate will provide you with the market and technical knowledge needed to navigate today s complex real estate environment and will also professionally advise you at each step of the process. Additionally, they will use their extensive training, skills, and experience to negotiate the best price and terms on your behalf and will keep you regularly informed throughout the transaction. In order to further enhance your home buying experience, Coldwell Banker Residential Brokerage provides several related services through our affiliated companies including financing through NE Moves Mortgage, home warranties through American Home Shield, and insurance through NRT Insurance. These exceptional companies will conveniently provide you quality products and services in the comfort of your local Coldwell Banker Residential Brokerage branch office. Ask your sales associate for more information on these. Although we participate in the sale of many homes each year, we know how personally important each home purchase is to each of our clients and we will work tirelessly to ensure that yours is an enjoyable and rewarding experience. Once again, thank you for choosing Coldwell Banker Residential Brokerage and I wish you all the best in the purchase of your home. Sincerely, MERIT MCINTYRE PRESIDENT, NEW ENGLAND
Table of Contents Welcome... 4 Your Coldwell Banker Residential Brokerage Sales Professional as Your Buyer s Agent... 5 Home Ownership An Overview of the Transaction... 6 Financing Financing Your Purchase... 9 Pre-Approving for a Mortgage Loan... 10 What Type of Loan Is Right for You?... 11 Borrower/Buyer Costs for Processing the Loan... 12 How Much Can You Afford?... 13 Finding the Right Home Defining Your Real Estate Needs and Desires Picture Your Dream House!... 15 Researching and Touring Properties... 16 When You Find the Right Home Next Steps The Offer to Purchase and Negotiating The Sale... 19 The Home Inspection... 20 Completing the Purchase The Purchase and Sale Agreement... 23 Loan Application/Appraisal... 24 Closing Preparation/Closing The Transaction... 25 Additional Resources Glossary of Common Real Estate Terms... 27
Welcome to the Coldwell Banker Residential Brokerage Home Buyer s Guide Congratulations on your decision to purchase a new home! outstanding service to all our customers throughout the We at Coldwell Banker Residential Brokerage have the Buyer s Guide is one of the many resources we provide experience and resources to help make your home buyers to help them navigate through the journey of purchase exciting and enjoyable. Coldwell Banker Real finding, financing, and buying a new home. You ll find Estate Corporation was founded in 1906 with the intent interesting information, worksheets, and charts that will to provide exceptional real estate service from honest, prepare you for this exciting adventure. You can sit back knowledgeable people who are dedicated to customer and relax knowing you are working with the best sales satisfaction. Today, we are proud to acknowledge we associates in the business. globe. The Coldwell Banker Residential Brokerage Home have maintained our mission and continue to deliver Name(s) Email Cell Coldwell Banker Residential Brokerage Sales Associate Email Cell 4
When you choose a Coldwell Banker Residential Brokerage professional to represent you as your buyer s agent you can be confident that they are welltrained, know the laws and technical aspects of real estate practice, and will work diligently to meet your needs and protect your interests. Coldwell Banker Residential Brokerage requires extensive training for our associates. Additionally, our associates are supported by an experienced management team and knowledgeable support staff. Your Coldwell Banker Residential Brokerage Sales Professional as Your Buyer s Agent As your buyer s agent, your Coldwell Banker Residential Brokerage sales professional will use their market knowledge, skills, and experience to assist you in securing the best price and terms for your desired property, potentially saving you thousands of dollars. Furthermore, today s real estate transaction has become more complex with new and revised regulations; your buyer s agent will professionally advise you through each step of the transaction, ensuring a smooth transition into your new home. Your buyer s agent will Your Coldwell Banker Residential Brokerage sales professional will use their market knowledge, skills, and experience to assist you in securing the best price and terms for your desired property. 1 Listen to your needs and answer your questions. 1 Assist in defining your real estate needs and desires. 1 Inform you regarding the current market conditions. 1 Describe the home buying process and familiarize you with the standard contracts in use. 1 Assist you with financing options for purchasing your home. 1 Help you research and tour appropriate properties. 1 Professionally value properties of interest using a comparable market analysis. 1 Prepare an offer to purchase and negotiate the best price and terms for you. 1 Keep you informed throughout the process and provide professional advice at each step. 5
Home Ownership An Overview of the Transaction 11 Select a Coldwell Banker Residential Brokerage sales associate to act as your buyer s agent. 12 Pre-approve for a mortgage loan. 1 3 days 13 Define your real estate needs and desires with your sales associate. 1 3 days 14 Review properties online and tour homes. Typically 1 12 weeks 15 Prepare and submit an offer on your desired property. Your associate will prepare a comparative market analysis to estimate the home s value and will recommend an offer price. 16 Negotiate the sale with the sellers through your buyer s agent and the listing agent. 17 Hire a professional home inspector and conduct a home inspection. 3 10 days after accepted offer 18 Prepare and sign the Purchase and Sale Agreement. 5 14 days after accepted offer 19 Submit a mortgage application. 5 14 days after accepted offer 10 Loan processing/appraisal/commitment from Lender. 14 21 days from application 11 Closing preparation by the closing attorney including a title search and document preparation. 7 14 days prior to closing 12 Obtain final utility bills, smoke and carbon monoxide detector certificate and prepare the deed (seller responsibility). 7 14 days prior to closing 13 Notify utility companies of closing date to disconnect seller/connect for buyers (natural gas, electric, telephone, cable, and Internet). 7 14 days prior to closing 14 Conduct final property visit. 1 day prior to closing 15 Close the transaction it s your home! 45 60 days from accepted offer Home Search and Acquisition Timeline VARIABLE TIME FRAME SEARCH BEGINS 10 DAYS 20 DAYS 30 DAYS 40 DAYS 50 DAYS OFFER ACCEPTED CLOSING 1 Select a sales associate/ buyers agent 2 Pre-approve for a mortgage 3 Define your real estate needs 4 Visit and review properties 5 Prepare and submit an offer 6 Negotiate the sale 7 Conduct a home inspection 8 Sign the Purchase and Sale Agreement 9 Submit a mortgage application 10 Obtain mortgage commitment from lender 11 Closing preparation 12 Obtain final utility bills, prepare the deed. 13 Notify utility companies 14 Complete final property visit and review 15 Closing 1 3 DAYS 1-3 DAYS 1-12 WEEKS TYPICALLY 3 7 DAYS AFTER ACCEPTED OFFER 5-14 DAYS AFTER ACCEPTED OFFER 5 14 DAYS AFTER ACCEPTED OFFER 14-21 DAYS FROM APPLICATION 7-14 DAYS PRIOR TO CLOSING 7-14 DAYS PRIOR TO CLOSING 7-14 DAYS PRIOR TO CLOSING 1 DAY PRIOR TO CLOSING 45-60 DAYS FROM ACCEPTED OFFER 6
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Financing Financing Your Purchase Pre-Approving for a Mortgage Loan What Type of Loan is Right for You? Borrower/Buyer Costs for Processing the Loan How Much Can You Afford?
The majority of home buyers, typically 85-90% annually, finance a portion of their home purchase using a mortgage. The mortgaging process involves two primary documents given from the buyer (mortgagor) to the lender (mortgagee) at closing, including the promissory note and the mortgage. The promissory note describes the terms of the loan including the loan amount, interest rate, and the time period of repayment. The mortgage pledges the property as security for the note. Financing Your Purchase PHH Home Loans represents more than 40 national and local lenders offering very competitive interest rates. 9
An important first step in the process of buying a home is to obtain a pre-approval letter from one or more lenders. A mortgage pre-approval is a process in which a lender reviews your financial status and issues a letter indicating the maximum loan amount they will provide you and the basic terms of the loan. Lender s guidelines vary as to the amount they will lend to any particular borrower based on income, credit score, long-term debt, and the amount of cash paid toward the purchase price at closing, known as the down payment. There is typically no cost to the buyer for the pre-approval process. The benefits to obtaining a pre-approval from a lender include: 1. Determining the highest loan amount you are qualified to borrow. 2. Reducing the time needed to process a loan after a desirable property is located. 3. Providing written assurance to the seller of your ability to finance the purchase, improving the acceptability of your offer. The lender will ask you to submit: 1. Personal information. 2. Credit authorization. 3. Federal tax returns for the previous two years. 4. IRS W2 forms for the previous two years. 5. Bank statements for the prior two months. 6. Income paycheck details for the previous 30 days. 7. Details on any outstanding long-term debt such as credit cards, auto loans, student loans, etc. Pre-Approving for a Mortgage Loan The benefits to obtaining a pre-approval from a lender include: Determining the highest loan amount you are qualified to borrow. Reducing the time needed to process a loan after a desirable property is located. Providing written assurance to the seller of your ability to finance the purchase, improving the acceptability of your offer. 10
There are many different types of mortgage loans to meet the varying needs of borrowers. The most commonly used include: 15- OR 30-YEAR FIXED LOANS These feature a fixed interest rate and a fixed monthly payment paid over 15 or 30 years. ADJUSTABLE RATE MORTGAGE (ARM) with 1-, 5-, or 7-year adjustment periods These loans begin with a relatively low interest rate and adjust to a market interest rate at each period interval, changing the monthly payment with each adjustment. What Type of Loan is Right For You? PHH Home Loans represents more than 40 lenders providing a wide selection of loans to meet every borrower s needs. CONSTRUCTION LOAN A construction loan disburses funds to a builder over the course of construction. GOVERNMENT LOANS For qualified buyers, these programs offer favorable rates, lower down payments, reduced costs, and other benefits. For more information on all loans and for an immediate pre-approval, contact the Coldwell Banker Residential Brokerage mortgage affiliate: PHH Home Loans 800-793-5626 PHHHomeLoansNe.com 11
There are several costs of obtaining a mortgage loan which are charged to the borrower at closing including: SERVICE Appraisal $300-$600 ANTICIPATED COST Credit Report(s) $12 per person Lender Title Insurance $2.50-$2.75 per $1000 of mortgage loan Lender Attorney Fee $500-$700 Registry Recording Fees $300 Prepaid Homeowners Insurance $600-$1200 (1 year) Tax Escrows Insurance Escrows 3-6 months of property taxes 2 months of property insurance Title Search $200 In addition, lenders often require that you have a minimum of two monthly housing payments in your asset account at closing. Borrower/Buyer Costs for Processing the Loan Additional costs may include flood insurance and private mortgage insurance. Flood insurance is required if the property lies in a federally designated flood zone and the cost is typically $400-700 annually. Private Mortgage Insurance (PMI) is required if the amount borrowed is more than 80% of the appraised value. The cost of PMI varies based on the percentage of the purchase price paid at closing and the loan amount. PMI is normally paid monthly over the life of the loan, or for a predetermined length of time set by the lender. Lenders are required to provide you with a complete statement of estimated costs of the loan, known as a Good Faith Estimate or GFE. 12
Completing the worksheet below will provide an indication of your affordable price range. Please note this is a guideline only and the amount will be lower if you have substantial long term debt such as credit cards, auto loans, or student loans. To more precisely determine your affordable price range, obtain a preapproval from a reputable lender such as PHH Home Loans and add ask your sales associate for the name of a local representative. Affordability Worksheet A: Annual income = $ B: A divided by 12 = $ C: Monthly payment: B multiplied by 0.40 = $ 13 How Much Can You Afford? 30-year Fixed Mortgage INTEREST RATE COST/$1,000 OF LOAN 2.00% $3.70 2.25% $3.82 2.50% $3.95 2.75% $4.08 3.00% $4.22 3.25% $4.35 3.50% $4.49 3.75% $4.63 3.00% $4.22 3.25% $4.35 3.50% $4.49 3.75% $4.63 4.00% $4.77 4.25% $4.92 4.50% $5.07 4.75% $5.22 5.00% $5.37 5.25% $5.52 5.50% $5.68 5.75% $5.84 6.00% $6.00 D: Monthly property tax = $ If unknown estimate at $300-$800 E: C minus D = $ F: Monthly home insurance = $ If unknown estimate at $100-$150 G: E minus F = $ H: Current interest rate of 30-year loan % I: Cost per $1,000 of loan for interest rate = $ Obtain using chart on left. J: G divided by I then multiply by 1,000 = $ K: Amount of down payment/cash = $ L: House price = J plus K $ As a final note, one of the most important steps in determining the amount to borrow is to assess the impact of the monthly payment on your financial circumstances and lifestyle. Your ability to qualify for a certain loan amount does not necessarily mean that the monthly payment will be comfortable for you.
Finding the Right Home Defining Your Real Estate Needs and Desires Researching and Touring Properties 15
Defining Your Real Estate Needs and Desires What s important to you in your new home? Answering this question provides a great start to defining your real estate needs and desires. As you consider your needs you will quickly realize that there are many variables involved in the home-buying decision. Choosing and prioritizing the home features that are most important to you will help minimize the time and effort required to find the best home for your needs. Completing the worksheet below will help with this process. Review each feature and variable noting the importance to you. FEATURE/VARIABLE Price range Monthly payment Towns/cities Distance to employment Location/distance/other Public schools Neighborhood Property type House style Property age Total living area (sq. ft.) Yard size/land Bedrooms Bathrooms Garage Living room Dining room Family room Kitchen Other property features COMMENTS: LIKES/DISLIKES minimum/maximum maximum shopping, police/fire, daycare, schools, transportation ranking, performance single family/condo/multi-family Colonial, Ranch, Split Entry, Contemporary, Garden, Townhome new construction, historic number, size number required, number features, location, size waterfront, view, pool, central air IMPORTANCE PRIORITY 1-5 RANKING 5 =VERY IMPORTANT 1-15 Other important features or considerations: 15
There are several real estate websites that provide complete information on all available homes such as the Coldwell Banker Residential Brokerage website ColdwellBankerHomes.com. Our online property listings include multiple photos, video, mapping, and property information. In addition, there is information about the community such as schools, demographics, income, and crime statistics. When you register on the site, and input your search criteria, you will be automatically alerted by email on each new listing that fits your needs. Viewing Homes Properties are viewed either by appointment scheduled through your Coldwell Banker Residential Brokerage sales associate or by attending an open house. At the beginning of your search you will likely want to tour several potential homes and your Coldwell Banker Residential Brokerage sales associate will prepare an efficient tour, typically including four to six properties, based on geography and time available. A typical home viewing takes approximately thirty minutes and appointments are usually scheduled in succession, with an allowance for travel time. Generally, the seller is not home during the showing and the property will be accessed by your sales associate through the use of a secure key lock box attached to the door. With some properties, the listing broker will also attend the showing and will tour you and your agent through the property. As you tour each property make note of the features included relative to your list of priorities. Researching and Touring Properties ColdwellBankerHomes.com property listings include multiple photos, video, mapping, and property information. 16
Notes:
When You Find the Right Home Next Steps The Offer to Purchase and Negotiating the Sale The Home Inspection
The Offer to Purchase You have found the right home and would like to buy it. Your sales associate will assist you by providing a professional opinion of value and will prepare a standard offer to purchase form. The forms used vary by market area but most contain the following basic terms of the offer: The Offer to Purchase and Negotiating the Sale 19 Most offer forms include the language time is of the essence which means all dates and times included in the offer are inflexible and it is necessary to strictly adhere to the dates and times indicated. 1. The purchase price offered. 2. The amount of an initial deposit delivered with the offer, usually $500-$1,000. 3. The amount and timing of a second deposit which is usually delivered with the signed Purchase and Sale Agreement in the amount of five percent of the total purchase price less the initial deposit. 4. The time at which the offer expires and is no longer valid. 5. A provision for signing a more detailed Purchase and Sale Agreement by a particular time which is normally 5 to 14 days after acceptance of the offer. 6. The date and time for closing the sale which is typically 45 to 60 days from date of accepted offer. 7. An escrow clause authorizing a third party to hold the deposits as escrow broker. These are usually held by the listing firm. 8. A financing contingency which provides time, normally 25 to 35 days from offer acceptance, for the buyer to obtain a commitment for financing from a lender. 9. A home inspection contingency allowing a time period to conduct inspections, usually ten days, and provision for remedy if the buyer is not satisfied with the results of the inspections. After preparing your offer with you, your sales associate will submit your offer, with pre-approval letter and initial deposit, to the listing broker and/or seller. Negotiating the Sale Negotiations between the buyer and seller are conducted through the broker or brokers. Upon receipt of the offer, the seller has the option to accept the offer, reject the offer, or propose a counter offer. Negotiations will continue until mutually acceptable terms are agreed upon or until the parties choose to discontinue negotiations.
The Home Inspection Most property sales are contingent on the results of a home inspection, and other inspections, paid for by the buyer. The cost of a typical home inspection ranges in price from $300-800 dollars and will take two to four hours to perform. The home inspection usually occurs within 10 days of the sellers acceptance of the buyer s offer. The inspector will review the exterior of the premises including the roof, siding, trim, and windows and the interior including bathroom and kitchen fixtures and appliances. They will also review the major systems of the home including heating, cooling, plumbing, and electrical. Buyers are encouraged to attend the home inspection to further their knowledge of the property and to observe any defects discovered. Additional inspections often performed include pest and termite inspections, radon gas, lead paint, pool, and septic. If unforeseen defects are discovered during the home inspection the buyer s may exercise the remedy described in the offer to purchase or, if both buyer and seller are willing, these items may be addressed through additional negotiations. Lead Paint Properties built prior to 1978 may contain lead paint. Lead paint can potentially cause serious illness if ingested, particularly by children. There are both Federal and State laws regarding disclosure and the treatment of lead paint. For more information, please visit: www.mass.gov/dph/clppp The Home Inspection Coldwell Banker Residential Brokerage offers a complete home warranty through American Home Shield. The Coldwell Banker Residential Brokerage Home Warranty Coldwell Banker Residential Brokerage offers a complete home warranty through American Home Shield which provides insurance against future home repairs. It covers the heating, plumbing, water heater, electrical, appliances and much more. Ask your Coldwell Banker Residential Brokerage sales associate for complete details. 20
Notes:
Completing the Purchase The Purchase and Sale Agreement Loan Application and Appraisal Closing Preparation/Closing the Sale
The Purchase and Sale Agreement is a more detailed document that addresses several aspects of the transaction not included in the offer to purchase. Most standard offers to purchase forms include a clause in which the parties agree to sign a mutually acceptable Purchase and Sale agreement at a later date, usually 5-14 days after acceptance of the offer. The Purchase and Sale Agreement Coldwell Banker Residential Brokerage recommends that the buyer have a competent real estate attorney review the purchase and sale agreement. Coldwell Banker Residential Brokerage recommends their clients hire an attorney to represent them in the transaction, including review of the Purchase and Sale agreement. After initial preparation, the attorneys revise the document and will coordinate with each other until such time as a mutually agreeable document is finalized. The second deposit is generally paid upon execution of the purchase and sale agreement. Attorney Recommendations Massachusetts We recommend using the Coldwell Banker Residential Brokerage affiliated law firm SKM Closing and Title Services as they are extremely efficient in processing the sale and will conveniently close the transaction in the Coldwell Banker Residential Brokerage office of your choice. New Hampshire and Maine We recommend using the Coldwell Banker Residential Brokerage affiliated law firm Market Street as they are extremely efficient in processing the sale and will conveniently close the transaction in the Coldwell Banker Residential Brokerage office of your choice. 23
Applying for the Mortgage Many home buyers research the interest rates and terms of several lenders soon after placing a property under agreement. If you are pre-approved with a licensed mortgage broker, such as Coldwell Banker Residential Brokerage s PHH Home Loans, your loan officer has access to several lenders and can obtain the best interest rates and terms available at the time of your purchase. A loan application is usually submitted 5 14 days after offer acceptance. If you have been pre-approved with your lender, there will be minimal additional documentation required. The Appraisal Upon receipt of your completed application and required documentation your lender will order an appraisal of the property. The appraisal is a valuation of the property. It is required by the lender as the property is the security for the note. It is performed by a licensed appraiser who will provide a written report and opinion of value for the property. Loan Application and The Appraisal After successful processing of your loan, the lender will issue a commitment letter to you indicating their intention to fund your loan. They will then choose an attorney to perform a title search and prepare the necessary documents required to close the loan. You may suggest a closing attorney of your choosing. Your PHH Home Loans loan officer has access to several lenders and can obtain the best interest rates and terms available at the time of your purchase. 24
Establish Utility Accounts As the buyer it is important to establish accounts with utility and other service providers for the property seven to fourteen days prior to closing including natural gas (if applicable) and electric service and additionally, if desired, Internet service, cable, and telephone. Final Property Visit and Review Immediately prior to closing, it is recommended that the Buyer have a final property visit and review. This usually occurs either the day before or the day of the closing. It provides an opportunity for the buyer to verify that the property is in a similar condition as at the time of purchase and that all possessions of the sellers have been removed. If deficiencies are Closing Preparation/ Closing the Sale discovered in this process they are typically addressed at closing. The Closing of the Sale You, as the buyer, will be notified by the closing attorney of the place and time of the closing and the amount and form of funds needed from you to close. Your Coldwell Banker Residential Brokerage sales associate, or another Coldwell Banker Residential Brokerage representative, will attend the closing with you. Congratulations! 25
Additional Resources Glossary of Common Real Estate Terms
Glossary of Common Real Estate Terms ADJUSTABLE RATE MORTGAGE (ARM): A mortgage with an interest rate that changes over time in line with movements in the index. ARMs are also referred to as AMLs (adjustable mortgage loans) or VRMs (variable rate mortgages). ADJUSTMENT PERIOD: The length of time between interest rate changes on the ARM. For example, a loan with an adjustable period of one year is called a one year ARM, which means that the interest rate can change once a year. AMORTIZATION: Repayment of a loan in installments of principal and interest, rather than interest-only payments. ANNUAL PERCENTAGE RATES (APR): The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount. APPRAISAL: An estimate of the property s value. ASSUMPTION OF MORTGAGE: A buyer s agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to release the original borrower (usually the seller) from liability. BALLOON PAYMENT: A lump sum principal payment due at the end of some mortgages or other long-term loans. BINDER: Sometimes known as an offer to purchase or an earnest money receipt. A binder is the acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate. BUYDOWN: Permanent prepaid interest that brings the note rate on the loan down to a lower, permanent rate. Temporary - on the loan, allowing the buyer to more readily qualify and to increase payments as income grows. CAP: The limit on how much an interest rate or monthly payment can change, either at each adjustable or over the life of the mortgage. CASH RESERVES: The amount of the buyer s liquid cash remaining after making the down payment and paying all closing costs. CC&Rs: Covenants, conditions and restrictions. A document that controls the use, requirements and restrictions of a property. CERTIFICATE OF COMMITMENT: The lender s approval of a VA loan, which is usually good for up to six months. CERTIFICATE OF REASONABLE VALUE (CRV): A document that establishes the maximum value and loan amount for a VA guaranteed mortgage. CHATTEL: Personal property. CLOSING STATEMENT: The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance. COMMITMENT PERIOD: The period during which a loan approval is valid. CONDOMINIUM: A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surface (walls, floors and ceilings) serves as boundaries. CONTINGENCY: A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing. CONVERSION CLAUSE: A provision in some ARMs that enables homebuyer s to change an ARM to a fixed rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed rate mortgages. This conversation feature may cost extra. COOPERATIVE: A form of multiple ownership in which a corporation or business trust entity holds a title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements. CRB: Certified Residential Broker. CRS: Certified Residential Specialist. DEBT RATIOS: The comparison of a buyer s housing costs to his or her gross or net effective income, and the comparison of a buyer s total long-term debt to his or her gross or net effective income. The first ratio is housing ratio; the second ratio is total debt ratio. DUE-ON-SALE CLAUSE: A clause that requires a full payment of a mortgage or deed of trust when the secured property changes ownership. EARNEST MONEY: The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith. ESCROW: A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties instructions and assuming responsibility for handling all the paperwork and distribution funds. EQUITY: The difference between what is owed and what the property could be sold for. FHA LOAN: A loan insured by the Federal Housing Administration (of the Department of Housing and Urban Development). FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC): Called Freddie Mac ; a part of the secondary market, particularly used to purchase loans from savings and loan lenders within the Federal Home Loan Bank Board. FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): Popularly known as Fannie Mae ; a privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by the VA, as well as conventional home mortgages. FEE SIMPLE: An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate. FINANCE CHARGE: The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z. 27
FIXED RATE MORTGAGE: A conventional loan with a single interest rate for the life of the loan. FULLY INDEXED RATE: The maximum interest rate on an ARM that can be reached at the first adjustment. GIFT LETTER: A letter from a relative stating that an amount will be gifted to the buyer, and that said amount is not to be repaid. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA): Called Ginnie Mae ; a governmental part of the secondary market that deals primarily in recycling VA and FHA mortgages, particularly those that are highly leveraged. GRADUATED PAYMENT MORTGAGE: A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate. GRI: Graduate REALTORS Institute: A professional designation granted to a member of the National Association of Realtors who has successfully completed courses covering Law, Finance and Principals of Real Estate. HOME INSPECTION REPORT: A qualified inspector s report on a property s overall condition. The report usually includes an evaluation of both the structure and mechanical systems. HOME WARRANTY PLAN: Protection against failure of mechanical systems within the property. Usually includes plumbing, electrical, heating systems and installed appliances. INDEX: A measure of interest rate changes used to determine changes in an ARM s interest rate over the term of the loan. INITIAL INTEREST RATE: The introductory interest rate on a loan; signals that there may be rate adjustments later in the loan. JOINT TENANCY: An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent s interest in the property. JUMBO LOANS: Mortgage loans that exceed the loan amounts acceptable for sale in the secondary market; these jumbos must be packaged and sold differently to investors and, therefore, have separate underwriting guidelines. LIEN: A legal hold or claim on property as security for a debt or charge. LOAN COMMITMENT: A written promise to make a loan for a specified amount on specified terms. LOAN-TO-VALUE RATIO: The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value. LOCK-IN: The fixing of an interest rate or points at a certain level, usually during the loan application process. It is usually done for a certain period of time, such as 60 days, and may require a fee or premium in the form of a higher interest rate. MARGIN: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment. MORTGAGE INSURANCE PREMIUM (MIP): The mortgage insurance required on FHA loans for the life of said loans; MIP can either be paid in cash at closing or financed in its entirety in the loan. The premium varies depending on the method of payment. MORTGAGE LIFE INSURANCE: A type of term life insurance often bought by homebuyer s. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the mortgage debt is automatically covered by insurance proceeds. NEGATIVE AMORTIZATION: Occurs when monthly payments fail to cover the interest cost. The interest that isn t covered is added to the unpaid principal balance, which means that even after several payments the borrowers could owe more than they did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren t high enough to cover the interest. ORIGINATION FEE: A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to one percent for FHA and VA loans. PAYMENT CAP: The maximum amount the payment can adjust in any given time frame. PITI: Principal, Interest, Taxes and Insurance. PLANNED UNIT DEVELOPMENT (PUD): A zoning designation for property development at the same or slightly greater overall density than a conventional development, sometimes with improvements clustered between open common areas. Use may be residential, commercial or industrial. POINT: An amount equal to one percent of the principal amount of the investment or note. Lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments. PREPAYMENT PENALTY: A fee charged to a borrower who pays a loan before it is due. Not allowed for FHA or VA loans. PRIVATE MORTGAGE INSURANCE (PMI): Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage. PURCHASE AGREEMENT: A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract, or agreement for sale. RATE GAP: The difference between where the rate is now and where it could adjust to on an ARM. Also used to compare the difference between a current conventional rate and that of an ARM. REALTOR: A real estate broker or associate active in a local real estate board affiliated with the National Association of Realtors. REGULATION Z: The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act. TENANCY IN COMMON: A type of joint ownership of property by two or more persons with no right of survivorship. TITLE INSURANCE POLICY: A policy that protects the purchaser, mortgagee or other party against losses. VA LOANS: A loan, made by a private lender, which is partially guaranteed by the Veterans Administration. 28
ncing Finding the Right Home When You Find the Right e Next Steps Completing the Purchase Financing Find ight Home When you Find the Right Home Next Steps urchase Coldwell Banker Residential Brokerage Complet ColdwellBankerHomes.com 2016 Coldwell Banker Residential Brokerage. All Rights Reserved. Coldwell Banker Residential Brokerage fully supports the principles of the Fair Housing Act and the Equal Opportunity Act. Operated by a subsidiary of NRT LLC. Coldwell Banker and the Coldwell Banker logo are registered service marks owned by Coldwell Banker Real Estate LLC. MA92660 12/16