FREQUENTLY ASKED QUESTIONS
01 What is An Addendum?
An agreement or list that is added to a contract. Addenda allow the REPC to amended without requiring a whole new contract. Date changes, purchase price reductions, and closing cost are addressed in an addendum. Certain loans, like FHA or VA, require addenda. Also, any property built before 1978 requires a Lead Based Paint Addendum.
02 What is an ARM (adjustable rate mortgage)?
A mortgage in which the interest rate is adjusted periodically according to a pre-selected index. The initial interest rate is lower than a 30 year fixed rate. Generally, the rate can adjust after 5 or 7 years and has a maximum increase. Ask your lender for more information.
03 What does Amortization mean?
The cost of your home, plus interest, in monthly payments, over the course of your loan.
04 What is APR (Annual Percentage Rate)
The annual percentage rate is not the same as your percent interest on the loan. APR takes into account fees and closing cost. APR allows you to easily compare different loans to see which one is the best deal. Often, loans advertising a very low interest rate, will have a higher APR than a higher interest loan with fewer fees.
05 What Exactly is an Appraisal
The bank is loaning you $200,000 for a house and they want to make sure it is worth 200K. They order an appraisal from a blind pool or appraisers to ensure there are no shenanigans. If the appraiser says the house is only worth 195K, then the seller will either lower the price, or the buyer will have to bring in 5K to cover the difference.
06 What is a Contract contingency? Or an 'active tc' listing?
A condition that must be met before a contract is legally binding. Often, a buyer might need to sell their home in order to purchase a new property. They can submit a contract with a contingency. Homes with a first position contract with a contingency may still appear on the market as “Active TC”. This means that if another offer comes in, the seller may activate the Time Clause for the first position offer to remove their contingency in the agreed upon timeframe. Usually 48 hours
07 What is a Concession?
Closing cost, carpet replacement allowance, prepaid clubhouse membership: these are all concessions a buyer might receive from the seller. Concessions are negotiation tools.
08 What are Closings Costs?
Sure, you will be paying the bank hundreds of thousands of dollars, but there are a few fees to cover at closing. This generally involves an origination charge, discount points, and fees for required third-party services, taxes, and government recording fees. Some sellers may be willing to cover closing cost for the buyer.
09 When Does My Transaction Close?
The term “closing” is often misused when referring to signing the paperwork. Technically, signing the papers is a “settlement”. In Utah, closing takes place when the bank funds the loan and the title is recorded. It is important to note that you won’t get keys at Settlement, but only after the deal Closes. Possession occurs a set time after closing, so make sure to pay attention to section 8 of your REPC.
10 What is a Cash Offer?
The process of obtaining financing is one of the most difficult parts of the home buying process. You can avoid appraisals, interest, fees, and other annoyances by paying with cash. Some properties will not be financeable if they falling down, so cash is the only options. As a Seller, it is great to see a cash offer. You can sell your home faster and have fewer hurdles to jump if there isn’t financing involved.
11 What is a Buyer Broker Agreement?
Real estate agents don’t get salaries or hourly pay at the end of the week. They only get paid IF the deal closes. A buyer broker agreement ensures that an agent gets paid for the work they did throughout the home search. Otherwise, a buyer could see 40 houses with one agent and buy one of those houses with a friend from high school they remembered had a license. Buyer broker agreements are often required by the managing broker.
12 What are CC&R's? (Covenants, Conditions and Restrictions)
Regulations that may affect your home purchase and what you can do with your property. A list of do’s and don’t that govern an HOA neighborhood or municipality.
13 What is DTI? (Deb to Income Ratio)
Often used in qualifying a consumer for a home loan, DTI reflects the consumer’s monthly debt and debt-related costs, such as taxes, fees, and insurance premiums as a percentage of their monthly gross income. If you bring in $3,500 pre tax per month, and your new mortgage payment is going to be $2,000, a $500 car payment, and $500 minimum payments on your student loans and credit cards, the bank is unlikely to qualify you for the loan. Ask your lender when their max DTI ratio is and stay under that.
14 What is Due Diligence?
The Due Diligence Deadline is the date by which the buyer needs to complete any and all inspections to discover any defects with the property. The buyer is able to ask for repairs or concessions to address the findings of the home inspector.
15 What is the HUD? (Housing and Urban Development)
In Realtor jargon, the HUDs are a document that accounts for all the money on a transaction. In reality, the HUD is a governmental entity responsible for the implementation and administration of housing and urban development programs. HUD was established by the Housing and Urban Development Act of 1965 to supersede the Housing and Home Finance Agency. When you buy or sell a property, you will receive a HUD statement that shows where all the money went.
16 What are Discount Points
Discount points are charges paid to the lender voluntarily, usually at closing by the borrower or seller, to reduce the interest rate. One point is equal to 1 percent of the principal amount of the mortgage. The effect of a point varies daily but isn’t a full percentage point. If you know you are going to live in the home for many, many years, you can pay to buy down your interest rate. On a $300,000 home. A point will cost you $3,000 and may reduce your 4.2 interest rate down to 4.0%. It can save you money in the long run, but ask your lender if it works for you.
17 What is a Down Payment?
You need to provide some cash to buy a house. Different loans have different requirements, but 3% down is about as little as you can do.
18 What is Earnest Money?
To prove you are serious when making an offer you will need to provide earnest money. The money is held by your agent’s company and will be counted towards your down payment or given back if you cancel the deal before your deadlines are up. Don’t worry. We treat your money like our money, so we won’t let you lose it!
19 What is Escrow?
Technically, an item of value, money, or documents, deposited with a third party, to be delivered upon the fulfillment of a condition. When you officially contract a property, you enter the “escrow period.” When the title company receives your down payment, the new loan payout, and delivers the proceeds to all parties, that’s escrow. Also, when your mortgage payment includes taxes and insurance payments, you have an escrow account. Generally, if you have less than a 20% down payment, your bank will require an escrow account.
20 Do I Need a Home Inspection?
A home inspection is an important part of the home buyer’s due diligence. A home inspector is hired by the buyer to take a thorough look at the property. Any loose light switches, poorly functioning furnaces, evidence of leaks or anything will be found and presented in an inspection report. Homes are sold “as is” but you will have an opportunity to have the defects addressed as part of your negotiations to purchase the property.
21 What is the Financing and Appraisal Deadline?
The financing and appraisal deadline is another way to get your earnest money back and withdraw from a contract without penalty. If the home does not appraise at value and the seller will not lower their price, you can cancel the contract. Or, if you just had to have that new Ferrari and your creditworthiness is questioned by the bank, you can back out of the contract and live in your car.
22 What is the FHA? (Federal Housing Administration)
The federal agency in the Department of Housing and Urban Development (HUD) that insures residential mortgages. If you have a small down payment, the government will make you a less risky loan prospect by insuring your mortgage against default. It’s not free! You get to pay the insurance premiums monthly in a Primary Mortgage Insurance (PMI) payment. Also, they have requirements that the house has to meet, so some properties will not qualify for an FHA loan.
23 What is a Good Faith Estimate?
A document provided within three days of application that shows borrowers the approximate costs of the transaction.
24 What is an HOA? (Home Owners Association)?
Home Owners Associations are most common with condos, but properties that must hire their own snow removal or have a community pool will have an HOA. Aside from the governing body, there are fees associated with HOAs.
25 What is Limited Agency?
Limited agency comes into play in a few situations. If an agent has a listing and has the opportunity to bring his own clients to purchase his listing, the agent will be acting as a limited agent. Also, if two agents from the same company represent their own clients, there is still a need for a limited agency agreement.
26 What is a Listing Agreement?
When you want to sell your house and use an agent, you will be asked to sign a listing agreement. This ensures that the Brokerage is going to get paid if your house sells. Marketing can’t begin until you sign it.
27 When am I Officially Under Contract?
When all parties agree to the terms of the REPC and have all signed it.
28 What is Underwriting?
Analysis of risk and setting of appropriate rate and terms for a mortgage on a specific property for specific borrowers.
29 What is Title Insurance?
An insurance policy that protects a lender and/or homebuyer (only if homebuyer purchases a separate policy, called owner’s coverage) against any loss resulting from a title error or dispute. On a refinance, if the property has had a recent title insurance policy, a homeowner may sometimes be eligible for a reduced rate on the title insurance (also known as the reissue or refinance rate).
30 What is a Title Insurance Company?
A company that confirms the legal owner of a property and insures a homeowner and lender against a loss that could result from a title dispute
31 What is a Title?
The legal documentation and evidence of ownership rights to real property.
32 What is a Time Clause?
A time clause is a stipulation in a REPC (Real Estate Purchase Contract) that allows the seller to keep looking for acceptable offers for their property. If another offer comes in, the first position contract needs to remove their issue within a certain amount of time, usually 48 hours. Sometimes, a buyer needs to sell their current home before they can buy the one they want. Timing is an issue an it is difficult to know for sure when things are going to fall into place. If the buyer finds a property before their current home is sold, it is possible to get the property under contract with a time clause.
33 What is a Short Sale?
Everybody thinks that a short sale is going to be a good deal. In a down market, that may be the case, but it is still a hassle. If the seller owes 200 and the house is worth 190, but the seller owns a car that is worth 12, the bank is going to want the seller to sell their car to make up the difference. For a short sale to actually be a short sale the bank has to both agree that they will lose money and how much money they are willing to lose. Since the bank must approve the price, many short sales are listed at much lower prices to increase consumer interest. Chances are that the property will actually sell for more than the price listed. In a good, improving real estate market, short sales become increasingly rare. Property values are going up, so it is less likely that someone owes more on the property than they can sell it for. Therefore, the houses that are actually selling short are likely to have some major issues like crumbling foundations, mold, meth, or other contamination.
34 What is Seller Financing?
In some cases, if the buyer cannot qualify for a traditional mortgage, the seller my offer to finance the property. Seller Financing is pretty rare for a few reasons. A seller is usually selling for the equity in their property. Few sellers would like to a bank and will take the lump sum payout over the smaller monthly payments. Another reason is that the buyers are safer making payments to a bank and banks are regulated in their business practices.
35 What are Seller's Disclosures?
The first deadline of the REPC is usually the Seller’s Disclosures. The seller’s disclosures are a series of questions regarding the condition of the property in a standardized form that the seller completes. If there was a roof leak in 2007, they tell you on the form as well as the steps they took to fix the problem and any receipts from the contractor they used if they still have them.
36 What is Settlement?
Settlement routinely mistaken for CLOSING, but is simply the act of signing to sell or acquire a property. Settlement is a necessary step in the home buying process and, although your wrist will be sore from all the signatures, it does not mean you get the keys to your new home. Possession takes place after closing. Closing takes place within 4 days of Settlment.
37 What is a REPC? (Real Estate Purchase Contract)
The Real Estate Purchase Contract is the 6 page document plus any addenda that we use in Utah to buy or sell a property. Once the seller and buyer agree to the terms of the REPC and everyone signed, you are then “Under Contract”
38 What is an REO Property?
A foreclosed property, also known as a Real Estate Owned (REO) property, is a home that was once customer-owned but is now owned by a bank. A foreclosure can occur when mortgage payments are not made over a period of time and measures taken to help are not satisfied.
39 What is a Referral?
Realtors work hard to keep you happy so that when the time comes, you might allow us to assist you in the purchase or sale of your personal home. But if you are lucky enough to be living in your dream home and you never plan on moving, don’t let that stop you from helping us out. If your neighbor is thinking about selling, let us know. If your cousin in a different state is thinking about selling, let us know and we can find the best realtor in their area!
40 What is Possession?
Possession refers the the time that the property officially becomes yours. Section 8 of the REPC deals with possession. The earliest it can occur is when the deal officially CLOSES, so after it funds and records.
In Utah, it is common for deals to fund and record a day or more after signing, so don’t expect to get the keys after settlement. Section 8 of the REPC will allow for extending the time of possession after closing. This gives the seller extra time to move out.
Don’t worry about the seller knocking down a wall to get his pool table out, any damage that occurred during the time you own the home but the seller is still there is covered by the seller.
41 What is PMI?
Private Mortgage Insurance is insurance written by a private company protecting the mortgage lender against loss resulting from a mortgage default. Common on loans with low down payments like FHA and VA. You pay the monthly insurance premiums.
42 What is TMI?
Too Much Information is when you have made it this far down the FAQ page! Thanks for reading. You are a real estate expert now!
43 What is Pre-Qualification?
The process of estimating how much money a prospective homebuyer may be eligible to borrow prior to applying for the loan. Prequalification does not include a credit check and should not be confused with Preapproval.
44 What is Pre-Approval?
A preapproval letter indicates that you have been preapproved for a specified mortgage amount based on a preliminary review of your credit information. Hopefully you are fully income verified and credit worthy.
45 What is Power of Attorney?
A legal document authorizing one person to act on behalf of another. Some banks won’t allow it, but if you can’t make it to your settlement, you can allow someone to sign for you. It’s an ordeal. The signee has to sign your signature then a 40-word statement.
46 What is a PUD?
A Planned Unit Development is a comprehensive development plan for a large land area. A PUD usually includes residences, roads, schools, recreational facilities, and commercial, office and industrial areas. PUDs sometimes include fees.
47 What is PITI?
Principal, Interest, Taxes, and Insurance are the most common components of a monthly mortgage escrow payment.
Content in this Frequently Asked Questions section of the site is for informational purposes only and is not intended to be legal, transactional, investment or real estate purchase advice. Please consult with respective professionals and/or qualified legal advisors for further clarification on any of these subjects.