Answers to Frequently Asked Questions
What is a buyer’s representation agreement:
A buyer’s representation agreement is signed by the buyer(s) and the buyer’s real estate agent. The agreement establishes the fact that the agent will work on behalf of the buyer, and will represent the buyer in the purchase of property. The agreement specifies the agent’s role and duties, and the agent’s fiduciary responsibility to the buyer.
What is the difference between “pre-qualified” and “pre-approved”?
If you are “pre-qualified” you have determined, with a loan officer, how much you can afford to spend based on the down payment, your debts, and the amount the Mortgage Company will approve for your mortgage. Being “pre-qualified” is only a determination of your probable credit. If you are “pre-approved”, your credit, employment and funds have been verified and approved by the lender. You will need to get pre-qualified with your lender before you begin to actively work with your Realtor. You should get pre-approved for your financing prior to starting your new home search.
What are closing costs?
Closing costs are an accumulation of charges paid to different entities associated with the buying and selling of real estate. For buyers, they are usually about 3-5% of the total sales price of a property. Some of the closing costs you might encounter are: application fees, appraisal fee, county taxes, credit report, discount points, documentation fee, escrow fees, homeowners’ association fees, loan fees, mortgage insurance, origination fees, tax registration and title insurance premium.
What is a point?
One point is equal to 1% of the new loan amount. Whenever government regulation, state usury laws and/or competitive practices prohibit the lender from charging a rate of interest that would make the real estate loan competitive with other fields of investments, the lender must seek some method of increasing the yield for the investors.
What is earnest money?
When you execute a contract to purchase a home, you will have to provide an earnest money deposit. You will give the check for your earnest money to your Realtor, and the Realtor will give it to the title company. The title company will cash the check, and your earnest money will be held by the title company until the day that the sale closes. Typically, earnest money is about 1% of the sales price. You are given credit for your earnest money at closing,which reduces your total amount due at closing.
What is title insurance?
Title insurance protects the named insured person(s) against loss because of defects, liens, encumbrances, adverse claims or other matters relating to the property that were not shown or disclosed to the new owner at the time of purchase. Title insurance assures that buyers are obtaining a “clear” title.
What is the termination option and what is the option fee?
The termination option is agreed to in the purchase contract. Both parties agree to a dollar amount (the termination fee) that the buyer will pay to the seller upon execution of the purchase contract. The fee buys the right for the buyer to terminate the contract for any reason during the termination option period. If the buyer terminates the purchase contract during the option period, the seller retains the termination fee. If the buyer goes through with the purchase, then the termination fee is credited to the buyer at closing. The buyer should have a general property inspection, a wood-destroying insect inspection, and, if needed, a structural engineer inspection of the property performed during the option period.
What is the difference between a home inspection and a home appraisal?
Your lender will require that an appraisal be done on the home you are purchasing. The appraisal is done by a licensed appraiser who provides a written report stating his/her opinion of the market value of the home. In most cases, the lender will set up the appraisal with an appraiser that frequently does work for that lender. Residential appraisals cost about $350. Your lender will either require you to pay for the appraisal up front, or the cost of the appraisal will be added in to your closing costs.
A home inspection must be performed on a home before it is sold. Once an executed contract is in place, the home inspection is done during the option/termination period. Master Realtors will provide you with a list of inspectors, and you can choose one of them or any other licensed inspector. The inspector checks over the home thoroughly, and provides a written report that identifies any needed repairs and states the condition of the main physical components and systems of the home (such as plumbing, electrical, heating and cooling systems, roof, etc.). The inspector will issue a second report concerning wood-destroying insects and whether there are signs of past or previous infestations or treatments, or any conditions that are conducive to termites. The buyer pays for the inspection at the time it is performed. The cost is about $200 to $400 and varies depending on the size of the home and systems to be checked.
What are the differences between HOA and HOB homeowner’s insurance policies?
Once you have your home under contract, you will need to set up your homeowner’s insurance. Information regarding your insurance must be given to the title company prior to closing. There has been, and continues to be, much confusion about homeowner’s insurance in Texas in the past few years.
There are two basic types of homeowner’s insurance policies that may be purchased in Texas. HOA policies do not provide coverage for as many situations as HOB policies, which means that an HOB policy is the best type of policy to have. But, HOB policies cost more than HOA policies because they provide broader coverage to potential damages to a home. Generally, HOA policies provide less coverage than HOB policies for damages caused by water and mold. An additional rider may be purchased to provide more extensive coverage for problems that are mold-related or due to water or moisture damage. It is advisable that you get a HOB policy, and that you be sure your policy provides coverage at replacement cost (instead of at a depreciated cost). Be sure that you fully understand the coverage you are getting. Work with an insurance agent that will answer all of your questions and provide you with the coverage you desire.
Is VA or FHA financing unfair to sellers?
FHA and VA loans provide purchasers the opportunity to buy homes with minimal cash investment and sometimes at lower interest rates. The costs to sellers are slightly higher if the buyer’s financing is FHA or VA, but the loans are not unfair to sellers. If sellers are willing to accept a VA or FHA purchase, then the number of potential buyers for their home is increased.
Can a Master’s Agent show me any listing in DFW?
Yes! Master Realtors agents can show you any Dallas metro listing from any
company.
If you have additional questions not listed here, please feel free to give us a call for more
information.
Glossary of Real Estate Terms:
AMORTIZED LOAN - A loan that is completely paid off, interest and principal, by a series of regular payments that are equal or nearly equal. Also called a Level Payments Loan.
APPRAISAL - An estimate of value based upon a factual analysis of a property and comparable sales.
APPRECIATION - An increase in value of real estate.
CLOSING - The date on which a property legally changes hands from seller to buyer.
CONVENTIONAL MORTGAGE - A mortgage securing a loan made by investors without governmental underwriting, i.e., which is not FHA insured or VA guaranteed.
COUNTER-OFFER - A rejection of an offer by a seller along with an agreement to sell the property to the potential buyer on terms differing from the original offer.
DEED - Written instrument which, when properly executed and delivered, conveys title.
EARNEST MONEY DEPOSIT - Deposit made by a purchaser of real estate as evidence of good faith.
EASEMENT - The right or privilege to use another individual’s property.
ENCROACHMENT - A structure or portion of a structure built on another individual’s property.
EQUITY - The interest or value that an owner has in real estate over and above the liens (such as the amount owed on a mortgage) against real property.
ESCROW ACCOUNT- An escrow account is one that is usually held by a mortgage company. A homeowner’s escrow account holds money that is paid by the homeowner (usually as a part of the monthly mortgage payment). The money in the escrow account is usually used to pay property taxes and homeowner’s insurance. Title companies will hold the earnest money paid by buyers in an escrow account until the home purchase is complete, at which time the earnest money is applied to the purchase price.
FHA LOAN - A loan that has been insured by the federal government guaranteeing its payment in case of default by the borrower.
LIEN - A legal claim against a property used to secure the payment of debt related to the property, such as a mortgage company’s lien, which secures payment of the mortgage.
LOAN RATIO - The ratio, expressed as a percentage, of the amount of a loan to the value or purchase price of real property.
MARKETABLE TITLE - Merchantable title; title free and clear of objectionable liens or encumbrances.
MULTIPLE LISTING SERVICE (MLS) – MLS is the name given a service performed by local boards of realtors. MLS provides necessary information to aid in the sale of listings. It is a marketing tool used by real estate agents to expose properties to a wider market base.
PROMISSORY NOTE - Following a loan commitment from the lender, the borrower signs a note promising to repay the loan under stipulated terms. The promissory note establishes personal liability for its repayment.
PURCHASE AGREEMENT - An agreement between a buyer and seller for the purchase of real estate.
REAL PROPERTY - Land and whatever by nature or artificial annexation is a part of it, such as a home and swimming pool, etc.
SPECIAL ASSESSMENT – A legal charge against real estate by an authority to pay the costs of improvements. Sometimes, the homeowner’s associations of condominium complexes assess the owners for things like improvements to the common areas or a new roof.
Survey – A survey is ordered by the mortgage company, usually costs about $200, and is paid for by the buyer as part of the buyer’s closing costs. The survey is a written diagram that shows the legal property lines, any easements, on the property, etc.
VA LOAN - A loan guaranteed by the Veteran’s Administration insuring payment in case of default by the borrower. Available to qualified veterans.
WARRANTY DEED - A deed used to convey real property that contains warranties of title and quiet possession. In warranty deeds, the grantor agrees to defend the premises against the lawful claims of third persons.
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