Do you know all the ways your agent can help?
There’s a reason that 88% of homebuyers use a real estate agent when buying a home, according to the National Association of Realtors® 2015 Home Buyer and Seller Generational Trends report. However, most people don’t know about all the ways an agent can help them during the homebuying process. Here are 14 of them:
- Be an adviser and advocate during the entire home buying process
- Take time to uncover the your needs and wants as well as your motivations to buy
- Educate you on current local market conditions with sales activity and days on market
- Find a way for you to attain as many of your needs as possible while dealing with the realities of the market or specific financial constraints
- Research homes in the area and sort through active listings to make suggestions based on your needs
- Aid you in narrowing your home search until you have identified your top choices
- Handle the ins and outs of the negotiation process including the preparation of all necessary forms when making an offer or counteroffer
- Ask the listing agent for information on seller’s utility bill history
- Provide oversight and follow up for any inspections deemed necessary
- Counsel you on how to handle any repairs needed on the property
- Connect you with trusted service providers if needed
- Provide you a list of the utility companies you will need to contact to set up new service
- Conduct Final Walk-through to ensure repairs are made satisfactorily
- Be present at closing to ensure that all your interests are protected
Demystifying Real Estate Jargon
Earnest Money Deposit (Good Faith Money) vs. Down Payment
There is a significant difference between the two terms actually. An earnest money deposit or good faith money is an agreed-upon dollar amount that is given by the buyer to their hired real estate agent and delivered to their broker. This deposit sits in a neutral bank account called an escrow account that is usually maintained by the Brokerage. The earnest money deposit is given as “consideration” for a contract as a sign of good faith when placing an offer on a home.
It essentially reinforces to the seller that the buyer making the offer on their home is serious, and will complete the purchase once the offer has been initiated and all contingencies like inspections and appraisals have been satisfied. This earnest money deposit is customary and should be weighed seriously before submitting your offer since the seller may be able to keep your deposit money if you pull out of the deal for a reason that isn’t allowed under the purchase contract. Typically the earnest money deposit is 1-2% of the asking price, but can be negotiated between the buyer and seller and varies based on the customs of the local market.
A down payment is submitted upon closing on home and is the amount of money that the Lender requires of the buyer to put into the purchase of property. The down payment is determined based upon the type of loan offered by the Lender but typically runs from 3.5% to upwards of 20%. This amount is not due until your closing day and is deducted from your total balance on the loan which you will see recorded on your settlement statement (HUD-1 statement, officially). The amount of money you place in your down payment affects your LTV or loan-to-value ratio and some homes and loan programs have certain requirements. It is always best to seek a few referrals to highly regarded lenders to get advice on which loan programs will work for your situation. You always have a choice of lender. If you are unsure of which lenders to consider, you can always contact your agent for a list of lender suggestions or contact us here at Nestiny for a curated list of reputable lenders for your area.
Appraisal vs. Tax Assessment
An appraisal is simply a statement of the “market value” of your home based on recent sales history of homes comparable to your home. The appraised value is determined by a state licensed appraiser, and is typically conducted for the mortgage lender. The appraisal is actually ordered by your mortgage lender and they technically “own” it although you pay for it as part of your loan application process. The mortgage lender, real estate agent, buyer and seller have no influence over the outcome of the appraisal. All appraisals must be at “arms-length” to preserve their integrity, so the mortgage lender orders an appraisal and the appraiser is assigned out of a random queue.
The appraisal process is much more involved than a tax assessment and includes an entire house evaluation (interior and exterior with photographs) along with background research into what similar homes in the area are selling for in the current market. Most appraisers will only factor in the last 90 days of sales activity in a reasonable radius around your home. Since the appraised value is reached by much more extensive research, this is typically the more accurate home value for the current market. The lender heavily relies on the appraisal data and usually will not lend for any amount over the value of the appraisal.
A tax assessment is placed on a home by the local government (city or county) to charge appropriate property taxes to the homeowners. The local government determines a home’s worth by reviewing property data from previous years, and at some point an assessor may even visit the house usually as a drive-by on the exterior, but will not go inside for this process. Since tax assessments are typically conducted every 2-3 years and there can be a lag in reporting on the local government’s tax records, tax assessments are not always the most accurate when determining true home worth in the current market.
Tax assessments can be valuable estimates to consider when writing an offer and thoroughly reviewing a property’s tax record with your real estate agent is highly recommended so you are also aware of property history, outstanding taxes and tax history, qualified tax credits and ownership records.
Prequalification vs. Preapproval
A prequalification is basically an estimate of your ability to borrow money. By supplying a bank or lender with your overall financial standings, they are able to evaluate your finances and give you an idea of the mortgage amount that you may qualify for. This is one of the first steps to becoming more serious about shopping for a home.
A preapproval is a much more comprehensive process that includes completing an official mortgage application, along with providing any documentation required by the lender to complete an extensive financial background check. From this process the lender will be able to determine the exact amount for which you are approved for a mortgage. This will give you an even more realistic view of what you can afford.
Before most real estate agents will show you homes, you will need to provide them with a copy of your preapproval letter from your lender. The reason for this is that the agent will want to make sure you are house- hunting for homes in the proper price range for your budget and can better prepare you for what to expect in the local market. This also signals to your agent that you are serious about purchasing a home. Your preapproval letter will also be submitted along with your Purchase Offer by your agent to the listing agent of your desired home so they can provide a copy to their seller for deciding on whether to accept your offer.
Deed vs. Title
When you close on a home, one of the documents you will sign is the deed to the home. This deed essentially authorizes you to claim ownership of the property. To be very clear, a title simply gives you the right to use the property as your own until the time you pay off your mortgage loan.
The title to your home proves outright ownership and is held by your lender until the time that you have paid off your mortgage in full. This is a legal document that transfers ownership from one person to another. If you pay off your home mortgage before reselling the home your lender will sign this title over to you, proving that you own the house in full.
Special note: Texas homeowners actually use mortgages for their transactions so please discuss with your real estate agent when considering buying a home for the special nuances.
Mortgage Insurance vs. Homeowners Insurance
Unfortunately mortgage insurance is something that you will pay for that does not protect you directly. This can sound really confusing. Instead, it provides protection to the mortgage lender in the case that you can no longer make payments on your home. You are basically paying for this insurance because of the risk that you present to the lender.
Homeowners insurance is designed to protect you as the homeowner, similar to that of health insurance. So if you experience a bad storm and a tree falls on your home, or you were to have a fire, these events would be covered under your homeowners insurance. Once you own your home outright, it is your decision to carry homeowners insurance, but until then it is required as part of your home loan.
Real Estate Owned (REO) vs. Bank Owned
Surprisingly, these two terms are one in the same. You may come across these terms when searching for a home. They refer to when a mortgage lender or bank repossess a home during the process of foreclosure.
Chain of Title vs. Clear Title on Your Home
Chain of title can be a confusing term. It refers to the history of the actual title and how many times it has transferred ownership. It’s essentially a timeline document listing all owners of a property – beginning with the government, builder or original owner through the current individual holding the title for that property.
However, a clear title means that there are no liens or conflicting claims of ownership associated with the title. A title search must be completed in order to make sure that the title is clear. Typically the title company will complete this search for you and you pay for this research by a fee or line item as part of the closing which will appear on your settlement statement. While anyone has access to this search, we suggest letting a professional perform the search as it is imperative to make sure that the title is clear. A title with issues that have been missed can cause you a major headache, a dispute as to the property’s true ownership and most likely a financial hit.
Closing vs. Settlement/Closing Statement
It’s time to clear up any confusion on these terms as they are frequently used when buying a home. A closing is when you meet with your closing company or attorney and complete your home purchase transaction. Every state has its own protocol for how closings are conducted so ask your agent to explain the normal procedure to you. Depending on your state’s practices, you may receive your keys to your new home that same day and be able to take possession of your new home and move in.
A settlement/closing statement is a final document gathered by the closing agent itemizing all financial settlements of the home transaction for each party involved. This document is also known as a settlement sheet and will show a breakdown of all fees by line item. These closing costs or settlement fees are agreed upon during your contract and are typically the norm. The fees can including mortgage insurance, commissions, charges and credits, etc. See our article on closing costs for more details.
Mortgage Payment vs. PITI
While you may hear these two terms used in different contexts, they actually refer to the same thing. PITI is the abbreviation for the components that make up a mortgage payment. “P” stands for principal, the amount of money you actually borrow in the form of a mortgage. “I” represents interest, the money your lender charges you for the privilege of borrowing all of that principal. “T” refers to the taxes that you will pay on your home based upon the property’s assessed value. The last “I” stands for your homeowners insurance that will be bought when you apply for a loan to guard against potential damages to your future home. For more info check out our article What exactly is a mortgage payment?
Understanding these three very different aspects of buying a home will keep your home buying journey on track and eliminate surprises. If you have any questions, it’s a good idea to meet your chosen agent for coffee and let them share more specifics with you. This will improve your chances of success and keep you on track.