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Homebuying 101
 

Homebuying 101

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    Homebuying 101 Homebuying 101 Document Transcript

    • Home Buying 101
    • Home Buying 101 Table of Contents Working with ZipRealty Our guarantee to you 2 What you can expect from 3 your ZipRealty Agent ZipRealty rebate 4 Home Buying 101 How much can I afford? 5 Renting versus buying 6 How to find a good value 6 Buying a distressed property 7 Buying new construction 10 Home inspections and warranty 10 Home Loans and Preapproval Preapproval process 11 Questions to ask about your loan 12 Closing 101 Closing timeline 13 What you can expect 14 Glossary of real estate terms 16 1
    • Home Buying 101 Working with ZipRealty You Get the Best of Both at ZipRealty When you work with ZipRealty to buy or sell your home, you get the best of both worlds – a website with the broadest and most useful array of information and tools, and a local, responsive agent whose number one priority is you. We Guarantee Your Satisfaction We’re 100% committed to making sure you have a great home buying or selling experience – in fact, we guarantee our service. If you’re not satisfied for any reason when you close, we’ll pay you $250* – that’s how confident we are that you’ll enjoy working with us. Rate Your Agent Love your agent? We’re glad to hear it. ZipRealty is one of the only companies where we’ll tack on a nice bonus to your ZipRealty Agent’s commission for providing you with such great service. After your transaction closes all you have to do is let us know that you were completely satisfied, and we’ll take care of the rest. 94% of our customers would recommend ZipRealty to their friends *See website for full details. 2
    • Home Buying 101 Working with ZipRealty The Role of Your ZipRealty Agent You want to work with a real estate agent who is knowledgeable, friendly and hardworking…and values your time as much as you do. That means someone who returns your calls quickly, answers your questions promptly and completely, and when you’re ready to move forward, they’re ready, too. At other companies that combination of accountability, responsiveness and knowledge might be hard to come by, but at ZipRealty we consider that the basics! In addition to providing you with “the basics,” your ZipRealty agent will: • Help you find the right home for you, in your area and price range • Work with you to prepare an offer to purchase the house and professionally present it to the Seller’s Agent • Negotiate on your behalf with the seller orSeller’s Agent after the offer is presented • Work with the title company, the lender, and the seller or Seller’s Agent to arrange all necessary inspections • Discuss and explain the inspection report to you and negotiate with the seller or Seller’s Agent for any repairs to the home • Serve as your “point person” to make sure the closing process goes smoothly and ensure all contracts and addendums are prepared and completed What is the difference between a Buyer’s Agent and a Seller’s Agent? Most states have what is called“a Buyer’s Agent, which is a real estate agent hired by you, the buyer, to help find the right home at the best price. A Seller’s Agent, or Listing Agent, is a real estate agent hired by the seller to market and sell their home. The main goal of a Seller’s Agent is to sell the seller’s home at the highest price possible. Some buyers choose to ask the Seller’s Agent to represent them, but before you do that, keep in mind that the Seller’s Agent automatically has a conflict of interest – how can they get the highest possible price for their seller client and at the same time get the most reasonable price for you? 3
    • Home Buying 101 Working with ZipRealty How much will it cost to work with ZipRealty? As a buyer, you won’t pay anything to have ZipRealty work for you. In a residential real estate transaction, the seller pays the real estate commission. As an added bonus to working with ZipRealty, we will give you up to 20%* of the commission we receive from the seller! ZipRealty’s Rebate The ZipRealty rebate is available… • To buyers who close escrow/proceed to final settlement with ZipRealty acting as their sole and exclusive agent in the purchase of real estate • For homes with a final sales price of $100,000 or more The ZipRealty rebate is not available… • For homes with a final sales price of $99,999.99, or less • When your lender(s) or new home builder disallows it – make sure to check with them! • When prohibited by state law, as in Oregon Please be aware that there may be tax consequences to the rebate. You should seek legal or tax advice regarding the rebate from the appropriate professional. Home buyers get up to 20% of our commission back.* Home buyers get up to 20% of our commission back.* Home Price Commission ZipRealty Share Buyer Rebate 6% 3% up to 20% $300,000 $18,000 $9,000 up to $1,800 *For full details on our rebate, please visit our website: www.ZipRealty.com/rebate 4
    • Home Buying 101 How Much Can I Afford? How much can I afford? In general, the amount you can afford to spend on a home is a combination of: • Your cash on hand • Your income • Your outstanding debt and debt payments According to many financial experts, your monthly housing cost (including mortgage payment, property taxes, homeowners insurance and HOA fees, if applicable) should not exceed 28% of your gross monthly income. Your total monthly loan payments (including your mortgage, car loans, child support and alimony, credit card bills, student loans, etc.) should not exceed 36% of your gross monthly income. Applying these guidelines, if your debt payment (aside from your mortgage) currently exceeds 8% of your annual income, you’ll need to lower your mortgage payment accordingly to maintain a debt level at or under 36% of your gross income. An accounting professional or mortgage loan consultant can work with you to help you determine how much you can afford based on individual circumstances. Additional expenses to factor into your first year of homeownership: • Closing costs • Moving costs • Repair and maintenance costs Calculate Visit ZipRealty’s “Affordability Calculator” to estimate how much you can afford to spend on a home, what your closing costs will be, and how much it will cost you to move. http://www.ZipRealty.com/calculators Once you’ve established your price range, stick to it – spending more than you can afford may cause serious financial problems for you down the road. With the help of your ZipRealty Agent, and by narrowing your home search based on price with our online search tools, you can easily search for homes that are within your price range. 5
    • Home Buying 101 Renting vs. Buying Renting versus Buying Assuming your finances are in order and you’re able to get a loan you’re comfortable with, another key consideration in your decision to rent or buy is your personal timeframe. Your personal timeframe can be divided into two sections: financial and emotional. Your Financial Timeframe: When you buy, your mortgage payment will likely be more than your current rent, so if you’re planning on moving to a new neighborhood or city in a year or two, you might be better off renting since your home probably won’t increase in value enough to cover additional costs of buying and selling. ING COST RENT MONTHLY PAYMENTS BUYING COST TIME However, if you’re planning on staying in the same city/ neighborhood for a longer time, then it may be a good time to buy. Rents will probably continue to rise while your mortgage payment won’t (if you have a fixed loan), so eventually your mortgage payment will be lower than rent. Calculate The ZipRealty website offers a calculator to help you determine your “breakeven” point. Simply input the actual assumptions for monthly costs to see if buying (versus renting) is the right thing for you. http://www.ZipRealty.com/calculators Your Emotional Timeframe: If you’re not wild about where you’re living now, and/or might move soon – say for a new job – then it’s probably not a good idea to buy. Or are you experiencing life changes like a marriage, divorce, birth of a child, or other emotional, stressful event? Then it might not be a good time to buy a home. If you love where you live and don’t see yourself moving, then by all means, it might be time to start looking for a home to buy! Once you’ve determined the time is right (and it makes financial sense for you) your ZipRealty agent is ready to help you find your perfect home. 6
    • Home Buying 101 How to Find a Good Value Compare and Contrast Visit several similar homes in addition to the ones you’re really interested in – that way you’ll be able to form a more complete picture of the local market, and whether or not the home you’re thinking about buying is a good value for the price. Your ZipAgent is a local expert in the areas where you are searching. They’re out there looking at homes almost every day, and their inside knowledge is one of your biggest resources! Definitely take advantage of it. Don’t Overlook the “Ugly Ducklings” Sometimes all a home needs is a little imagination (or a lot, depending on the previous owner’s taste) to turn it into the home of your dreams. These “ugly duckling” homes often sell for a lower amount because many people can’t get past the cosmetics. It might be possible to change things like: • Paint • Flooring • Furniture • Lighting • Landscaping …Just make sure you factor in those expenses into the total cost of the home. Does the “Unchangeable” Match What You’re Looking For? There are some things you can’t change about a property that will affect its value. Here are three big questions to ask yourself as you’re looking at homes: Is it in a desirable location? Make sure the area is a place you will be comfortable living – things like street noise, power lines and air traffic aren’t likely to change. Is the overall “flow” of the floor plan functional? If it feels dysfunctional, be wary –changing this is usually quite expensive and may be impossible. Does the property fit your lifestyle? For example, if it has a pool or a spa but you’re not big on upkeep and you don’t want to pay for the service, that sparkling oasis can turn into an eyesore pretty quickly. And, of course, if the home needs any major repairs (like foundation or roofing) you’ll need to factor that into the amount you’re willing to pay for the home. 7
    • Home Buying 101 Distressed Properties Distressed Properties: Short Sales, Foreclosures and REOs Purchasing a distressed property can be a time-consuming process, but you can also get a great deal on a house you love. • A SHORT SALE occurs when a homeowner sells their home for less than (short of) what they still owe on their mortgage, and their bank has agreed to accept the proceeds from the sale as payment in full of the loan balance. • A FORECLOSURE occurs when a homeowner has defaulted on the mortgage, and lender initiates a foreclosure against the property. The property will eventually be put up for sale at a foreclosure auction. • A REAL ESTATE OWNED (REO) occurs when the bank has successfully foreclosed on the property and the foreclosure auction did not result in a sale to an outside bidder. Thus the lender ends up as the new “owner” of the home. Distressed properties often have challenges not typically found with a traditional real estate transaction. Work with an Agent who is Short Sale Certified Given the complexities involved with the process of purchasing a distressed property, you should work with a knowledgeable, experienced ZipRealty Agent who is Short Sale Certified, and can guide you through every step of the way. Visit... http://www.ZipRealty.com/short-sales for more tips and information about buying a short sale 8
    • Home Buying 101 Distressed Properties What you should know about buying distressed properties* Buying a short sale or REO property is a complex process. The overview below is intended to give you an idea of what you may face if you decide to pursue a purchase of a distressed property. You should always discuss the process in detail with your ZipRealty Agent before making an offer. Here is an overview of the most common distressed situations and how you can work through them: Short Sale Properties Short Sale properties may often be in better condition than properties that are in foreclosure, as the homeowner is working with the bank to release them of their debt and is trying to avoid foreclosure. Before making an offer on a Short Sale, please keep the following in mind: • Any offer must be approved by seller’s lender. • Because of the required approval process by the lender, approval of your offer (and therefore the short sale) could take months. • A lender may not agree to, and thus change, the terms of the agreement made between the seller and the buyer. Foreclosed Properties (REO) Lenders will typically sell the homes “as-is,” meaning that REO properties will often need to be repaired. Before making an offer on an REO, please keep the following in mind: • The lender most likely will not agree to make any repairs to the home • The lender may require you to finance with them. • While most REO properties are already vacant, there is a possibility the lender is still in the process of having the former owners evicted. This could result in a delay in closing, and may also increase the price. • If you are not using the REO bank as your lender it is possible that certain repairs will be required to be made to the property before your lender will agree to close. This could mean you would be required to spend money on repairs on a home that’s not yet officially in your name. * This is for informational and marketing purposes only. ZipRealty, Inc. (“ZipRealty”) is a residential real estate brokerage and cannot give you advice as to your legal rights or tax consequences in association with the purchase of a home facing foreclosure or is currently owned by the bank. You are encouraged to seek the advice of an attorney and/or tax advice in connection with the purchase of any real property. If your property is currently listed with another broker, or you are bound by a buyer-broker agreement, this is not a solicitation of that listing nor intended to interfere with your agreement with another broker. ZipRealty is a publicly held company traded on the NASDAQ exchange under the symbol “ZIPR”. 9
    • Home Buying 101 New Construction New Construction Looking to buy a newly built home? Don’t forget to let your ZipRealty Agent know before you visit a new home community – that way, if you decide to buy, you’ll be eligible to receive the ZipRealty rebate – up to 20% of our commission* upon closing. Before you visit a new community, contact your ZipAgent and tell them to register you on your FIRST visit to the development. Advantages to buying a new home: • Large Selection – Many homebuilders have hundreds of newly constructed homes ready for move-in. These homes are referred to as “Specs” or “Inventory” homes and in many cases are the best deals available in the market. • Less Maintenance – New homes often require less time and energy to maintain, simply because they are completely new. Most newly constructed homes are backed by a builder warranty covering some materials and workmanship. • Personal Options – With new homes, you often have the ability to choose a floor plan that fits your specific needs, plus customizable options like countertops, appliances, storage systems, flooring and technology. • Energy-efficient Construction – New homes are often more energy-efficient than existing homes. Things to know before you make an offer: • The contract will most likely be the builders own contract, written to protect their interests, not yours. • You generally won’t have the right to an inspection like you would for a previously owned home. Confirm that the home builder will take care of all city inspections and that the home has passed all inspections required by the city or county and that the home is built to code. • Some new home builders will not allow ZipRealty to pay you a rebate, so make sure to find out before you submit an offer to a builder. Your ZipRealty Agent will: • Register you with new home builders of your choice – When your ZipRealty Agent registers you with a New Home Builder, you’ll receive 20% of our commission if you buy. • Find you the best deals – Your ZipRealty Agent will be your personal advisor throughout the process of searching for and purchasing a new home. • Guide You through the purchase process – Your ZipRealty Agent will help you with all aspects of the purchase process, including contract negotiation, finance options, disclosures, public reports, inspection process, closing costs and timeframes. * See website for details. 10
    • Home Buying 101 Home Inspection and Warranty Home Inspections A home inspection is a visual inspection of the structure, and some components of a home. Everyone should consider having the home inspected, even if it is an “as-is” sale. It’s a good idea to be there for the inspection – not only is it a great way to learn about your home, but the inspector can also explain and answer any questions that may come up. A home inspector’s report will typically review the condition of: • Heating and central air conditioning system • Interior plumbing and electrical systems • Walls, ceilings, floors, windows and doors • The roof, attic, and visible insulation • The foundation, basement, and visible structure Some items, like mold, mildew, rodents, termites, etc., will require a separate inspection by a professional in that area. Your general inspection report may comment on items like termite damage or water stains, only a professional in that specific area can tell you the extent of the damage and if it is something that should be addressed. Home inspections are NOT... • A protection against future failures • An appraisal that determines the value of a home A code inspection, which verifies local building code compliance or the existence of permits for any improvements on the property Home Warranties A home warranty protects you against the failure of some components of your home. Different warranties cover different things, so make sure to read through the list carefully so you’re aware of what is covered, what the deductible is, etc. 90 Day Warranty The 90 day warranty from the inspection company will cover certain items for up to 90 days after the inspection is performed. It is a fairly limited warranty that is typically designed to partially cover certain items that fail shortly after a home inspection. Annual Warranty The annual warranty is much more comprehensive and while it does cover more than the 90 day warranty, it doesn’t cover everything – be sure to read what is included. 11
    • Home Buying 101 Home Preapproval Process The Importance of Preapproval Getting preapproved will help you in three major ways: • You will know what you can afford. Setting your own budget before talking to lenders is the first step of this process (read more about this on p 5), as you may not want to borrow the maximum amount a lender will lend you. However, preapproval will help you know what the maximum actually is. • You can effectively comparison shop between lenders and types of loans. Interest rates vary widely depending on your situation, the lender and the type of loan (FHA, fixed rate, interest only, etc.). For a loan as large as a mortgage, even one point difference in the interest rate will make a big difference. • You will be taken more seriously by sellers. This can be a big advantage when you’re making an offer on a home: if you’re preapproved, the sellers may choose your offer over others that aren’t as strong. The Preapproval Process The lender gathers the information it requires to offer you a loan. Here’s a general list of the documents they’ll ask you for, though some lenders may require more – make sure to ask for the lender’s specific list of documents so you can be fully prepared: • A copy of your most recent bank statements • W-2 statements (or 1099 income statements) for the last two years • Proof of assets like IRAs, stocks, bonds or mutual funds • Recent paystub(s) from your job, and proof of any other income (if applicable) • An application fee (this depends on the lender) – make sure to ask Keep in Mind… The result of the pre-approval process is a good faith estimate. This is a document describing the likely terms of the loan, including the interest rate, loan type (fixed- rate, adjustable and so on) and closing costs. However, nothing is set in stone. Pre-approval does not mean the bank guarantees you the loan. It just means that you’re likely to get a loan if nothing major changes in your financial picture. When your offer to buy a home has been accepted by the seller, the lender that has preapproved you will have to formally approve your loan, and will then give you the final interest rates, terms, etc. Visit ZipRealty’s Mortgage Center. http://www.ZipRealty.com/mortgage 12
    • Home Buying 101 Home Preapproval Process Preapproval and Loans The preapproval process isn’t just finding a lender that will pre-approve you, but also finding the right loan for the current market and your financial situation. There are a wide variety of loans – here is a brief overview of some of them. FHA Loans FHA Loans are insured by the Federal Housing Authority and require a small down payment, typically in the 2.5 to 5 percent range. However, as they are considered a higher risk, interest rates for FHA loans are typically much higher than those for Conventional Loans. VA Fixed Rate Loans This loan allows veterans to purchase homes without making a down payment, and are guaranteed by the Department of Veterans Affairs. Like other fixed-rate loans, you “lock in” the interest rate for the lifetime of the loan. Conventional Loans These loans generally require higher down payments than government guaranteed ones – sometimes up to 20%. You’ll likely need excellent credit to qualify for a lower interest rate, and will need to have cash-in-hand for the down payment. Fixed rate loan With a fixed-rate loan, you “lock in” the interest rate for the lifetime of the loan. This is typically a good idea if interest rates are low and you’re not going to move or refinance soon. Adjustable rate loan With an adjustable rate mortgage (ARM), the interest rate on your loan adjusts up and down, depending on the index the rate is tied to. If interest rates go up, your mortgage payments will go up. Conversely, if interest rates go down, your mortgage payment will go down. If interest rates are currently high, you might consider starting off with an ARM and refinancing to a fixed-rate loan once they drop. Fixed-Adjustable loan Some loans are fixed for a period of time, say 5 or 10 years, then adjust like an ARM based on an interest rate index. If the current interest rate is favorable and you plan to move or refinance during the fixed rate period, this type of loan might be a good option for you. Some conventional loans require that you pay “points,” which is basically prepaid interest on your loan. By paying some interest upfront you can pay a lower interest rate on the remaining part of the loan. If your loan requires you to pay points, you will have to pay it at closing, along with your down payment, title insurance, taxes (if applicable) and other fees. Jumbo Loans Conventional loans have maximum loan limits based on the area you’re buying in, up to $729,500 for the most expensive cities. If you need to borrow more than these limits, you’ll need a jumbo loan. Jumbos generally have higher down payment requirements – sometimes higher than 20% -- sufficient assets and excellent credit. Interest rates on fixed or adjustable jumbo loans are generally higher than conventional loans with comparable terms. Key questions to ask about your loan • Will my interest change during the life of the loan? If so, when and by how much? How much will my mortgage payments be? If the loan will adjust, what will they be after that? • Does this loan have points that I will have to pay upfront? • How much money will I need to bring to closing? • What are the fees for the lender, appraiser, etc.? • Will the lender collect my property taxes and homeowner’s insurance payments (impounds)? 13
    • Home Buying 101 What to Expect During Closing The Closing Process After your offer has been accepted by the seller, there are still several steps you and/ or your ZipRealty agent will need to complete to purchase the home. This is called the closing process. 1 Earnest Money 2 Title Check 3 Homeowner’s Insurance 4 Disclosures, Inspections, and Contingencies 5 Appraisal of Property 6 Loan Approval 7 Request to Payoff Seller’s Existing Mortgage 8 Cashier’s Check 9 “Sign-off” and Closing Appointment 10 Final Steps 14
    • Home Buying 101 What to Expect During Closing 1. arnest Money — After your offer is accepted, your first step is to write a check for the “earnest money E deposit” (the deposit that secures the buyer’s offer). 2. Title Check — Depending on the state where the home is located, a title company, closing attorney, or closing agent will be selected to handle the closing process. Their primary purpose is to get a preliminary title report, which confirms that the seller is the legal owner of record of the property and that the property has no unsettled liens or other claims against it, including all real estate taxes and special assessments. If you haven’t selected a title company, closing attorney, or closing agent yet, your ZipRealty Agent can assist you in finding a reputable firm. 3. Homeowner’s Insurance — It’s your responsibility to obtain homeowner’s insurance. Lenders always require the buyer to have proof of homeowner’s insurance secured before they approve your loan. Insurance policies vary widely, so shop around. ZipRealty’s insurance partners can provide you with a free, no-obligation quote if you choose. 4. Disclosures, Inspections, and Contingencies — The seller must disclose any material facts about the property. Disclosure of material facts can include any property defects or any lawsuits regarding claim to ownership on the property. Generally, it’s the obligation of the buyer to arrange any inspections on the property, including general property and pest inspections – your ZipRealty Agent will work with you to arrange all of the necessary steps. Other contingencies to be aware of include financing, additional inspections, and sale of the buyer’s current home. Once the disclosures and inspections are complete and satisfactory, your ZipRealty Agent will arrange to have any contingencies removed from the sales contract. 5. Appraisal of Property — The lender will arrange for the property to be appraised. The appraiser’s report will describe the physical characteristics of the property and comparable property values will be used to determine the value of the property. There will probably be a thorough interior and exterior inspection. 6. Loan Approval — Once all of the necessary steps are completed, and your loan has been approved, your lender will notify the title company that they’ve approved your loan request, and will send the loan documents to the title company so that the documents can be signed at the closing appointment, which can also be called the “sign-off.” At this time, the title company will schedule separate closing appointment with the buyer and seller to sign all of the final paperwork, including your mortgage and transferring ownership of the property. 7. Request to Payoff Seller’s Existing Mortgage — The title company, closing attorney, or closing agent will issue an order to the seller’s existing lender requesting a demand for payment in full and all re- conveyance/release documents. 8. Cashier’s Check — In preparation for the closing appointment, you’ll need to obtain a cashier’s check or wire transfer for the amount of money due upon closing. To find out the exact amount due, ask your ZipRealty Agent, who will work with the title company to ensure you have all of the appropriate information. You cannot pay your closing costs with a personal check. 9. “Sign-off” and Closing Appointment — The closing appointment usually takes about 1-2 hours and is where you will sign all of the necessary title and loan papers. Depending on your state, the seller will have already signed all the necessary paperwork or will sign them during this appointment. 10. Final Steps — Once your “sign-off” is complete, the transaction needs to be recorded by the county and the formal change of possession must take place. Your ZipRealty Agent will arrange for the transfer of the property keys with the seller’s agent. The “For Sale” sign and property lockbox will also be removed by the seller’s agent. While the home must be in substantially the same condition as when you inspected it, sellers are not required to thoroughly clean the house. So plan to do these jobs before you move in. 15
    • Home Buying 101 Glossary of Common Terms Annual Percentage Rate (APR) The APR for your home loan is an annual calculation that includes the interest rate quotes by your mortgage company plus additional home loan costs such as origination fees and points. The important thing to keep in mind about your loan’s APR is that it will be higher than advertised interest rates because of the additional factors. Closing Costs With each real estate transaction, there are many expenses to pay and agencies to compensate. These fees, which are often shared by the buyer and seller, are referred to as the closing costs. When you buy a home, the closing costs might include loan origination fees, escrow payments, title insurance, attorney fees and even discount points paid to lower your loan’s interest rate. Contingency A clause or phrase that indicates a term or condition which must be met prior to further action(s). A contingency is a “subject to…” clause. For example, an inspection contingency in an offer to purchase a home means if a home’s inspection shows defects the seller must fix them for the sale to proceed. Default Failure to meet the terms and conditions of a contract; act of preventing completion of the terms of an agreement. Distressed A property that is in bad repair or otherwise not worth its normal value due to declining neighborhood, pending foreclosure of problems in the area (airport noise, etc.). Equity The portion of a property or asset that is owned by the individual, whether in real property or personal property. Ordinarily the difference between the total of all existing debt on the property and its market Value. For example, if the home is worth $250,000 and the mortgage balance is $100,000, the owner has $150,000 of home equity. Earnest Money Any sum or consideration used as a “good faith” deposit toward the purchase of a property, and to act as a binder for the transaction. You typically deposit earnest money in an escrow account and could lose it if you don’t proceed with the sale. Escrow During the home loan process, a neutral third party known as Escrow hold documents and money (including earnest money deposits) for safekeeping until the real estate transaction is complete. An Escrow account is also used once you complete your home loan to hold the property tax and insurance monies that are collected with each mortgage payment. 16
    • Home Buying 101 Glossary of Common Terms Lien A legal claim on another’s property as security for the payment of debt. One of the items a title company checks is whether anyone has a lien – or claim – on the property you are purchasing. Your lender will have a lien on your property until you pay off the mortgage. Loan to Value Ratio (LVR) When you buy a home, this term refers to the amount of financing you are getting in relationship to your new home’s value. For example, an $80,000 mortgage on a $100,000 home has an LVR of 80%. An LVR of more than 80% will require you to purchase private mortgage insurance (PMI) Lock-In Home mortgage interest rates vary from day-to-day. While you buy a home and secure financing, you may decide to lock in a particular interest rate with your lender. This lock-in guarantees that your home loan will be processed with this rate, even if the rates rise before the loan closes. PITI Total of the principal, interest, taxes and insurance on a monthly payment basis in property ownership where the property is secured by a mortgage. Points There are two types of points that can be applied to a home mortgage. Discount points are used to reduce the loan’s interest rate and origination points may be added to cover the expenses associated with processing a loan. One point equals one percent of the loan amount For example, to lower your interest rate by one point on a $300,000 mortgage, you’ll need to pay an additional $3,000 at closing. Private Mortgage Insurance (PMI) When you finance more than 80% of your new home’s value, your lender will require you to purchase PMI. This protects the lender against loss if you default on your home loan. Your monthly PMI payment is added to the cost of your mortgage payment. When you have accumulated 20% equity in your home, check in about canceling your PMI. Title Insurance A home mortgage requirement, title insurance protects both the buyer and the seller against legal defects in a home’s title. This policy ensures that a property owner has the legal right to transfer a home’s title to the seller. If a problem occurs, the title company pays the associated legal fees to correct the situation
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