Title Insurance Facts

When you purchase a home, your mortgage company will require you to purchase both title insurance and homeowners insurance. Homeowners insurance protects the physical structure once title transfers into the name of the new owner. Title insurance provides protection from disputes regarding ownership that might have taken place before the title is transferred. Many home buyers balk at paying for title insurance, because they don’t realize what it covers and how important it really is.

What is Title Insurance?

Title insurance, in the most simple terms possible, is an insurance policy that covers the title of your home. The title is very important, as it represents ownership interest in the property. When your home is going through the escrow process, the title company will conduct research to make sure that there are no outstanding liens on the property and to verify that the person selling the property to you does in fact have the legal right to transfer ownership to you. The title company will attest that there are no known liens at the time of closing. Title insurance will protect you from liens or other title problems that might become known at some point in the future.

Why is Title Insurance Important?

No homeowner should be without title insurance, particularly when purchasing a home or property that has changed hands at any point in the past. Even though the title company is required to conduct thorough title research prior to the time of closing, it’s always possible that some pre-existing problems might not be discovered at this time. Title insurance keeps you from having to worry about issues related to the title of your home that took place before you became the owner.

It is not uncommon for problems related to real estate titles to crop up even years after a sales transaction has taken place. Title disputes can arise over property taxes, contractor liens, validity of signatures on past sales transactions, and other such issues. Sometimes heirs of past owners will come forward, claiming that the individual who sold the home did not have legal right to do so. Without title insurance, these types of problems can become legal and financial nightmares for homeowners. Title insurance protects homeowners from loss and litigation fees arising from such situations.

Is Title Insurance Mandatory?

If you are financing your home, your lender is very likely to require you to purchase a title insurance policy. If you are paying cash for your home, there is no legal requirement to purchase title insurance. However, it is not wise to risk having to deal with title problems just to avoid having to purchase a title insurance policy. Dealing with such problems is very costly and time-consuming, and can result in disastrous consequences for uninsured homeowners.

Purchasing a title insurance policy is very affordable. You do not have to make periodic payments on title insurance. It is sold as a single policy that you pay for at the time of closing, and protects your ownership rights in your home the entire time you hold title to your property. It is certainly worth a small, one-time fee to know that you will never have to worry about dealing with any type of dispute that may arise regarding the previous ownership of your home.

Title Insurance Limitations

It is important to realize that title insurance does not protect homeowners from liens filed against their property once they take ownership. Once you own your property, if your actions lead to contractor or tax liens being filed against your home, title insurance does not keep you from having to fulfill those obligations. The protections of title insurance only protect homeowners from financial obligations and ownership disputes related to the actions of previous owners.

Making a Decision About Title Insurance

Purchasing a home is one of the biggest investments most people will ever make. It only makes sense to take every possible step to protect your ownership interest in such a large purchase. While it is possible that there will never be a problem with your home’s title, it is also possible that serious problems might arise.
Since title disputes are related to the actions of previous owners, you have no way of mitigating the risk other than to protect yourself by purchasing title insurance at the time of closing. When purchasing property, it is always advisable to purchase a title insurance policy. The small cost of title insurance is definitely worth the peace of mind that comes with knowing that you will never have to deal with ownership disputes regarding your home.

© Allison Van Wig

Thinking of Buying a New Home – Don’t Forget to Prepare

They say that every crisis has its upside, and the recent meltdown in the subprime housing market has created a buyer’s market in many parts of the country. Suddenly homes that were unaffordable a few short years ago are within reach of the average wage earner, and many smart renters are looking for ways to get their piece of the American dream.

If you are one of those looking forward to owning the roof over your head, it is important to prepare for this important decision. After all, a home is the most significant purchase many of us will ever make, and it is vital to understand the factors that can affect your mortgage, your interest rate and your financial future.

While there are many ways to prepare for the purchase of a new home, perhaps the most important is to obtain a copy of your credit report. Knowing what is in your credit report before potential mortgage lenders do can help you fend off any potentially negative information, and that can lower your interest rate and keep your payments affordable.

By pulling a copy of your credit report well in advance of shopping for a home you will be able to correct any erroneous information you find. A surprising number of credit reports do contain errors, so chances are good that you will find at least one or two corrections. When you do find an erroneous entry on your credit report, be sure to notify the credit reporting agency immediately. Those agencies are required by law to verify the information you challenge, and if that information has been placed there by error it must be removed.

This simple credit report cleanup process can help you take advantage of the low interest rates and superior terms that make today’s mortgage market so attractive to new buyers. With formerly freewheeling lenders taking pains to correct old mistakes, the significance of a clean credit report has never been greater. So be sure you know what the lenders will be looking at as they evaluate your application for a home mortgage.

© Allison Van Wig

What is the Difference Between Selling Price and Appraised Value?

By Celeste Stewart

If you are buying or selling a home, you may be surprised to learn that the selling price and the appraised value of the home are two different things. The selling price and the appraised value may be close or they could be worlds apart. What’s the difference?

The appraised value is the price that the lender thinks your home is worth. An appraiser for the bank will look at a variety of factors in determining how much the home is worth including comparable sales, square footage, improvements, and even how many light fixtures the home has.

The bank wants an unbiased opinion when appraising the house, not the opinion of someone who has an interest in selling it. They hire appraiser to make an independent assessment. The bank uses the appraised value when determining how much money they are willing to lend a potential buyer. For example, if they determine that the house is worth $300,000, there is no way they will lend a buyer $500,000 to purchase the home because the bank doesn’t believe the home is worth that much. If the buyer were to default on the loan, the bank would not be able to recoup their investment because the house is only worth $300,000.

The selling price is the price that the home actually sells for, regardless of the appraised value. If the bank believes the house is worth $300,000 but the seller is in a bind and needs to sell the house immediately, they may put the house on the market and accept a selling price lower than the appraisal.

On the other hand, if the house is in a desirable area and few homes are on the market, a bidding war could ensue. When this happens, the house will sell to the highest bidder. The selling price could be well over the appraised value. The bank may have a problem with this and require a higher down payment.

Whether you are a buyer or seller, it’s important to understand the difference between selling price and appraised value. Your realtor will be happy to share area home sales comparisons (comps) so that you can determine the market price of the houses in the neighborhood. The appraiser will likely look at similar comps.

When setting the home’s asking price, you will want to have this information so that your home is competitive with others and neither overpriced or underpriced. If you’re a buyer, knowing the market value of houses in the area will help you to make an appropriate offer. In addition, you may be able to use the bank’s appraisal as a bargaining tool if the appraised value comes in lower than the asking price.

Buying or selling a home involves a great deal of research. You’ll want to know what other comparable homes in the area are selling for and how much banks have appraised these homes for in the past.

© Allison Van Wig

The Benefits of Townhome Living

Would you like to own your own home, but think you can only afford a fixer-upper far from work and shopping? Are you tired of spending weekends taking care of yard work? Or are you an empty-nester with downsized housing needs? If any of these describe you, then you need to consider the benefits of purchasing a townhome.

A Townhome is Cheaper

Perhaps the greatest benefit to buying a townhouse is the savings in cost, which can be considerable. You can then put that savings toward more square footage, a fancier décor, more amenities, or just more cash in your pocket.

Perhaps you would like to buy a house closer to town or in that highly rated school district, but as desirability goes up, so does price. A lower cost townhome might be the answer you need to get into your dream location.

Townhome Living Can be More Fun

It’s easier to get to know your neighbors when you are not separated by a half acre of land. The closeness of townhouses fosters coziness and a greater feeling of community. With the isolation that exists in many communities, wouldn’t it be nice to have an excuse to get to know your neighbors?

Most townhome communities offer amenities that you may not find in traditional neighborhoods. Swimming pools, clubhouses, walking trails, and planned neighborhood activities are often available and add to the fun of living in a townhome community.

A Townhome Can Save You Time

Living in a townhome can save you time is by reducing or eliminating yard work. Townhomes usually have small yards or no yard at all. Often the neighborhood association fees cover the cost of what little yard maintenance there is. If mowing grass and trimming bushes is not your thing, then this may be an attractive benefit for you.

Also, townhome living may save you time in a shorter commute. With today’s gas prices, everyone wants to be closer to town, but prices go up as you get closer in. If you would like to have more time for family or relaxation, then a more reasonably priced townhouse may be just what you are looking for.

But What About…?

There are some common concerns about living in a townhouse, but most of these concerns can be addressed by careful choice of your home, and many potential disadvantages can actually be seen as advantages.

The first concern that you may have is security. We all want to know that our home is protected, and with all those neighbors, might there be more chance of trouble? Well, a townhome is actually a less attractive target to a criminal. With all those people around, there is a much higher likelihood that someone will witness a potential crime.

Another concern may be the amount of stairs in a townhome, especially if the townhome has three stories, as is common. This may be a legitimate concern for the elderly or disabled. However, most of us could use a little more exercise on a daily basis, and should not be overly concerned. The two and three story floor plans can afford greater privacy and space to members of a household. If your teenagers want to have friends over to play a noisy videogame on the ground floor, you will be glad to have a separate floor on which to concentrate on finishing up that report for work.

A final concern that may cross your mind is noise from neighboring homes. You may have bad memories of that cheap apartment you had in college and the neighbors’ reveling that kept you up all night. If this is a concern for you, then be aware that modern methods of construction can virtually eliminate this problem. Most townhomes are very well soundproofed, and you will not hear your neighbors at all. If you have concerns about this, visit the community in which you are considering purchasing a home, and ask some of the residents there if it is a problem.

Buying a townhouse is a smart option, which offers many unique benefits. Visit a local townhome community and find out how you can save money and enjoy the benefits of a close community, greater security, and a fun lifestyle. You just might find yourself the proud owner of a townhouse.

Allison Van Wig©.

The ABC’s of Buying a Home: An Explanation of Common Mortgage Terms

Buying a new home can be overwhelming. Knowing the common terms used by lenders and real estate agents will help you feel more comfortable through the process of buying a new home. Below are a number of these terms with an explanation of what they mean to the homebuyer.

Amortization: Paying a mortgage loan back month by month. A set number of payments are established and each payment includes principal and interest. Depending on the amount of your loan, payments are spread out for a set time period and at the end you will own your home.

Annual Percentage Rate (APR): A rate that is calculated using a formula to include interest, points and other fees, the annual percentage rate shows you how much it is costing you per year to utilize the lender’s money.

Appraisal: An appraisal is done to establish the value of a piece of property that is put on the market. Lenders want to ensure that the loan they are granting to you will be backed up by valuable property should you be unable to pay back the loan. As the buyer, you will pay for an appraisal and have the appraisal submitted to your loan company.

ARM: An ARM is short for Adjustable Rate Mortgage. This loan is a variable loan that has an interest rate that goes up and down. There are types of ARM’s, and a popular ARM is a 5 year adjustable rate mortgage. The rate of the mortgage remains the same for five years and then can go up and down based on current market trends.

Balloon Mortgage: A low rate mortgage for a shorter period of time than a typical 15 or 30 year mortgage. Once the loan matures, the balloon payment (what is left of the loan) is due to the lender. Borrowers can either pay off the mortgage at this time or refinance another mortgage.

Cash reserves: Sometimes a lender wants assurance that the borrower has some cash in the bank to ensure that they will be able to pay their mortgage payments on time. This is an amount that is above and beyond closing costs and a down payment. The lender can set an amount they want to be in reserve in order for the borrower to be approved for the loan.

Certificate of title: A legal document that proves home ownership. When a title is transferred through a sale, the property will need to be free of all financial obligations. When a lien has been placed on the property, the seller will have to clear up their debts before they can transfer the property to a new owner.

Closing: This is the best part of buying a house. A closing is settlement time and it is when the property is officially transferred from the seller to the buyer. The buyer will receive the title and pays all closing costs.

Closing costs: These are costs above the standard costs for buying a new property. The costs can include attorney’s fees, points from the bank for the loan, fuel adjustments and real estate taxes. All of these costs will be outlined to you prior to the closing when you sit down and meet with a lender to discuss the terms of your mortgage loan.

Commission: The payment your real estate agent receives for coordinating the purchase or sale of your home. Most of the time this payment is a percentage of the purchase or sale price and is paid at the closing.

Debt-to-income ratio: The debt to income ratio compares how much money you make monthly to your expenses. The point of figuring out a debt-to-income ratio is to see how much you can afford monthly without getting in over your head with a mortgage payment that is too high. If you obtain an FHA loan, your mortgage payment can’t exceed more than 29% of your gross income.

Deed: This is simply the document that transfers property from one owner to another. This document is recorded, along with the mortgage documents, at your local registry of deeds.

Down payment: The amount of cash you pay to the seller that is not part of the mortgage loan. A down payment can be used to decrease monthly payments or to own 20% of your home at the time of sale. When you own 20% of the home you can avoid personal mortgage insurance.

EEM: An acronym for Energy Efficient Mortgage. This type of mortgage is an FHA loan program that allows homebuyers to add the cost of making the house more energy efficient into the home loan. This program assists buyers with instant monthly savings on their utility bills.

Equity: How much of your home you actually own. The equity is the how much your house is worth (or its fair market value) minus the amount you still owe on your mortgage loan. Borrowers sometimes take out home equity loans to improve their property with the idea that improvements will increase the value of the home.

Escrow account: Your property taxes, homeowner’s insurance and mortgage insurance are all paid by your mortgage lender with funds that are in the escrow account. This is a separate account that is set up by the lender and each month a portion of your mortgage payment goes into this account.

Fair market value: What your home is worth to a typical buyer in the current market. The fair market value of a home can be determined by looking at comparable homes in the area that have sold recently, assessing the condition of the property, and taking into consideration the number of similar properties for sale at the same time.

FHA: Short for the Federal Housing Administration, this agency was established to make home ownership more accessible to all citizens in the United States. Instead of a buyer having to pay for personal mortgage insurance, those that qualify for FHA will have their loan insured by FHA. Lenders who may not otherwise provide loans to lower income families are more likely to provide mortgages sponsored by FHA because they are covered if the loan is not paid back.

Fixed-rate mortgage: A basic mortgage where the payments stay the same through the entire loan. All terms of the mortgage remain fixed and are not subject to current rate fluctuations in the market.

Good faith estimate: This is an estimate of all potential fees that you may face at the closing. The lender has three days to provide you with an estimate of all costs once you submit your loan application. This estimate includes costs that the lender is charging you for providing the loan.

Home inspection: A detailed report is provided by a home inspector that walks through the home, looking for signs of structural damage or repair needs. The home inspection is a vital piece to buying a home as this is when a potential buyer learns about any repairs the home may need and can negotiate with the seller either to make the repairs or provide financial compensation.

Homeowner's insurance: This is insurance that protects the homeowners should a person get injured in their home, or should the home sustain property damage from any number of accidents or disasters. Homeowner’s insurance provides money to repair the home should a covered incident occur. Insurance policies differ and you will need to check out the specifics of your homeowner’s insurance policy to see what damages will be covered in the event of an emergency.

Interest: A fee charged by the lender for you to borrow their money.

Lien: When a lien has been placed on a piece of property, the lien must be paid off when the property sells. Liens can occur for any number of reasons, but a lien is a financial obligation of the seller and it must be cleared before the title can transfer to the new owner.

Mortgage insurance: Insurance that protects the lender, generally required when a loan is for more than 80% of the value of a home. Mortgage insurance ensures that the lender will get paid if the borrower is not able to continue paying their mortgage. Once the borrowers have 20% equity in their home they can cancel their mortgage insurance.

Offer: Official only when in writing, an offer is placed when a buyer wants a piece of property and the buyer offers the seller an amount they are willing to pay for the home for sale.

Origination fee: The amount charged by a lender for creating the loan, completing employment checks, and verifying all loan information. This is an amount that is generally paid at the closing.

PITI: An acronym for Principal, Interest, Taxes, and Insurance. These are the four parts to a monthly mortgage payment. Principal directly decreases the amount still owed on the loan, interest covers the cost of borrowing the money, and the rest goes into the escrow fund to cover taxes and insurance. Early on in the loan, most of the mortgage payment goes towards interest. This ensures that the lender receives their interest payments first. Paying extra monthly on your mortgage loan will go towards principal and can significantly decrease the amount of interest you pay over the life of the loan.

Principal: The total amount you borrowed in order to purchase your home. The principal amount is the amount you owe back to the lender and does not include interest or other fees.

Refinancing: Finding one loan to pay off the debt from another loan. Homeowners will sometimes refinance their home in order to get a better interest rate or to avoid a variable rate mortgage that is about to change rates.

If you are not sure what a term means or where a fee came from as you are looking over all of your real estate documents, just ask your real estate agent. You are entitled to know everything about your loan and the home you are buying. If you do not understand the process you may make mistakes that cost you money in repairs or hidden fees.

Allison Van Wig©.

The Magic of the MLS

When you list your home for sale, one of the most important tools your realtor will use is the Multiple Listing Service which is commonly called the MLS. By listing your home in this massive database, other realtors will be able to find it. The MLS acts as a system for matching buyers to suitable homes.

Originally, the MLS was a print system with books published showcasing the area’s homes for sales. As technology improved, the MLS moved to a computer-based model. Today, realtors can log on to the MLS, enter new listings, remove sold listings, and perform detailed home searches.

The MLS isn’t necessarily a national system. Rather each region maintains its own MLS which makes it crucial that your agent lists your home in the right MLS system. If your home is in San Diego, you’ll want to be in the San Diego area MLS, not an MLS that caters to LA realtors.

Not all homes are entered into this database. The MLS is a member based system. Realtors must pay for access. If you are trying to sell your home on your own, you can’t simply add it to the MLS. You may be able to contract with a broker to list the home in the MLS for a flat fee.

The MLS offers realtors access to a huge inventory of homes currently on the market. For example, if an agent has a buyer looking for a three bedroom, two bath home with an attached garage and a large lot in a particular price range, the agent can input the buyer’s criteria and target the search. The MLS creates a listing of all suitable homes that meet that buyer’s needs. Now the agent can show each of the targeted homes to the buyer.

What if your home isn’t listed? It won’t be displayed in the list and the buyer will never see it –- even if your home is the perfect one!

What information does the MLS contain? The MLS is incredibly detailed with your home’s address, square footage, age, upgrades, number of bedrooms and bathrooms, special features, school district, financing options offered, photos, and links to your home’s website or “virtual home tour” if you have these tools online.

When interviewing potential real estate agents to list your home for sale, one of the most important questions you can ask is whether or not they intend to list your home in the MLS. If an agent responds by saying they don’t use the MLS, keep looking! This agent may be hoping to find a buyer on her own, doubling her commission. However, the MLS exposes your home to far more potential buyers than one single agent can possibly hope to find on their own. It is a cooperative marketing tool that works!

Not only will you have a larger sales force showing your home to potential buyers: the laws of supply and demand kick in. Can you imagine having several qualified buyers interested in your home? When this happens, you maintain the upper hand when it comes time to negotiate. Your home will sell faster and at a better price when it is listed in the MLS.

Allison Van Wig©.

The Internet -- Best Marketing Media for Home Sales

Whatever anyone may have told you a few years ago about which media is most effective for marketing a home, it's all about the Internet today. There simply is no more effective way to advertise a home for sale, both from a cost and a results perspective. The advantages of Internet advertising are numerous:

80+% of home buyers use the Web -- According to a survey by the National Association of Realtors®, more than 80% of home buyers now begin their search for a home on the Internet. Reasons include the anonymity of the Web, extensive information on each home, and multiple photos and virtual tours. Whatever their reasons, it's very likely that the future buyer of the home you want to sell will be seeing it first on the Internet.

It's economical media marketing -- With many of the real estate specific websites also syndicating to many others, it's possible to place a home for sale on one site and have it appear on many others within hours to a few days. Your real estate agent or broker has resources for syndication, as well as a group of sites on which they list your home soon after the listing becomes active.

The Internet is immediate -- While placement in most print media is delayed due to production requirements, getting information onto the Web is relatively immediate. It can take a month to get a listing into one of the Homes Magazines, and generally a week to get one into the newspaper. It's easy to get a home listing into one or more web sites in just hours.

Space isn't an issue, so more information is possible -- Unlike an ad in a newspaper that is set up based on a pre-determined space requirement, an internet home listing can just expand to accommodate the amount of information you want to show to prospective buyers. In a Homes Magazine ad, you might have to limit your information to a paragraph, while the Web allows almost unlimited selling ability.

Visual marketing of your home is best on the Web -- Many newspaper ads use black and white photographs, while magazines and other print media will usually only have one or two property photos. The Internet allows almost unlimited photos, and virtual tours are commonplace. With advances in video technology, and less expensive storage space, video tours with audio and music are also common. The Internet buyer can virtually walk through your home.

Changes are also easy and immediate -- With print, changes to an ad can be impossible past a certain deadline. With long lead times, changing your price could still leave the old price out there for a month or more in print. With the Web, changes can usually be made the same day, or within hours. The most up-to-date information is always presented to potential buyers.

The Web is 24/7/365 -- Unlike pre-determined times for radio or TV spots, and issue release dates for newspapers and print, the Internet is out there and open for business every hour of every day of the year. There has never been a more direct and continuous media in history.

As a home seller, it's important to you that your home be marketed in multiple media. So print is still something that real estate agents and brokers will use. However, the Internet has radically changed the real estate marketing world. Your home will be visible worldwide to potential buyers via multiple web sites, web logs or blogs, and national property aggregator web sites like Realtor.com®, Google Base, and others.

Allison Van Wig©.