did you just pay for your new house? $250,000? That should be the value of the
home, right? That’s what the lender will say your home is worth as your loan
moves through the approval process, correct? Not really, no. While your sales
contract states $250,000 it is generally considered to be the current market
value of your property. Your real estate agent put together an offer with a
combination of reviewing the prices of similar homes in the area along with the
highest price you should pay. That’s market value. But a lender takes a
slightly different approach. The lender uses the value of an appraisal, not
your sales contract.
visit a neighborhood you’ll see that while the homes there are similar, they’re
not all exactly alike. Some may have matured trees. The home next to it does
not, but is two stories instead of one. The next home has a swimming pool,
while the next has four bedrooms instead of three. These homes are similar, but
not the same. It’s the appraiser’s job to pore through recent sales data of
homes in this neighborhood to arrive at a final market value.
will take a copy of your sales contract and do some homework, looking for
recent sales. Most loan programs ask that all properties used to compare your
property be within a one-mile radius. Such sales, called “comps,” should also
be within a certain time frame, typically within 90 days but if there are no
such sales, the timeline can be extended up to six months. There should be at
least three such sales listed in the appraisal.
will note the sales price of the comps and make note of any measurable
differences between those properties and yours. If, for example, you have a
fireplace and the others do not, then the value of your property can be
adjusted upward. A newly remodeled kitchen can also affect value. Of course,
square footage of the property is a factor and so is the size of the lot. There
are other adjustments that can be made and those adjustments will be listed in
note, you pay for the appraisal but it’s the lender’s name that will appear on
the front of the appraisal, not yours. However, you have a right to receive a
copy of that appraisal within three business days of completion, whether or not
the sale ultimately closes.
Source: To view the original article click here
It’s a big roadblock on
the path to homeownership: the down payment. FHA loans offer
low down payments and accounted for about 13% of all home loans in 2016,
according to government data.
That may not seem like a
huge percentage, but about 80% of FHA loans are made to first-time home buyers.
That meant 730,000 new homeowners last year, according to an analysis by
Genworth, a mortgage insurance provider.
Here’s how much an FHA
down payment will cost you — and how you can get an FHA-backed low-down-payment
How much is an FHA loan down payment?
An FHA loan can mean a
down payment as low as 3.5%. On a $300,000 home, that would be $10,500. Compare
that with the traditional 20% down payment that most lenders prefer, which
would come out to $60,000. Big difference. And that’s before closing costs and
To get the minimum FHA
down payment deal, you’ll need a credit score of 580 or better. If you fall in
the FICO range of 500 to 579, you will be required to put 10% down. To see
where you stand, get your credit
score and run your numbers on an FHA
mortgage payment calculator.
But FHA loans come with a
price tag: mortgage
insurance premiums. You’ll pay an upfront fee and ongoing monthly premiums.
Beyond FHA: Low-down-payment
Many banks, credit unions
and online mortgage lenders offer FHA loans. But for borrowers with higher
credit scores, FHA loans aren’t the only low-down-payment mortgages around.
Fannie Mae- and Freddie Mac-backed mortgages
— which are considered “conforming”
loans — are popular with lenders because they don’t carry the regulations and
restrictions of FHA-backed mortgages.
“While FHA loans still
serve their purpose for some buyers, folks with [credit] scores above 720
usually find conforming loans a better option, especially now, since they can
put as little as 3% to 5% down,” Ted Rood, a senior loan officer in St. Louis
with 15 years of experience, tells NerdWallet.
You will also pay for
mortgage insurance on these conforming-loans — also called conventional
mortgage — programs that let you borrow up to 97% of the home’s value, he
says. But with a Fannie- or Freddie-backed loan, you may be able to cancel it
after you reach 20% equity in your home. By contrast, FHA mortgage insurance is
most often charged for the life of the loan.
FHA loans are still the
most sought-out option for first-time home buyers, particularly for buyers with
credit that is less than perfect. But if you have good credit, Fannie- and
Freddie-backed loans open up new possibilities for qualified borrowers who just
can’t quite get over that 20% down hurdle.
Source: To view the
original article click here
conventional loans allow 3% down payments. You’ll need a higher credit score
than with FHA loans but get a break on mortgage insurance.
years, the Federal Housing Administration was the king of the
low-down-payment mortgage mountain. Now, Fannie Mae and Freddie Mac, the
government-sponsored enterprises that provide capital to the mortgage market,
are designing loan products for hopeful home buyers with skinny savings
With Fannie Mae’s
HomeReady and Freddie Mac’s Home Possible, a 3% down payment — or what lenders
refer to as 97% loan-to-value, or
LTV — is available on so-called conventional loans. Conventional
loans are the loan products most often issued by lenders.
Jonathan Lawless, vice
president for product development and affordable housing at Fannie Mae, says
today’s low-down-payment FHA loans can be “expensive," with upfront and
ongoing mortgage insurance premiums that
last for the life of the loan. So Fannie Mae decided to build a competitive
low-down-payment loan product of its own.
There are income limits wrapped into the HomeReady program, except in
designated low-income neighborhoods. Fannie’s standard 97 LTV loan doesn’t have
such restrictions, if at least one borrower is a first-time home buyer.
Though the FHA is known for its relaxed lending
requirements — including a credit score minimum of 580 —
Fannie’s HomeReady has a little wiggle room of its own. It allows parents to be
co-borrowers — without residing in the home — and payments from a rental
property can be considered as an income source. Borrowers can also have up to a
50% debt-to-income ratio and
a FICO score as low as 620.
just clearing the DTI and credit score hurdles will not gain you approval.
Lawless says Fannie Mae looks to eliminate “risk layering” — multiple factors
that work against the borrower’s creditworthiness. A low credit score would be
one. Add a high DTI and you have two strikes against you.
It needs to be
one or the other.
“It would never
be possible to do a [97 LTV loan] with a 620 FICO and a 50 [DTI],” Lawless
tells NerdWallet. “You’re going to need compensating factors.”
That could mean
more cash in the bank, a higher income — or ultimately more than a 3% down
Freddie Mac has
its own 97 LTV program, Home Possible. The program assists low- to
moderate-income borrowers with loans made for certain low-income areas. Repeat
buyers may also qualify.
Possible will continue to be Freddie Mac’s “flagship” affordable mortgage
product, Patricia Harmon, senior product manager at Freddie Mac, says there’s
even more flexibility in a new program called HomeOne.
At least one
borrower must be a first-time home buyer, but there are no income limits or
geographic restrictions. And Harmon echoes Lawless’ caution regarding
“If a borrower
has a 640 credit score, that’s not an automatic approval, nor is it an
automatic decline. It would depend on a lot of other characteristics that
borrower has,” Harmon says. “The higher the credit score, the lower the debt,
the more cash reserves in place — the higher the probability of being
“Even though 3%
sounds small, as home prices are rising, it’s becoming a bigger and bigger
amount and harder and harder to save for,” Lawless says.
Fannie Mae and
Freddie Mac are attempting to chip away at that barrier as well, allowing
crowdsourced down payments, considering Airbnb income and even lease-to-own
a lender based in San Ramon, California, has created Homefundme.com, where
prospective home buyers can tap the collective pockets of their social network.
basically ask their family, friends, associates, colleagues, Facebook friends
to give them five bucks here and there” toward a down payment, Lawless says.
Seattle-based Loftium allows prospective home buyers to rent out a room in
their future home to help seed their down payment.
In exchange for
a future share of the rent from your room on Airbnb, Loftium will forecast the
income and give you a percentage of that upfront, which you can then apply to
your down payment.
will need to kick in 1% of the total down payment; Fannie Mae allows the other
2% to come from Loftium, Lawless says.
There’s even a
lease-to-own initiative that Fannie Mae is testing.
“You start as a
renter, but you also have the opportunity to buy [the home] at a fixed price in
the years in the future,” Lawless says.
lender participates in these pilot programs, even with the endorsement of
Fannie or Freddie. By talking to a few lenders, you can get an idea if they
allow these new down-payment-building test programs.
If the testing
goes well, Lawless says, these options could officially become part
of Fannie Mae’s loan programs.
seen Freddie change their programs to match the programs that we have in
place,” Lawless adds.
Access to mortgage
funding, even with low down payments, still doesn’t solve the problem of a lack
of available housing. Conventional financing is also looking to help address
funding wrapped into a home purchase mortgage — also with 3% down payments —
may be one answer. Lawless says Fannie’s renovation loan program has been
“clunky” in the past, but has been recently updated and modified to be
easier to use.
And Fannie’s MH
Advantage program, to finance manufactured housing, also offers 97 LTV
loans are still drawing the lion’s share of first-time home buyers, yet 2017
mortgage numbers were down 4% compared to 2016. Meanwhile, the number of
conventional loans for first-timers was up 18% for the same period,
according to the Genworth Mortgage Insurance First-Time Homebuyer Report.
Fratantoni, chief economist for the Mortgage Bankers Association, believe these
3% down conventional loan programs are having a significant positive impact on
the first-time home buyer market?
particularly for lenders who remain wary regarding False Claims Act exposure,
conventional 97 loans are gaining traction,” Fratantoni tells NerdWallet. The
False Claims Act triggered a flood of lawsuits by the U.S. Department of
Justice against lenders accused of fraud in the underwriting of FHA loans as
part of the housing crash a decade ago.
As a result,
many lenders began to shy away from FHA loans and welcomed the low-down-payment
conventional mortgage programs.
loans remain more expensive than FHA loans for borrowers with less-than-perfect
credit,” Fratantoni says. “All-in costs — mortgage payment and mortgage
insurance — are less for FHA loans than conventional loans if a borrower’s
credit score is roughly 700 or lower.”
low-down-payment loan options, FHA and conventional, with three or more
lenders, compare fees and mortgage insurance costs, and find out what works
best for your situation.
Source: To view the original article click here
are the 'Five Cs Of Credit'
The five C's of credit is a system used by lenders to gauge the creditworthiness of potential borrowers.
The system weighs five characteristics of the borrower and conditions of the
loan, attempting to estimate the chance of default. The five C's of credit are
character, capacity, capital, collateral and conditions.
DOWN 'Five Cs Of Credit'
The five C's of credit method of evaluating a borrower
incorporates both qualitative and quantitative measures. Lenders look at a
borrower's credit reports, credit score, income statements and other documents
relevant to the borrower's financial situation, and they also consider
information about the loan itself.
Sometimes called credit history, the first C refers to a
borrower's reputation or track record for repaying debts. This information
appears on the borrower's credit reports. Generated by the three major credit
bureaus – Experian, TransUnion and Equifax – credit reports contain detailed
information about how much an applicant has borrowed in the past and whether he
has repaid his loans on time. These reports also contain information on
collection accounts, judgments, liens and bankruptcies, and they retain most
information for seven years. The Fair Isaac Corporation (FICO) uses
this information to create a credit score, a tool lenders use to get a quick
snapshot of creditworthiness before looking at credit reports.
Capacity measures a borrower's ability to repay a loan by
comparing income against recurring debts and assessing the borrower's debt-to-income (DTI)
ratio. In addition to examining income, lenders look at the length of time an
applicant has been at his job and job stability.
Lenders also consider any capital the borrower puts toward a
potential investment. A large contribution by the borrower decreases the chance
of default. For example, borrowers who have a down payment for a home typically
find it easier to get a mortgage. Even special mortgages designed to make
homeownership accessible to more people, such as loans guaranteed by the Federal Housing Authority (FHA) and the
Veterans Administration (VA), require borrowers to put between 2 and 3.5% down
on their homes. Down payments indicate the borrower's level of seriousness,
which can make lenders more comfortable in extending credit.
help a borrower secure loans. It gives the lender the assurance that if the
borrower defaults on the loan, the lender can repossess the collateral. For
example, car loans are secured by cars, and mortgages are secured by homes.
The conditions of the loan, such as its interest rate and amount
of principal, influence the lender's desire to finance the borrower. Conditions
refer to how a borrower intends to use the money. For example, if a borrower
applies for a car loan or a home improvement loan, a lender may be more likely
to approve those loans because of their specific purpose, rather than a signature loan that could be used for
For more on the five C's, find out why banks use the five C's of credit to determine a
Source: To view the
original article click here
home prices across the U.S. have boosted homeowners’ equity to record-setting
levels. That means you can convert your home’s increased value into cash.
Seems like a no-brainer, right?
there’s more to the story. Many homeowners are reluctant to use home equity
loans to tap their homes like an ATM. And while they have valid reasons
for being cautious, homeowners who are short on cash could be missing out on
As equity surges, HELOCs lose popularity
tappable equity — the amount they’re able to draw in cash from increased home
values — jumped by $380 billion (7 percent) in the first quarter to $5.8
trillion, according to the latest Mortgage Monitor Report from Black Knight, a
real estate and mortgage data analytics firm. That’s the largest growth in a
single quarter since 2005.
the past 12 months, the average homeowner with a mortgage gained $14,700 in
usable equity and has $113,900 overall.
meteoric rise in values, the share of total equity Americans have pulled from
their homes hit a four-year low in first quarter 2018. Homeowners
with mortgages withdrew $63 billion in equity using a cash-out refinance or a
home equity line of credit, or HELOC,
in the first quarter. That’s a 7 percent decline from the fourth quarter and up
1.1 percent from a year ago, Black Knight found.
Even though rising rates on first-lien mortgages usually spurs more HELOC
lending because people don’t want to refinance out of lower-rate loans, the
volume of equity taken out with a HELOC fell to a two-year low, according to
still see their homes, which is often their largest investment, as a source of
cash. Cash-out refinances spiked 5 percent to 70 percent of total refinance
transactions in the past year. Black Knight found that nearly half of
homeowners who opted for a cash-out refinance increased their interest rate in
preference of cash-out refinancing over a HELOC seems counterintuitive for a
short-term cash need. Homeowners who need money quickly could benefit from a
HELOC if they use it the right way — and understand what they’re getting into,
rates, lingering fears stifle HELOC growth
waned in popularity in recent years. For starters, a rise in short-term
interest rates is off-putting for potential borrowers because HELOCs come with
variable interest rates. Mortgage rates have been largely on the upswing,
making it more expensive to borrow.
for HELOCs: the new tax law that removes the mortgage interest deduction for
loans that aren’t used for home improvement projects. If you plan to use a
HELOC for other purposes, the loss of that tax benefit makes HELOCs less
appealing, especially compared with other alternatives, says Greg McBride, CFA,
chief financial analyst with Bankrate.com.
consumers with strong credit profiles, there are mid-single digit interest rates
available on unsecured personal loans,” McBride points out. With a personal
loan, “a borrower can have funds in hand within 72 hours, presenting a
convenient alternative at comparable interest cost.”
behind by the housing crash have stifled HELOC growth in a post-recession
recovery, says Mary Jane Corzel, senior vice president, retail credit center at Bryn Mawr Trust in Bryn Mawr,
crash, people used HELOCs for everything,” Corzel says. “When the housing
market crashed, they were underwater. There is muscle memory among borrowers
who were caught in a bad situation then, and may have recovered and have equity
now. People are more conservative today than they were before.”
how HELOCs work
consumers’ fears may stem from misunderstanding how HELOCs work and who should
use one. A HELOC is a bit like a credit card where you get a line of credit for
a set timeframe, usually up to 10 years, called the “draw period.” During this
time, you can withdraw money as you need it.
Courtesy of Black Knight
choose from an interest-only draw period, or one where you pay interest and
principal, which pays off the loan faster. As you pay down the principal, your
credit revolves and you can use it again until the line expires. You then enter
the repayment period, which can last up to 20 years. You’ll pay back the
remaining balance, as well as any interest still owed.
A HELOC has a
variable interest rate that is tied to a benchmark interest rate, such as The
Wall Street Journal Prime Rate. As the prime rate fluctuates, so does your
HELOC interest rate. That means your payments can go up or down, too, depending
on the interest rate and how much you owe. Some lenders even offer a fixed-rate HELOC option.
rates climb, HELOCs tend to be more popular compared with the costs of a
complete cash-out refinance, says John Pataky, executive vice president and
chief consumer and commercial banking executive at TIAA Bank. With a cash-out
refi, you may have to pay off a first mortgage with a lower interest rate,
replacing it with a higher rate for the life of the loan.
“It’s a much
better financial outcome to leave the lower mortgage rate in place, and end up
with a blended-rate situation that’s much lower than what the cash-out
refinance would yield,” Pataky says.
risk and your financial discipline
If you have a
good read on your income flow throughout the year and are adept at managing
money, the variable interest on a HELOC won’t be as shocking, Corzel says. If
you earn most of your income from commissions or bonuses and know you’ll earn
more during certain quarters, you can better time your interest payments to
match those income surges, she adds.
A HELOC isn’t
without risks. The biggest downside is if you run into financial trouble and
can’t repay your loan, you could lose your home. Just like a traditional
mortgage, a HELOC comes with servicing fees, terms and interest. Lenders will
look at your income, employment, assets, credit and financial history, and
order a property appraisal to determine your home’s value, Pataky says.
who has substantial equity in their homes should tap it. Using a HELOC to
fund vacations, buy a car, or extravagant purchases is a sign you’re
living beyond your means, McBride says.
home equity product that puts your home on the line requires strict discipline
and sticking to a repayment schedule, McBride says. Homeowners who don’t have
control over their spending or debt and use their home as a piggy bank may dig
themselves a deeper hole with a HELOC.
credit card debt came from a pattern of overspending that hasn’t been cured,
then [a HELOC] is a bad idea,” McBride says. “But if it resulted from a
one-time, unforeseen event, such as medical expenses or prolonged unemployment,
then using a fixed-rate home equity loan to minimize the finance charges and
have a definitive payoff date can be a good move. The revolving, open-ended
nature of HELOCs could invite additional borrowing and drag out the repayment
1. What does a mortgage broker do?
professional mortgage broker originates, negotiates, and processes residential
mortgage loans on behalf of their clients.
2. What are the benefits of
using a mortgage broker?
broker represents your interests rather than the interests of a lending
institution. They act not only as your loan officer, but as a knowledgeable
consultant and problem solver. Mortgage brokers have access to a wide range of
mortgage products, a broker is able to offer you the greatest value in terms of
interest rate, repayment amounts, and loan products. Mortgage brokers will
interview you to identify your needs and your short and long term goals. Many
situations demand more than the simple use of a 30 year, 15 year, or adjustable
rate mortgage (ARM), so innovative mortgage strategies and sophisticated
solutions are the advantage of working with an experienced mortgage broker.
3. How do I ensure that I've
chosen the right mortgage broker?
the broker's experience and lender network, the better your opportunity to
obtain the loan product and the interest rate that best suits your needs. Be
sure to read their reviews online and see how long they have been in the
business before selecting your broker.
4. What documents should I be
prepared with when meeting with a mortgage broker?
broker will need to review all your financial information, such as: w2's, tax
returns, paystubs, bank statements, as well as various other documents that
pertain to your individual circumstances.
5. What kinds of loans are
broker most likely has access to every product the market has to offer. Most
mortgage brokers are approved with multiple lenders to ensure they can offer
every product available.
a. What are major differences to be aware of?
mortgage broker, you only need one application, rather than completing forms
for each individual lender. Your mortgage broker can provide a formal
comparison of any loans recommended, guiding you to the information that
accurately portrays cost differences, with current rates, points, and closing
costs for each loan reflected
6. Costs associated with
working with a mortgage broker over a bank?
broker is offered loans on a wholesale basis from lenders, and therefore can
offer the best rates available in the market, typically making the total loan
cost lower for the client.
7. How long does the process
take from start to closing on a home?
paper" borrower with good credit can close as fast at 15-21 days.
8. What setbacks should I be
The market is
hot right now so be prepared to compete with other buyers in the marketplace
and come in with a strong offer.
9. Are there any incentives for
first time buyers? (Lower down payment percentage, etc.)
are several down payment assistance programs available for first time home
buyers. Some programs will cover your down payment and closing costs.
10. Is there anything else I
should be considering when choosing a broker and committing to a loan?
advice would be to get more than one quote. More often than not, borrowers are
not shopping around, they are going with the lender that their realtor refers
to them and not shopping at all. Get two or three quotes before making a
a look at what they expect from potential borrowers.
qualify you for the best rate, lenders will see if you pass muster in three
main areas. Note that you may be able to offset weakness in one category with
strength in another.
Are you a good credit
One of the first things lenders do is pull your credit score. The most common
is the FICO score, which will be based on data from one of the three major
credit bureaus (Equifax, Experian and TransUnion). Lenders use the lower of two
scores, the middle of three or the average of all scores. If you have a co-borrower,
they compare your scores and use the lower of the two or average them. Your
debt-to-income ratio and your down payment determine the minimum required
credit score for a mortgage.
Can you handle the
To measure “capacity,” lenders scrutinize your (and your spouse’s) job and
income history and prospects, debt-to-income ratios, and savings and assets.
Lenders will also look at your proposed ratio of monthly housing expenses to
income. Housing expenses include loan principal and interest, real estate
taxes, and hazard insurance (PITI), plus mortgage insurance and
homeowners-association dues. Housing expenses generally shouldn’t exceed 25% to
28% of your gross monthly income.
also figure your maximum debt-to-income ratio (total monthly debt payments
divided by gross monthly income). That number and your down payment determine
the minimum required credit score; if it’s 36% or less, Fannie Mae sets a
minimum credit score of 620 with a down payment of 25% or more, and 680 with
less than 25% down. To push the debt-to-income ratio to 45%, you’ll need a
credit score of at least 640 with a down payment of 25% or more, and 700 with
less than 25% down. Standards get tougher as you layer on more risk—say, with
an adjustable-rate mortgage or investment property.
Does the value of the
home justify the loan you want? “Collateral” is typically measured as
loan-to-value ratio: the amount of the loan divided by the appraised value of
the home you want to finance. If you could borrow all of the money, the LTV
ratio would be 100%. But lenders will demand a down payment of at least 3%.
That way, you have a stake that you stand to lose if you default on your loan.
a mortgage co-signer? This may indeed be the case if you've found that
perfect house, only to have lenders inform you that you don't qualify for a
having a co-signer mean for you as a home buyer, and what are the benefits and risks? Read on!
Why a buyer might
need a mortgage co-signer
you're eyeing may be just out of your price range, or perhaps
you have either a poor or no credit history. Even if you know how
to scrimp and save to make your monthly mortgage payments, the bank doesn't know how well you
pinch pennies. And being a financial institution, it needs a guarantee
that the money it lends a potentially risky borrower will be paid back. And
that's where a co-signer comes in.
What is co-signing
When you apply for a
mortgage, you become what's known as the "occupying
borrower." A co-signer—usually a relative or friend—is someone who
typically doesn't live at the property (aka a "nonoccupant
co-borrower." This person physically co-signs the mortgage or deed of
trust note with you, adding the security of their income and credit
history against the loan.
parties then become co-credit applicants, taking on the financial risk of
the mortgage together. That also means the co-signer essentially owns the
home right along with you, whether they live in it or not.
approval (and how large a mortgage you can get) hinges on your debt-to-income
(DTI) ratio, which is essentially how much money you have coming in
(income) compared with going out (aka your debts, including college loans, car
loans, and otherwise).
So how is the
DTI ratio calculated with a co-signer? In this case, it is usually
calculated by combining your income with that of your co-signer, which
should hopefully boost your overall DTI to a number the bank will approve.
Just keep in
mind that lenders will also examine your co-signer's debts, and factor that
into the picture as well to create what's called a "blended debt-to-income
ratio." So make sure you choose a mortgage co-signer with high income
and little debt to help offset your own numbers.
is a person who is taking on the financial risk of buying a home
right along with you. If something unforeseen happens and you're no longer
able to make mortgage payments, the co-signer will be contacted to pay up.
co-signing a loan, the risk falls on the co-signer," says Ray Rodriguez, regional
sales manager at TD Bank. If anything happens to the occupying borrower
that affects their financial health—think loss of job or severe medical
problems—"the co-signer is responsible for the payments."
And if you
fall behind on your loan, the full amount of the mortgage payments are reported
on both of
your credit reports, according to Rodriguez. Those late payments also
"get reported on the co-signer's credit report and could drop their credit
score, impacting their ability to obtain new loans for an auto or mortgage
of their own."
should be people rooting for you to pay off the loan without a hitch, not
someone with an interest in owning the house—a possibility if they take
over paying off the property. The co-signers to avoid are those who could make
a buck by facilitating this real estate transaction—think the home seller
or the builder/developer.
co-signer's income can offset certain weaknesses in the occupant
borrower’s loan application. But no co-signer can
wipe away significant hiccups in your credit history. And before
you put a co-signer at risk, make sure you as the occupant borrower
truly have the ability and willingness to make the mortgage payments and
maintain homeownership. In other words, don't take your co-signer for granted,
and lean on them only in the worst-case scenario.
Source: To view the original article click here
In escrow is a temporary condition of an item such as money
or a piece of property that has been transferred to a third party with the
intentions of delivery to a grantee as part of a binding agreement. Valuables
in escrow are generally delivered by an escrow agent to a grantee upon satisfaction of outlined
Escrowed items are most commonly found in real estate
transactions. Property, cash and the title to the property are often held in
escrow until all specified conditions are met and transfer of ownership can
occur. Lawyers will most commonly act as escrow agents in such situations.
While property is held in escrow, the buyer cannot take possession
of or occupy the space. Real estate deals must clear a series of stages during
the escrow process. An appraisal of the property must be conducted if it has
not already been done. There may be issues with the transaction if the
appraised value of the property is lower than the agreed upon purchase price.
Lenders will not disburse financing that is above an appraised
value regardless of what deal price the parties committed to. The buyer could
try to find funding to cover the missing portion of the agreed purchase price
for the property. If they cannot make up the difference while the real estate
is in escrow, the transaction might be terminated.
Other issues can arise while a property is in escrow. The buyer
could have difficulty securing necessary insurance and other policies needed to
complete the transaction. Even if a title search was performed, there may be
liens and other claims attached to the property that surface. The buyer may
have wanted the property for a use that does not match current zoning
regulations. The seller might seek a variance while the property is
in escrow to allow the buyer to proceed with their intended plans upon taking
full ownership of the real estate.
The purchase might have included guarantees that the seller would
address needed repairs to the property. This could include the removal of
landscape features such as trees or the reconstruction of part of a building.
If the seller does not make good on those promises while the property is in
escrow, then the deal might be ended.
The intent of keeping property in escrow is to give assurance to
all parties that the mutual responsibilities outlined in the agreed upon
contract will be fulfilled.
because some folks can afford to buy a home in today’s competitive market
doesn’t mean they can afford to overpay.
housing prices climb, it’s even more important to make sure that your
investment is a smart one. It’s not every day you sign up for a 30-year
$363,300 loan. Which, incidentally, is the average cost of a new home in the
United States as of June 2018, according to the Census Bureau.
prices are climbing. Home prices rose 7.1 percent year over year from May 2017,
according to CoreLogic, with few signs of plateauing even as interest rates
no guarantee that the house you buy today is priced reasonably or will increase
or even retain its value. The best anyone can do is to use the tools and
information available to make an educated guess. For buyers, this means talking
to your agent and doing some research.
are a few indicators that can help you determine whether the house you want to
buy will retain its value.
1. Pay attention to how long the home has been on the
sign that a home may be overpriced: if it’s on the market longer than
your agent to pull statistics on the house you’re eyeing. How long has it been
listed? Is that longer than average for homes in the neighborhood? In that
price range? For the type of house? Has the house been on the market previously
and the listing removed?
stats will vary depending on price, property type and even geography. What’s
important is to understand what’s average for the property you’re looking at.
High-priced homes, typically ranging from $750,000 to $1,000,000, will sit on
the market longer than less-expensive property,” says Terra Spino, with EXP
Realty in Santa Maria, California.
2. The house is nice, the neighborhood not so much
homes depreciate over time while land increases in value. The idea here is that
your home suffers wear and tear, whereas land does not. A brand new home in a
so-so neighborhood might be worth less in a few years than a comparable older
home in a great neighborhood.
that homes bought near poorer school districts suffered a 22 percent location
discount when compared with all homes in the same county, according to a report
the features of the area where the prospective home is located. Look at growth
opportunities, such as new businesses and mixed-use developments.
buyers want to live in walkable neighborhoods. That has value that will
probably last,” says Kelly Lavengood, realtor/broker with FC Tucker
Company in Indianapolis. “Answer questions like: is the area primed for
look for features including nearby mass transit, high-rated schools, and
amenities such as parks and popular public spaces.
3. Valuation tools point in the wrong direction
valuation tools, also known as automated valuation model, or AVM, are easy ways
for buyers to get an idea of how much property is worth.
tools use information from property transfers, taxes, and past sales to crunch
the numbers to estimate a property’s value. This is a good starting point, but
not always an accurate picture, says Lavengood. Experienced agents who know the
area can put a finer point on home values than online tools.
an agent who is familiar with the area. Real estate is very market specific, so
what’s good for one neighborhood might not be good for another,” says
Lavengood. “Property values on websites are not always accurate.”
4. The inspection sets off warning bells
your bid on a home is accepted, a home inspection will give you additional
clues as to market value. Be sure to hire an inspector with experience who
comes with excellent recommendations.
good inspector will also know their limits, meaning if something outside of
their expertise demands attention, they will recommend the right type of expert
to review the problem.
cognizant of potential inspection issues. Everything’s fixable–it’s just a
matter of at what cost and whose cost,” says Lavengood. “You want to make sure
you’re not getting into a situation where you can’t afford repairs and it
impacts your ability to sell.”