Fundamentals of the Real Estate Transaction
The home buying process involves many steps for both the seller and the buyer from the home listing to the closing on the mortgage loan and transfer of ownership. The fundamental steps involved in a real estate transaction are; the home listing, marketing of the property, the offer and acceptance, real estate sales contract, the mortgage loan financing and settlement.
Listing
The real estate transaction begins when an owner decides to sell a property. The owner may sell the house on their own or more frequently, will enlist the services of a real estate professional through a listing agreement. The listing is a contract wherein a property owner employs a real estate firm to market a property for an agreed period of time at a given price and terms. Under this contract, the real estate firm becomes the agent of the seller. Real estate professionals are generally trained to prepare a competitive market analyses (CMA) and to analyze the prices of recent property sales, current home listings, and properties that have been pulled off the market without being sold. This information is used by the real estate agent to help the seller set an asking price for the property on the listing.
Real estate professionals continue to play a central role in real estate transactions. The most recent statistics show that over 75% of all home purchases involved the use of a Realtor.
Marketing the Property
The real estate broker’s expertise essentially lies in the marketing of the property for the seller. The broker will employ a marketing plan, which often includes the property to be entered on the MLS or multiple listing service with the listing agent, conducting open houses as well as advertising the home in various advertising media. While the listing agent implements the marketing plan, other real estate professionals may assist buyers in locating properties that meet their requirements. Whether a broker is the designated agent of the seller or of the buyer is defined both in common law and in the real estate license law of many states.
Offer and Acceptance
Once the property is made available for sale and marketed, prospective buyers will review and evaluate the property to comparable housing opportunities within the region. Prospective buyers will then narrow down their search and inspect the seller’s property. If the property appeals to one of the buyers looking at houses in the region, one or more of the prospective buyers will make an offer to purchase the property. The buyer’s agent or attorney will prepare an offer to purchase. The offer to purchase will state the buyers offer for the property and the contingencies or conditions upon which the buyer is making the offer including any mortgage or financing contingencies.
Financing
After the acceptance of the offer, the buyer applies for a home loan or financing. The mortgage lender underwrites the loan which entails a detailed risk evaluation of the mortgage applicant and the property. The mortgage lender verifies the borrower’s employment, income assets and completes a credit check to determine the creditworthiness of the borrower. The mortgage lender is also concerned with the property to be used as collateral and whether it will warrant the amount of home loan the borrowers are seeking. An appraiser will provide the mortgage lender with information about the property’s features, condition and value.
Title Examination
While the mortgage lender is underwriting the home loan request, the attorneys in the transaction or sometimes the mortgage lender, will hire a professional called an abstractor or a title insurance company to search the public records on the property. The title search process or search of documents recorded in the public record will reveal how the seller came to be vested in the property and what liens on the property need to be paid at the settlement or closing.
Settlement
After the mortgage lender has underwritten the home loan and the attorneys or title company representative have reviewed the title search, the buyers and sellers are ready for the closing. At the closing , the closing agent will make sure the funds for taxes and other costs have been properly prorated between the buyer and seller and the proper escrows set up for the payment of future real estate taxes. The seller’s attorney will have the seller execute the deed and deliver it to the buyer. The buyer’s attorney will make sure the deed is recorded. Many legal documents are exchanged among the seller, buyer, and mortgage lender including the mortgage and note that details the terms of the home loan.
Q. How do I find the best mortgage lender?
A. The most important step in the process of finding the right mortgage lender is to do plenty of research. Unfortunately, most consumers will spend more time shopping and comparing the price of a new television set than they do shopping for a mortgage lender.
When shopping for the best mortgage lender is not only important to shop around and compare mortgage rates and costs, it is equally important to investigate the mortgage lender and their services. It’s important that you find a mortgage lender who will work with you to meet your needs and who you feel comfortable with and gives you a feeling of trust. This will entail comparing rates, services and competence.
It’s not that difficult to choose a good mortgage lender, but you do have to be informed and know what you are looking for in a mortgage lender. In order to shop and compare mortgage lenders, you need to fully understand what you are searching for not what they are selling. In order to understand the product, a prospective home loan borrower has to learn about the mortgage loans available, the average mortgage rates, the costs and the terminology involved in the mortgage loan process. With the knowledge of how the mortgage loan decision making process works, a mortgage shopper can better compare mortgage lenders and question the services and products offered.
Above everything else, do your homework before the application process begins. To find the right mortgage lender a consumer will have to question the mortgage lender and loan officer and this will be difficult to do without some understanding of how a mortgage loan is originated, processes and closed.
Once you, as the potential home loan borrower, understand the mortgage loan types and the process involved, its time to quiz the mortgage lender and mortgage loan officers. The first thing to find out is how knowledgeable the mortgage loan officer is about the home loan options and equally important, how well they explain the process and any potential pitfalls to a smooth home loan closing. The mortgage lender or mortgage loan officer should explain the mortgage rate lock process, the mortgage payments, the loan term, when and if you can refinance again and more.
Which mortgage lender has the best mortgage rate will certainly be a consideration. Of course, it is important to discuss mortgage rates and closing costs. This is a big ticket item and the mortgage rate can have a significant impact on the total costs of the loan. Comparing mortgage rates fortunately is fairly straight forward process.
Go online and check the prevailing mortgage rates in your area for the home loan product you are most interested in. Use these mortgage rates as a starting point to compare the mortgage rates of lenders you call and measure how competitive their mortgage rates really are. Don’t choose a mortgage lender based on mortgage rate alone. Make sure the mortgage lender is competitive with their mortgage rates but be sure to investigate the costs and service as well.
Comparing closing costs can sometimes get fishier. Some mortgage loan officers remain intentionally vague about the total closing costs. Other mortgage lenders employ loan officers that just don’t know that much about what they sell. In these cases it may be wise to move on. A representative of any mortgage lender should be able to explain the mortgage costs with great detail. That means they should explain any origination points, the costs of the appraisal, the title insurance costs, the cost for processing, the credit report, the tax service fee and any other fees the mortgage lender will be charging.
Not only should a good mortgage lender explain these costs, they should be able to explain what they are and why you are being charged the corresponding fee. Once you have chosen your mortgage lender and submitted a home loan application, get a Good Faith Estimate in writing itemizing approximate mortgage costs and fees. Pay close attention to all the figures on the Good Faith Estimate.
You should know, up front, how the mortgage lender will evaluate your application. Have the mortgage lender explain the mortgage loan process and the how they come to approve your home loan request all the way up to how and when they set up the mortgage loan closing or settlement. When you speak with the mortgage lender they should explain the automated underwriting process, the verification process, the documents needed by you to support the down payment and your income as well as how long this process should takes.
While the mortgage lender briefly explains the process, find out how accessible they will be while your home loan application is being evaluated and underwritten. With all the transactions now taking place on line including mortgage origination’s, a face to face application or consultation is not necessary with a mortgage lender but you should at least be able to contact your loan officer by phone or email regularly. Some customers can be annoying but the job as the mortgage loan officer to help you get a home loan. You want to be assured it will be easy for you to monitor the status of your mortgage loan application and be able to ask questions along the way.
A final step should be to ask for references. As good mortgage loan officer should be able to immediately provide references of satisfied customer’s even customers that they are presently working with.
In a nutshell, to choose a good mortgage lender you want to research the products they offer and the mortgage rate, the level of service in handling a home loan application from beginning to end and the reputation of the mortgage lender. Mortgage lenders who understand mortgage rates and costs and the whole loan process are most certainly going to be a very knowledgeable and resourceful mortgage loan officer who has not merely a salesman. Be sure to choose a company that gives helpful advice and that makes you feel comfortable.
Mortgage Title Insurance, Who Needs It
Tile insurance is one of those closing costs that many borrowers pay without ever understanding what it is they are paying for. Almost all lending institutions require title insurance when you take out a mortgage. The title insurance is paid at the time of the closing and is considered one of the items in the amount of your closing costs for a home loan. The insurance covers the balance of the mortgage loan and last until the loan is repaid.
Title insurance is a policy that assures what liens are attached to a property and is in the name of the title owner properly. Title insurance covers you and the lender over problems arising from liens on a property and ownership. The title company searches a property’s history. The title company will look for liens placed on the property, previous claims on the property, and any special easements or restrictions that may exist.
Title insurance comes in two forms. The first part is the mandatory insurance premium you pay to cover the mortgage lender or bank from claims arising out of conflicting liens or ownership rights to your property. The second form is an insurance premium you pay to cover you against any claims regarding conflicting liens or ownership on the property. One policy is protecting only the mortgage lender; the other policy accomplishes the same goal but insures you as the homeowner. The lenders coverage of the home loan amount is mandatory; however, borrowers can decline to pay for the coverage for themselves. The portion of the title insurance you buy to protect your equity in the property is referred to as the owners policy.
Sometimes the lack of insurance can have devastating consequences. The insurance is designed to cover losses that may occur do to problems related to the title of your property. Problems stemming from home loans could include the real estate taxes remaining unpaid from a previous owner, a mortgage loan that is still recorded on the property from a previous transaction or improper transfer of ownership of the property. The policy will not only cover actual financial losses but will assume responsibility for legal defense for defects covered under the terms of the policy. The coverage is for events or errors that occurred before the date of the policy and not for future events.