| Presented By : Paulette Bezazian Keller Williams Lincoln Square 773 . 5 6 4 . 4 2 8 0 BUYER REPORT Questions to ask your realtor (1) Are you a full-time professional Realtor? How long have you worked full time in real estate? How long have you been representing buyers? What professional designations do you have? Knowing whether or not your Realtor practices real estate on a full-time basis can give you a piece of the puzzle in foreseeing scheduling conflicts and, overall, his or her commitment to your transaction. As with any profession, the number of years a person has been in the business does not necessarily reflect the level of service you can expect, but it is a good starting point for your discussion. The same issue can apply to professional designations. Do you and/or your company each have a web site that will provide me with useful information for research, services, and how you work with buyers? Can I have those web addresses now? And who does the e-mails? Can I have the e-mail address now? Many home buyers prefer to search online for homes and home buying information. There are certain privacy and comfort levels that you night appreciate in starting a preliminary search this way, and often it is just a matter of convenience having 24-hour access to information. By searching the Realtor's and company's web sites, you will get a clear picture of how much work you would be able to accomplish online and whether or not that suits your preferences. When I have a question, how quickly do you respond to e-mails? Questions to ask your realtor (2) Will you show me properties from other companies' listings? Some real estate companies do offer their buyers' agents a higher commission if they are able to sell 'in-house' listings. In such circumstances, there can be added incentive to show you a more limited range of homes than you might consider. If this is the case with your Realtor, you should be very clear on how this will impact your home search, if at all. You also should determine if this affects how much your buyer agent's fee will be. Questions to ask your realtor (3) Will you represent me or will you represent the seller? May I have that in writing? How will you represent me, and what is the direct benefit of having you represent me? The goal here is to ascertain to whom the Realtor has legal fiduciary obligation, which may vary from state to state or even locale to locale. In the past, Realtors always worked for sellers. Then the listing broker was responsible for paying the agent or sub-agent that brought a suitable buyer for the home. And even though the buyer worked 'with' an agent, the agent still represented and owed their fiduciary duty to the seller. An additional situation in some states is dual agency. This is where the buyer decides to have the listing agent prepare the offer for him. A knowledgeable buyer may elect this situation which should be fully disclosed to all parties. In some states it also affects the broker's/agent's fiduciary responsibilities to the seller. Although Realtors today almost always have a sense of moral obligation to buyers, this original type of seller agency still exists in certain areas. In other areas, a formal method of buyer representation called Buyer Agency exists to protect buyers. Find out what is available in your area and make yourself comfortable with the extent to which you will be represented. You will be asked to sign a Buyer Representation Agreement. The benefit to you is that all information you give your agent remains confidential unless you determine you want the information disclosed. The fiduciary duty is to you. This is an added protection for you, the buyer. Questions to ask your realtor (4) How will you get paid? How are your fees structured? May I have that in writing? Realtor commissions are paid through the proceeds at closing. The listing broker charges the seller a percentage of the sale price to represent that seller. The seller's agent, in turn, holds out a portion of the percentage charged the seller as cooperating commission to the agent who bring s a buyer who can complete the transaction. Be aware of the big picture before you sign any agreements. Ask for an estimate of buyer costs from any agent you contemplate employing. What distinguishes you from other Realtors? What is your negotiating style and how does it differ from those of other Realtors? What geographic areas do you specialize in? It should be important to know that your Realtor has unique methods of overcoming obstacles and is an effective negotiator on your behalf, but most importantly that your Realtor can advocate for you in the most effective ways. Will you give me names of past clients who will give references for you? Interviewing a Realtor to help you buy a home can be very similar to interviewing someone to work in your office. Contacting a Realtor's references can be a reliable way for you to understand how he or she works and whether or not this style is compatible with your own. Do you have a performance guarantee? If I am not satisfied with your performance, can I terminate our Buyer Agency Agreement? Of course. No sane Realtor will work with someone who is dissatisfied with the service. The service standards are covered in the buyer representation agreement. If you would, you could call this “Realtor job description,â€� and Client job descriptionâ€�. The only thing that will ever be asked of the client is to be honest. If there is a problem, to articulate it so the problem can be solved. If a solution cannot be realized, then it is wiser for both parties involved to terminate the agreement. Questions to ask your realtor (5) Realtors at Keller Williams Realty understand the importance of win-win business relationships and that the Realtor does not benefit if the client does not also benefit. How will you keep in contact with me during the buying process, and how often? It's a good idea for you to set your expectations reasonably in accordance with how your Realtor conducts business. You may be looking for an agent to call, fax, or email you every evening to tell you about properties that meet your criteria which are new on the market. On the other hand, your Realtor may have access to systems that will notify clients of new properties as they come on the market (which could happen several times a day or several times a week). Asking this extra question can help you to reconcile your needs with your Realtor's systems, which makes for a far more satisfying relationship. How to make your move easier on your family. People generally have two kinds of needs during a home purchase. First are the transactional needs, such as searching for a home, obtaining financing, negotiating the terms of purchase, completing paperwork and legal documents, and arranging the move. The second are emotional needs that are involved in a home purchase, which can be where the most stress occurs in a home purchase. The following are just a handful of tips to help you and your family ease the stress of moving. Prepare your children Although you may have lived in your current residence for just a few years, the same few years can be half the lifetime of a seven- or eight-year-old and can include all the years he or she can remember. Your current residence may be the only home your children have ever known, where they feel safe and comfortable. It may be the center of your childrens' world. Be sure to announce the move in a completely positive way. You might talk about how beautiful the neighborhood is and how good the schools are. Bring your children to the new home, if you live close enough to do so. Otherwise, positively describe the new home. Find out what your child's favorite things are in you current home and then try to re-create them in the new home. Keep your children actively involved in the process. For instance, don't just promise that they can decorate their new rooms, but take them shopping for paint, bedspreads, carpets, and other items that will make the experience more fun and comforting. Your children are bound to have worries, fears, and sorrows during the move. They may be moving away from friends and family they have known their whole lives. Find ways to make parting pleasant. You can plan a going- away party and let your children invite their own guests. Take pictures of everyone and create a photo album. If your children are old enough, allow them to take pictures of the neighborhood that they will want to remember. Gain knowledge You may feel a sense of being out of control, as though other parties to the purchase transaction are running the show and you're merely getting in their way. Your mortgage company, the appraiser, the inspector, and the seller all have certain powers to approve or disapprove of your overall plan to purchase this home and move successfully. This is certainly not easy! Although this can feel stressful, one of the best things you can do for your own peace of mind is to understand as much of the purchase process as possible. Your Realtor will be able to prepare you for unknowns ahead of time and tie down loose ends as soon as possible. Trust the process There can be so much to do that it's easy to panic. It may feel like you're taking a big risk, but the truth is that you're initiating a big opportunity for you and your family. Even though you can't predict what will happen every step of the way, your Realtor helps people buy and sell homes as a profession! Your Realtor has been there before and understands that this is a major upheaval in your life. Trust that your Realtor is looking out for your on your way to a successful closing and move. Be flexible Knowing that your Realtor will do everything possible to prepare you for the various processes involved in your home purchase, and will tie up those loose ends quickly and efficiently, it's important for you to remember that there is no such thing as a perfect world. The property inspection may reveal areas of concern, or closing may be delayed for some reason. Try to take a deep breath and be flexible in your thinking. You will have a much greater chance of making your decisions based on logic and not high emotion. Seek entertainment Whenever you feel that things are spinning out of control, find a diversion! Take a walk around your new neighborhood, go on a day trip out of town with your family, or take your family to a movie. Whatever diversion or outlet works best for you, this is a good time to engage in it! Remember to take one “moveâ€� at a time. Guide to a speedy application Items to bring for the loan application ~Copy of last two years Tax Returns, signed and with all schedules attached ~Copy of last two years W-2 forms ~Pay stubs covering the most recent month and showing year to date earnings ~2 Year Employment History including addresses and phone numbers. (Any gaps in employment of one month or more needs to be addressed in writing) ~3 month account statements for all liquid assets, with all pages included ~Checking/Savings ~CDs/Money Markets ~Mutual Funds ~Stocks/Bonds ~IRA/401(k)s/Pension Funds ~Trust Funds Any other liquid asset accounts ~For any gift funds please document the source and amounts ~Name, address and phone number(s) of landlord(s) for the past two years ~Copy of divorce decree, separate maintenance or child support agreement ~Check for application fee If Self Employed the following items will be required ~Copy of business tax returns for the last two years ~Year to date profit & loss statement Other helpful hints to assist in a fast approval ~Provide statements and/or transaction receipts of all liquidations & transfers of investment/ securities/mutual funds/stock accounts for funds for closing ~Explain and document any large deposit(s) into asset accounts ~Avoid large purchases (i.e. don't finance a $30,000 car before loan application) ~Explain in writing any credit problems that may appear on the credit report ~Purchase your home owner's hazard insurance policy 2 weeks before closing 10 Steps to buying your home ~Needs Analysis ~Pre-approval vs. Pre qualification ~Neighborhood Information ~Home Search ~Making an Offer ~Negotiating to Buy ~Vendor Coordination ~Pre-close Preparation ~Closing ~Post-Closing Our Home Buyers section will walk you through the 10 Steps of the home buying process. You will gain valuable insight on what to expect during each phase as well as what is required from you as the buyer. Re-Approval versus Pre-Qualifications Pre-qualifying for a mortgage involves a brief interview with a loan officer and often occurs over the phone. The loan officer will ask a series of questions about fiances such as employment, income, funds for down payment, debts and credit. From these questions an estimate can be made about the amount of a loan that can be afforded. Very little information, if any at all, is verified. A pre- qualification is simply a loan officer's estimation of the amount of a loan one can afford. It's advantages are it is quick, involves no cost, and little effort. On the other hand it does not offer any commitment by the financial institution to extend credit. Pre-approval involves actually applying for the mortgage before a property has been selected and generally entails meeting with the loan officer in person. A loan application form is completed, a Good Faith Estimate of the Closing Costs is reviewed, and numerous disclosures are signed. Documentation such as pay-stubs, W-2s, tax returns, and bank statements are submitted. Information on the application, such as job, income, and money in the bank is verified. A detailed credit report is prepared. This information is reviewed by an underwriter at the financial institution and a written approval is issued,which is commonly referred to as a Commitment or Approval Letter. Pre-Qualifications While there is a cost to a pre-approval, the primary investment is time. Generally once a pre-approval is issued, the only outstanding item is the appraisal which ordered once the property has been selected. When bidding on a property, a pre-approval will hold more weight. If in a multiple offer situation, and everything else being equal, the party with the preapproval will be chosen over the party with a pre-qualification and will be the difference that determines whose offer is accepted. Comments on Qualifying Ratios for Mortgages The general guideline for qualifying ratios of 28/36 is a guideline and not as 'set in stone' as many would believe. The above ratios are often exceeded and for many different reasons. The first ratio is housing expense-to-income. For example, if the PITI payment (principal, interest, taxes, insurance, and assessments if applicable), is $1000.00, then the gross monthly income, before income taxes, should be $3,575.00. The housing ratio is simply PITI divided by income or $1000/$3575 = .28 or 28%. The second ratio is total debts (including the proposed or new housing expenses) divided by total income should be 36%. This number includes the housing expense plus all other monthly debt payments such as credit cards, car loans, student and even alimony or child support. In the above example, 36% would be $1285.00. $1285/$3575 = .36 or 36%. As mentioned, the above ratios are guidelines. Given the entire credit package there are many factors that would allow a mortgage underwriter to exceed these guidelines such as assets, job stability, credit, etc. Also, there are many different loan programs, especially for first time home buyers that allow the ratios to be expanded. Many of these programs have ratios that are as high as 33% / 40%. Many jumbo loan programs also allow for higher ratios as well. Generally a mortgage will not be denied if ratios are exceeded, but due to a combination of factors including credit, lack of funds or job history. Given the above exceptions, do not be alarmed if hearing the ratios are a little high on a particular transaction. They are simply guidelines that help determine risk. Earnest Money Deposit Earnest money are funds deposited by the buyer under terms of the contract with the seller. Earnest money gives the seller assurance of the buyer's intention to carry out the terms of the contract. In the event of default of the contract by the buyer, the seller can keep the earnest money to compensate for taking the property off the market and other expenses. Earnest money will be credited towards the down payment at closing. In the Chicago area, earnest is typically deposited in two parts. The first deposit is generally $1000, which is attached to the contract with the initial offer. Once the offer is accepted, the second deposit, which is also known as the 'balance for the earnest money', and is normally 10% of the sales price, is deposited with the earnest money and the date due can be negotiated in the contract. Earnest money can be in the form of a personal check or a cashier's check. If a personal check is used, it is likely that the mortgage lender will need copies of the canceled checks to provide evidence that the checks cleared the account. Earnest money is typically held by the listing real estate office or the seller's attorney. Interest is earned on the funds on deposit. Forclosing Funds for closing is one of the most commonly misunderstood aspects of the mortgage application process. Remember, all the funds for closing must be verified. If funds are deemed unacceptable then the loan will not be approved. Buyers often ask, 'why do they care where the money comes from?' The fact of the matter is that underwriting guidelines do call for all closing funds to be properly verified. In addition, for most mortgage programs, 5% of the closing funds must be the buyer's own funds (i.e. it cannot be all gift money unless the down payment is 20% or greater). The following is a list of acceptable and unacceptable funds for closing: Remember, buyers must come to the closing with their money in the form of a Cashier's Check. Also keep in mind that the Earnest Money is considered part of the down payment. Acceptable Closing Funds ~Checking or Savings ~Withdrawal from Money Market Funds ~Liquidation of Stock/Bonds/Securities ~Gift Funds from relatives ~401K Loans ~Advance from home equity line of credit ~Proceeds from the sale of property ~Documented overseas wire transfers ~Funds from Tax Returns ~Payroll deposit from employer ~Bonus from job ~Cash value of Life Insurance Unacceptable Closing Funds ~Cash advance from credit card ~Gift funds from anyone other than relative ~Loan from relative or friend ~Advance from an unsecured line of credit ~Any large undocumented deposit ~Funds from unreported business activities ~'Mattress Money' ~Undocumented overseas wire transfers Seller Tax Credit One of the most confusing aspects of a real estate transaction for both seller & buyer is the tax credit. Sellers generally underestimate this item and often overlook its impact on the cash proceeds that is realized at closing. If the seller if buying a new home and does not factor this credit, then they may be short funds for the purchase. Buyers welcome the credit since it reduces the funds required for the purchaser's side of the transaction. First let's review how and when property taxes are paid. In Cook County, taxes are paid one year in arrears, meaning they are always one year behind in collecting property taxes (i.e. 2000 taxes are paid in 2001). Cook County taxes are paid in two installments (i.e. payments). The first installment is an estimated bill and is due March 1st. The second bill is due in August. If there is an increase, and there is almost always an increase, it is paid with the second installment. Now let's look how this affects the closing figures. Say the sale occurs February 15th, 2001. The seller has owned the property for all of 2000 and a month and half of 2001 and is responsible for all expenses incurred during that time. Most household expenses, such as utilities, are paid monthly. But the property taxes are paid annually and in arrears which results in the tax not being due until after closing. The following graph provides illustration. Since the closing occurs before taxes are due, a credit is arranged at the closing from the seller to the buyer. In this scenario, the credit totals 13.5 months plus any estimate for a tax increase. For a $5,000 tax bill the credit would be approximately $5,625. Please note, on the buyer's side of the transaction, some mortgage companies use the seller tax credit to make their closing costs 'appear' lower by including this credit on the Good Faith Estimate of the Closing Costs. This practice disguises the true cost of the closing costs. Federal regulators have become much stricter recently. Most commonly asked mortgage questions 1. Once I have given all the earnest money, when do I give the remaining balance of my down payment? The remaining down payment money will be due at the closing table. Your earnest money is credited towards the purchase price. I normally recommend that you have as little earnest money as possible on deposit so that you control your funds and can bring the rest of the funds you are investing in the property to the closing table in the form of a certified check. 2. When and why do I need to pay PMI (Private Mortgage Insurance)? If your down payment amount is less than 20%, you will be required to pay a monthly insurance premium to your lender. This insurance policy protects the lender should you default on the mortgage. 3. If I do need to pay PMI, when can I discontinue the payments? Once the loan to value ratio reaches 80%. However, you will need to contact your lender who will ask you to prove the value with a current appraisal. Your Realtor can also assist you by preparing an initial Comparative Market Analysis to ascertain that you do, in fact, have at least 20% equity in the property prior to contacting your lender and paying for an appraisal. 4. Does it matter if I get my down payment money from another source? You may receive a gift of down payment money as long as the funds come from a significant source (i.e. a parent, grandparent). Also, you will need to have at least 3.5% of the down payment money from your own funds unless the gift is 20% or more. 5. How much down payment is required? The guideline for a standard mortgage is a minimum down payment of 10%, although some lenders will do less. One of the most popular programs today is FHA, which requires 3.5% down. On the other hand VA loans (Veterans Administration) requires no money down and is a great way for a veteran of the United States Armed Forces to purchase a home. The beauty of VA loans is that when the veteran sells a home and releases his VA rights on that property, he can use his VA rights to purchase another home. This should be discussed with a lender who is familiar with VA guidelines. 6. What is an A.R.M.? A.R.M. stands for Adjustable Rate Mortgage. Generally, the mortgage will be fixed for a limited number of years (usually 1, 3, 5, or 7 years). After that time has passed, the interest rate will adjust every 12 months thereafter according to current market conditions. 7. How is my credit evaluated? Credit is evaluated on several factors which include payment history, amount of debt, length of established credit, lack of credit, and percentage of available credit being used to various programs. Your lender looks at three different credit bureaus and takes a median score. This score will have a significant effect on what type of loan programs will be available to you and the interest rate charged for the loan. 8. How long will my approval take? Generally, your Financial Service Officer can obtain your approval within several days. However, if there are circumstances that require more attention, the approval may take longer. As a buyer, the more prepared you are with the necessary documents, the quicker the approval process. 9. As a buyer, do I have to pay for your services? No, Financial Service Officers are paid by their respective lending institutions. 10. Can I have someone else cosign a loan for me? It is not possible to have someone else simply cosign a loan for you. If the co-signer is going to live in the property, your FSO can add them to your mortgage application. However, there are also programs that allow for a significant other to purchase property for another individual (i.e. a parent purchasing a home for a child). Keep in mind that cosigners do not necessarily add strength to your application. Please ask your FSO for more details on those programs. 11. What is an escrow account? An escrow account is a separate account established by your lender for the collection of monthly property taxes and homeowners insurance. Each month, you would pay 1/12 of your property taxes and home insurance included in our mortgage payment. The lender will then pay your taxes and insurance on your behalf. 12. Can I pay my loan off early or make larger monthly payments on my loan? Yes, generally there is no pre-payment penalty for your mortgage for a primary residence in the State of Illinois. 13. What is an A.P.R.? A.P.R. stands for Annual Percentage Rate. This is the cost of your mortgage expressed as an annual rate. It represents the 'true cost' of borrowing money when taking into account closing costs or any prepayment. This figure has no effect on your actual rate but may, rather, include closing costs and other items. It is only a number and has no relation to reality. Homebuyer's Vocabulary Preface The potential home buyer will find this Vocabulary helpful for understanding words and terms used n real estate transactions. There are, however, some factors that may affect these definitions: ~ Terms are defined as they are commonly understood in the mortgage and real estate industry. The same terms may have different meanings in another context. ~ The definitions are intentionally general, non- technical and short. They do not encompass all possible meanings or nuances that a term may acquire in legal use. ~ State laws, as well as custom and use in various States or regions of the country, may modify or completely change the meanings of certain terms defined. Before signing any documents or depositing any money preparatory to entering into a real estate contract, the purchaser should consult with an attorney of his choice to ensure that his rights are properly protected. A Abstract (Of Title) A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title. Acceleration Clause Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage. Agreement of Sale Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties. Amortization A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal. Appraisal An expert judgment or estimate of the quality or value of real estate as of a given date. Assumption of Mortgage An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments. An “Assumption of Mortgageâ€� is often confused with â €œpurchasing subject to a mortgage.â€� When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage. Assumable mortgages were very valuable in the late 1970's and early 1980's when interest rates were in excess of 20%. Both “Assumption of Mortgageâ€� and “Purchasing Subject to a Mortgageâ€� are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure. B Binder or 'Offer to Purchase' A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded. Broker (See real estate broker) Building Line or Setback Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances. C Certificate of Title A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy. Closing Costs The numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to price of the property and are items prepaid at the closing day. This is a typical list: BUYER'S EXPENSES SELLER'S EXPENSES Documentary Stamps on Notes Cost of Abstract Recording Deed and Mortgage Documentary Stamps on Deed Escrow Fees Real Estate Commission Attorney's Fee Recording Mortgage Title Insurance Survey Charge Appraisal and Inspection Escrow Fees Survey Charge Attorney's Fee The agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the above costs. Closing Day The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale. Cloud (On Title) An outstanding claim or encumbrance which adversely affects the marketability of title. Commission Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price- - 6 to 7 percent on houses, 10 percent on land. Condemnation The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use. Condominium Individual ownership of a dwelling unit and an individual interest in the common areas and facilities which serve the multi- unit project. Contract of Purchase (See agreement of sale) Contractor In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others. Conventional Mortgage A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution and State statutes. The mortgage rates may vary with different institutions and between States. (States have various interest limits.) Cooperative Housing An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock. D Deed A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed,should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also deed of trust, general warranty deed, quitclaim deed, and special warranty deed.) Deed of Trust Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few States have begun in recent years to treat the deed of trust like a mortgage. Default Failure to make mortgage payments as agreed to in a commitment based on the terms and at the designated time set forth in the mortgage or deed of trust. It is the mortgagor's responsibility to remember the due date and send the payment prior to the due date, not after. Generally, thirty days after the due date if payment is not received, the mortgage is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, take possession and receive rents, and start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust. Depreciation Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason. Documentary Stamps A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State. Down payment The amount of money to be paid by the purchaser to the seller upon the signing of the agreement of sale. The agreement of sale will refer to the down payment amount and will acknowledge receipt of the down payment. Down payment is the difference between the sales price and maximum mortgage amount. The down payment may not be refundable if the purchaser fails to buy the property without good cause. If the purchaser wants the down payment to be refundable, he should insert a clause in the agreement of sale specifying the conditions under which the deposit will be refunded, if the agreement does not already contain such clause. If the seller cannot deliver good title, the agreement of sale usually requires the seller to return the down payment and to pay interest and expenses incurred by the purchaser. E Earnest Money The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable. Easement Rights A right- of- way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right- of- way across private property is a common example. Encroachment An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line. Encumbrance A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it. Equity The value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting from the property's fair market value the total of the unpaid mortgage balance and any outstanding liens or other debts against the property. A homeowner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100% equity in his property. Escrow Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which the funds are released to a designated individual. In FHA mortgage transactions an escrow account usually refers to the funds a mortgagor pays the lender at the time of the periodic mortgage payments. The money is held in a trust fund, provided by the lender for the buyer. Such funds should be adequate to cover yearly anticipated expenditures for mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments. F Foreclosure A legal term applied to any of the various methods of enforcing payment of the debt secured by a mortgage, or deed of trust, by taking and selling the mortgaged property, and depriving the mortgagor of possession. G General Warranty Deed A deed which conveys not only all the grantor's interests in and title to the property to the grantee,but also warrants that if the title is defective or has a “cloudâ€� on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable. Grantee That party in the deed who is the buyer or recipient. Grantor That party in the deed who is the seller or giver. H Hazard Insurance Protects against damages caused to property by fire, windstorms, and other common hazards. HUD U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes. I Interest A charge paid for borrowing money. (See mortgage note) L Lien A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor. (See also special lien.) M Marketable Title A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection. Mortgage A lien or claim against real property given by the buyer to the lender as security for money borrowed. Under government- insured or loan- guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges, and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off. Mortgage Commitment A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house. Mortgage Insurance Premium The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one- half of one percent paid by the mortgagor on a monthly basis. Mortgage Note A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment. Mortgage (Open- End) A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open- end provisions often limit such borrowing to no more than would raise the balance to the original loan figure. Mortgagee The lender in a mortgage agreement. Mortgagor The borrower in a mortgage agreement. P Plat A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements. Points Sometimes called “discount points.â€� A point is one percent of the amount of the mortgage loan. For example, if a loan is for $25,000, one point is $250. Points are charged by a lender to raise the yield on his loan at a time when money is tight, interest rates are high, and there is a legal limit to the interest rate that can be charged on a mortgage. Buyers are prohibited from paying points on HUD or Veterans' Administration guaranteed loans (sellers can pay, however). On a conventional mortgage, points may be paid by either buyer or seller or split between them. Prepayment Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the weight of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. The Federal Housing Administration does not permit such restrictions in FHA insured mortgages. Principal The basic element of the loan as distinguished from interest and mortgage insurance premium. In other words, principal is the amount upon which interest is paid. Purchase Agreement See agreement of sale. Q Quitclaim Deed A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has. (See deed.) R Real Estate Broker A middle man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner. Refinancing The process of the same mortgagor paying off one loan with the proceeds from another loan. Restrictive Covenants Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may “run with the land,â€� binding all subsequent purchasers of the land, or may be “personalâ€� and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and has been declared unenforceable by the U.S. Supreme Court.) S Sales Agreement See agreement of sale. Short Sale A short sale occurs when the owner of the property encounters severe financial difficulty: i.e.; job loss, death in the family, or severe injury or medical problem and cannot continue to make the mortgage payments and the property debt (with closing costs) is greater than the value of the property. This method is an alternative letting the foreclosure process occur. Subsequent to the mortgage 'melt-down' many properties were shown as short sale, especially those purchased with 100% financing or sub-prime loans. Since the melt-down lending institutions have significantly revised their lending guidelines. Special Assessments A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, street lights, etc. Special Lien A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called 'particular' lien or 'specific' lien. (See lien.) Special Warranty Deed A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title. State Stamps See documentary stamps Survey A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey s often required by the lender to assure him that a building is actually sited on the land according to its legal description. T Tax As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public. Title As generally used, the rights of ownership and possession of particular property. In real estate usage, title may refer to the instruments or documents by which a right of ownership is established (title documents), or it may refer to the ownership interest one has in the real estate. Title Insurance Protects lenders or homeowners against loss of their interest in property due to legal defects in title. Title insurance may be issued to a 'mortgagee's title policy.' Insurance benefits will be paid only to the 'named insured' in the title policy, so it is important that an owner purchase an 'owner's title policy', if he desires the protection of title insurance. Title Search or Examination A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims or outstanding restrictive covenants filed in the record, which would adversely affect the marketability or value of title. Trustee A party who is given legal responsibility to hold property in the best interest of or 'for the benefit of' another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law. (See deed of trust.) Z Zoning Ordinances The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage. In Chicago a Zoning Certificate is necessary to close on the purchase of a property. This Certificate states the allowed use of the property and that it is in conformity with that use. |
| Paulette Bezazian Chicago Lincoln Square 2156 W Montrose Chicago, IL 60618 |
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| Questions? Comments? Email me: thebezaz@gmail.com with the subject header "Real In Chicago" from (your name) |
| Info for Buyers |