Real Estate FAQs and Terminology

What if I need to sell my home before I buy a new one?

• To put yourself in the best negotiating position before you find the new home you want, hire a qualified real estate agent to help you put your home on the market. Once you write an offer on a new home, your offer will be “contingent” on the sale of your home.

• A buyer in this position may not have the same negotiating power as one whose home has already sold (or at least has an accepted offer). The seller may be hesitant to accept your offer because there are too many things that must happen before the sale can close.

• Ask your loan officer about a Bridge Loan.

How does an offer get presented to the seller?

• Your agent will call the agent who is the listing agent for the home you have chosen. They will make an appointment with the seller to present your offer. Your agent is there to explain the details of your offer and negotiate on your behalf.

What happens if I offer less money than the asking price?

• If you offer less money, the seller has three options. They can accept the lower offer, counter your offer or reject it completely.

• Remember that there could be another buyer out there who is also interested in the home you’ve chosen. If they happen to write an offer at the same time you do, the seller will have two or more offers to compare.

• There are usually many aspects of each offer to consider, but ultimately the seller will want to accept the best and most complete offer.

• In active real estate markets, homes often sell for their listed price. In hot markets, there may be many buyers vying for the same house, which sometimes drives the final sale price above the original listing price.

• Your real estate professional can help you plan your strategy, based on the current real estate market in your area.

Does it cost me money to make an offer?

• When you write the offer on the home you’ve chosen, you will be expected to include an earnest money deposit. The deposit is a sign of your good faith that you are seriously interested in buying the home.

 Where does my earnest money go?

• Once the buyer and seller have a mutually accepted offer, the earnest money is deposited into a trust account of the real estate company or the closing agent (often the escrow company).

• That deposit becomes a credit to the buyer, and becomes part of the purchase expense.

Can I lose my earnest money?

• Real estate contracts are complicated legal transactions. This is another area where having a knowledgeable and professional agent is a necessity. Rarely does the buyer lose the earnest money.

• Most often, if the transaction falls apart, there are circumstances beyond the buyer’s control that cause it to happen.

• However, if the buyer willfully decides that they no longer want to buy the house, and have no legal reason for rescinding their offer, then the seller has the right to retain the earnest money.

Is that all the money that’s involved?

• Many lenders require the cost of the appraisal and credit report at the time of the loan application. However, those costs will be credited to your closing costs at the time of closing.

Buyer Terminology

Loan Amount

The amount of the mortgage based on the purchase price, minus the down payment.

Down Payment

Cash that the buyer provides the lender as their portion of the purchase price. The down payment is considered the buyer’s equity (or cash investment) in their home.

Points Fees charged by the lender to offset their interest rate, if it’s below the prevailing market rate. One point equals one percentage point—so one point on a $100,000 loan would be $1,000.

Appraisal Fee

The amount paid for the lender’s appraisal of the property.

Credit Report Fee

The fee charged by the lender to obtain a credit report on the buyer.

Title Insurance Fee

A one-time premium that a buyer pays to the title insurance company for protection against loss or damage in the event of an incorrect search of public records and/or misinterpretation of title. The title insurance policy also shows what the title on the property is subject to in terms of liens, taxes, encumbrances, deed restrictions and easements. Click Here for more info on Title Insurance.

Escrow Fee

The amount a buyer pays the escrow company or closing agent for preparing papers, accounting for all funds and coordinating the information between all parties involved in the transaction.  The fee is based on the transaction amount in $10,000 increments and is split between the buyer and the seller.  Here is an example of the cost:

Closing Costs

A general term for all the estimated charges (above and below) associated with the transfer of ownership of the property.

Prepaid Interest

The amount of interest due on the loan during the time period between the closing of escrow and the first mortgage payment, due at the time of closing.

PITI

The estimated house payment, including principal, interest, taxes, and insurance.

Principal and Interest

The loan payment, consisting of the amount to be applied against the balance of the loan and the interest payment, which is charged for interest on the loan.

Total Cash Required

The total amount of cash the buyer will need, including down payment and closing costs.

Premium Mortgage Insurance

(PMI) Insurance for the lender, to cover potential losses, if the borrower defaults on the loan. The estimated house payment, including principal, interest, taxes and insurance.

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