Framework Homebuyer Course

appreciation and equity meanings

Equity is the amount of ownership you have in your home. Appreciation is an increase in your home's value.

Will checking your credit report hurt your score?

No, as long as you do it from www.annualcreditreport.com

What's a mortgage broker?

Someone who helps you shop for and compare loans between different lenders

What is the underwriter?

Someone who scrutinizes and approves your loan on behalf of the lender.

What is TIP?

TIP is not the same as your interest rate. It's the total amount of interest you'll pay over the loan term, shown as a percentage of the loan amount. Over the years, homeowners often pay as much in interest as they do for the principal loan amount.

what provides security for the loan?

That was a tricky one! The mortgage note is what commits you to paying the actual loan. The mortgage provides security for the loan.

What is APR?

The APR is generally higher than the interest rate because it takes into consideration all the costs of the loan, over the full term of the loan. It can be helpful when you're comparing mortgages.

What are the steps in the mortgage process?

1. Preapproval 2. Purchase Agreement 3. Underwriting 4. Closing

What is equity?

Equity is the amount of ownership a homeowner has in their home. You subtract the balance on the mortgage from the current market value.

What is the purchase agreement?

It's a written contract signed by the buyer and seller specifying the terms and conditions of the sold property.

What is defaulting?

When you fail to meet financial obligations

Usual upfront cost of homeownership

closing costs, moving expenses, down payment

What is insurance?

homeowners insurance and, if required by lender, private mortgage insurance (PMI)

who works on your behalf in the homebuying team?

homeownership advisor, real estate agent, home inspector

A lender uses these tools to prequalify you for a mortgage.

housing ratio and debt to income ratio

What is interest?

its what the lender charges for lending you the money to buy your home

Types of Perils Covered by Homeowner's Insurance

"Perils" is insurance-industry jargon for the ordinary mishaps and rare, cineplex-worthy disasters that could befall your home. Here are the ones a typical policy will probably cover to one degree or another: Damage from an aircraft or car Explosion (mind that gas grill!) Fire and smoke damage Lightning strikes Theft or vandalism Water damage (not flooding) Windstorms, hail, or ice damage Most policies do not cover these: Earthquake Flood Landslide, mudslide, or sinkhole War Check out the chart at the Insurance Information Institute for more detail. But never make assumptions: read any policy you're considering carefully for what's covered and what's not.

7 Negotiating tips

1. Know your bottom line. What's the maximum you're willing to pay? What's non-negotiable? 2. Document it. Make sure every counteroffer and agreement is in writing. 3. Recognize a fair price. If the home is listed at or below the neighborhood's going rate, don't expect to negotiate a lower price. 4. Let go of small price differences. Think about the cost per month for the life of the loan, and whether saving that is worth passing up the home. 5. It's not just about price. The terms of the purchase are important too, and for the seller, the fewer contingencies, the better. 6. Learn about the seller. It's great if you can tailor your offer to their needs. For example, can you accommodate an unusually fast or long closing? 7. Add a personal letter to your offer. Many sellers want to know that the next owner of their home will really appreciate and enjoy it.

What do you do if your identity gets stolen?

1. Report it to the police and file a complaint at www.identitytheft.gov 2. Check your credit reports 3. Submit a fraud alert with one or more of the credit bureaus 4. Notify your creditors 5. Dispute any unauthorized 6. Do a close review of your financial records every month

What are taxes?

1/12th of the yearly property taxes on your home

What are closing costs typically in % of the home loan?

3% to 6%

How long do late payments, judgments, and foreclosures stay on your record? How about bankruptcy?

7 years, and bankruptcy for 7-10 years

What score does FICO top out at?

850

What is a buyers agent?

A buyer's agent represents only you, the buyer. Here's what a buyer's agent does for you: Helps you find a home in your price range Provides information about the neighborhood Completes a comparative market analysis (CMA) to determine if the selling price is reasonable compared to other properties recently sold in the area Helps you complete the purchase agreement for the best terms and price Presents your offer to the seller and negotiates on your behalf

what is a conventional loan?

A conventional loan is any mortgage that is not government-insured or guaranteed. These loans are made by private lenders, such as banks and credit unions. To qualify, you need to meet certain credit and income standards. The standards vary from lender to lender, so shopping around can make all the difference. A 20% down payment isn't always required. In that case, you usually pay private mortgage insurance (PMI). Most conventional loans are also "conforming" loans, and the two terms are often used interchangeably.

What is a dual agent/agency?

A firm that represents more than one party in the same real estate transaction. Dual agency must be disclosed.

What is a facilitator?

A real estate agent who just helps complete the purchase agreement and doesn't represent you directly.

What is a short sale?

A short sale usually occurs when a homeowner who's fallen behind on the mortgage tries to sell their home for less than they owe (they're "short" on what they need to pay off the loan). It can be a way to avoid a foreclosure auction, and it's done by agreement with the lender. The lender has to approve the offer and even then has the right to refuse the sale any time before closing, which could complicate things for you. Short-sale properties are often in better condition than foreclosed ones, partly because they're still occupied. On the other hand, the sale process can drag out for months. It's a good idea to hire a real estate attorney.

What is a affidavit?

Affidavits verify who you are and that, to the best of your knowledge, the information you're providing is true. We know you wouldn't provide false information, but if you did, it could cancel the loan and lead to criminal penalties.

What is a REO?

An REO, or real-estate-owned home, is the safest kind of distressed property to buy. It went into the foreclosure process, but it didn't sell at auction, so the lender has repossessed it. Banks often sell these properties at below market value to get rid of them. They might even offer buyers extra incentives, such as reduced closing costs. An REO is a safer bet than a foreclosed property. The bank is required to pay off any liens, so you won't have that potential issue hanging over your head. And you can have the home professionally inspected before you buy, so you know what you'll be getting into for repairs.

initial escrow payments

An initial escrow deposit is the amount you will pay at closing to start your escrow account, if required by your lender. This amount may include property taxes, homeowners insurance, and mortgage insurance. It may be different from what you pay monthly to maintain the escrow account (by law, lenders can't require more than two months' worth of "cushion").

Appraisal fee

Another loan cost: the amount paid to the appraiser to determine the home's market value. The lender might ask you to pay this before closing.

what if you have an ARM?

Do you have an adjustable-rate mortgage (ARM)? The first time your interest rate changes, your servicer is required to notify you at least seven months in advance. Future changes require only 60 days' notice.

How to inspect a home

As soon as possible, schedule at least one hour to look at the property when the seller isn't home. Bring a flashlight, our self-inspection checklist, and your favorite note-taking device. Don't be afraid to look around and take photos. Important areas include the basement, attic, crawl spaces, closets, cabinet interiors, etc. Inspect the exterior of the home, the yard, and the garage. Look for evidence of wear and disrepair. Ask the seller for a record of recent repairs. Pay close attention to water damage. It can cause permanent structural damage. Check out the neighborhood during the day and in the evening. How busy is it? How noisy? Talk to the neighbors. You can learn a lot about the home and the neighborhood. It's also a great chance to meet them.

What are the 4 C's of credit?

Capital Collateral Capacity Credit History

What is contingency?

Contingencies are an essential part of a well-written purchase agreement. Along with the general terms and conditions, they define the limits of your offer.

Loan servicer

First, a reminder that your lender might not "service," or manage, your loan. In today's market, it's common to sell the rights to service loans. In fact, you might have several servicers over the life of your loan. In any case, your loan servicer is responsible for sending your monthly mortgage statement, collecting and processing your payments, and managing any escrow accounts you might have. Typically, your servicer will get in touch shortly after closing about making your payments.

What's the difference between fixed expenses and flexible expenses? What's a periodic expense?

Fixed expenses occur regularly without changing much (e.g. rent, utilities). Flexible expenses are discretionary, such as clothes, Starbucks, etc. A periodic expense is a expense that might be paid quarterly or annually, such as car insurance.

What should you do to protect yourself with a newly built home?

Get the names of subcontractors and suppliers who worked on the home Get a set of drawings showing the stamp of the architect and the engineers Be sure to get details on the maintenance that should be done Make sure you have the warranties from the builder and the various product manufacturers

what is a government loan?

Government loans are popular with first-time homebuyers because they're designed to make buying easier. They often have more flexible credit standards, require a lower or no down payment, or waive mortgage insurance.

What should you look for in a buyers agent?

How many first-time homebuyers did you work with last year? How are you paid and what is your commission? What price range do you consider your specialty?

What if the seller hides a problem?

If the seller isn't honest about a known issue and you end up having a problem, you can potentially sue them years later for whatever it costs you to fix it. Because building codes are so important, a key disclosure is whether any upgrades have been done and whether the seller got the proper permits. It's not a bad idea to check with the town or city to make sure that disclosed work really was approved.

How do your credit card accounts help or hurt your credit?

If you have accounts that have been open a long time, that helps your credit. If you have inactive accounts, that could hurt your credit. Also, opening too many accounts in a short time can hurt your score.

what is force placed insurance?

If your insurance isn't escrowed, and you don't keep your home insured, your loan servicer has the right to protect their interest in the home by buying and charging you for insurance. Force-placed insurance, as it's called, is generally more expensive and does not protect you. Once you buy your own policy, your servicer is required to cancel the force-placed insurance.

How was underwriting done before, and how is it done today?

It used to be by hand and could take 2 months. Now, there are automated underwriting systems that make it so they can make a decision in a few days.

What is an escrow account?

It's a special account used to collect and hold monthly payments for property taxes and insurance. These payments are folded into your monthly mortgage payment. When the expenses come due, the lender pays them for you from the escrow account. It's like having a dedicated savings account without the interest.

What is a creditor?

It's any person or company to whom money is owed

What's discretionary income?

It's what's left after you've paid for fixed expenses

What is a property disclosure?

Many states require the seller to complete a standardized property disclosure form revealing anything they're aware of that could be a problem for you. Your real estate agent can tell you what your state's requirements are. The disclosure is an important part of evaluating the home's condition, but keep in mind that it's not a guarantee. If the seller indicates on the form that there's no issue with a certain appliance or system, that doesn't necessarily mean there's no issue, only that the seller doesn't know about it.

Files to hold onto

Mortgage loan Mortgage statements, lender and/or servicer correspondence, and any other documents having to do with the month-to-month servicing of your loan Repairs and maintenance Contractor contact information, receipts, maintenance records Taxes Income tax returns and attachments, statements for property tax and mortgage interest paid Insurance Homeowners insurance policy, claims, and household inventory (be sure to keep a copy of the inventory off-site) Warranties Home warranties if you have them, appliance warranties, and user manuals

What's the single best way to improve your credit?

Pay your bills on time

What factors affect your FICO score?

Payment History, Amount Owed, Length of credit history, New Credit, Credit Mix

What is amortization?

Payments are spread out over a set period of time: the term of the loan (30 years in our case)

What's the difference between prequalification and preapproval?

Prequalification gives you an informal estimate of how much you can borrow, based on your income and debts. Preapproval comes later when you start seriously looking at homes to show what the lender has agreed to.

Key pieces to a purchase agreement

Price The price covers the home itself, its "fixtures" (anything permanently attached to the building or land, such as ceiling fans or fences), and any other property you'd like to make part of the deal. Your agent is there to help you decide on a number. Their experience can be invaluable when you're weighing multiple factors: the condition of the home, the CMA, other interested buyers, how much the home is worth to you, and more. Earnest Money This deposit shows the seller that you're serious. It's typically 1% of the purchase price, but so much depends on the market you're in. This is another place where your agent's experience can be a huge help. If the seller rejects your offer, you get your money back. If it's accepted, the seller's broker will hold the money in escrow until closing. Costs A detailed account of who will pay for the closing costs and required inspections. Timeline This stipulates how long the seller has to respond to your offer, normally three to five days. For short sales or foreclosed properties, it's probably going to be longer. Property description This includes the street address, the legal description of the property, and anything that's not a fixture that you expect the seller to leave in the house: appliances, draperies, etc. Financing Here, you state how you plan to pay for the home. For most buyers, this will be a mortgage loan. The purchase agreement should be contingent on your lender's approval of your loan, even if you're preapproved. Loan Closing Date The loan closing date is negotiable, but it's usually scheduled for 30 to 60 days from the date of the purchase agreement. That might sound like a long time, but you'll need it for inspections, getting final approval from the lender, and the title review. And if you or the lender has made any repairs a condition of the sale, the seller will need time to get them done. You and the seller will also try to accommodate each other's needs. For example, you might not want to move in until your kids are out of school for the summer. Contingency Addendum The contingency addendum lets you cancel the purchase agreement under specific conditions, such as not being approved for the mortgage. We'll look at some common addendums later in this topic. Property inspections This indicates whether you plan to have a professional home inspection done. And of course you will! It's good to have an inspector in mind already, so you can move quickly if your offer is accepted. (We'll talk about finding an inspector in the next topic.) Property taxes This states how property taxes, including special assessments or pending assessments, will be paid for the rest of the year. The seller must tell you whether they've received any notices about future assessments or tax increases. Private sewer and well disclosure If the seller is aware of a private sewer system and/or well on the property, they have to disclose this and provide you with a private sewer system disclosure and a well disclosure statement. In turn, you have to indicate whether you'll have them inspected.

What is PITI?

Principal, Interest, Taxes, Insurance

What is PMI?

Private mortgage insurance (PMI) is sold by private insurance companies and protects the lender if you can't repay your mortgage. Many loan products require PMI if your down payment is less than 20%, which is the case for most people.

always keep these documents in a safe

Purchase agreement Closing disclosure Mortgage and mortgage note Title information

What's a good idea in terms of putting more money into savings from a Homeownership Advisor?

Put X dollars into savings every paycheck, put your tax refund or a raise into your savings.

What is the legal term for ownership of property?

Real estate title, not eminent domain, is a legal term for the ownership of property.

What is a MLS?

The Multiple Listing Service (MLS) is a region-by-region real-time database. It's the one real estate agents use, and it has the most complete and up-to-date information on homes for sale. The most direct way to access it is through your agent. Your agent can alert you to homes that meet your criteria as soon as they're listed. Depending on where you live, you might be able to explore the database yourself through your local MLS or your agent's website.

What is the principal?

The amount you borrowed from the lender

The credit factor that FICO gives the most weight is payment history

The credit factor that FICO gives the most weight is payment history, which accounts for 35% of your credit score.

What is debt to income ratio?

The debt-to-income (DTI) ratio is the percentage of your gross income that lenders allow you to spend on housing plus debt payments. It's also known as the back-end ratio. Many lenders look at it instead of the housing ratio.

what is deed?

The deed transfers ownership of the title from the seller to you. The seller brings it to closing, signed and notarized. And you're required to indicate the type of ownership (sole, joint, or tenancy-in-common, which we covered in Lesson 4) and who will be listed on the deed. Anyone listed is entitled to ownership of the home.

things to keep in mind with your inspection report

The inspection report is not leverage to use against the seller. Sellers are often surprised by problems and open to negotiation. Are the needed repairs small? Consider doing them yourself. Are the repairs major, as in thousands of dollars? You might want to renegotiate the purchase agreement or even cancel it. Recognize the difference between necessary repairs and upgrades. Upgrades are normally at your expense. If you have concerns or questions about anything in your report, ask your inspector to explain. That's part of the job!

What is a loan closing?

The loan closing, also called the settlement, is a meeting to transfer ownership of the home from the seller to you. You review and sign several legal documents, and when it's over, you leave with the keys to your new home! Closing is usually held at the settlement company's office.

What if you want to represent yourself?

The real estate agents involved are usually paid by the seller, splitting a total of around 5%-7% of the sale price. How is the number arrived at? The seller's agent usually negotiates the total commission with the seller and then pays the buyer's agent their portion. Some buyer's agents will want you to pay any part of their commission not paid by the seller's agent. This is rare, but make sure your contract with the agent is clear on this point.

Who usually attends a closing?

The seller You have a lot to do at the closing, but the seller, not so much. Sometimes the seller will sign the documents in advance. It depends on the norm in your state. Closing agent This agent works for the settlement company and conducts the closing. In some areas, a neutral attorney serves as the closing agent. Attorneys You and the seller always have the right to bring your own attorneys. Real estate agents Both yours and the seller's are usually there. Lender The lender's representative either attends or is available by phone in case any questions come up.

What is a settlement company?

The settlement company, often called the "title company," plays a big role in your closing. It's a neutral party that coordinates everyone involved, gathers all the information needed for the closing, and ensures that the terms of the contract are met. What does the settlement company (i.e. the closing agent) do, exactly? Completes the title examination to confirm that the seller is the legal owner and that there are no liens against the property Prepares and explains the closing documents Serves as the escrow agent and distributes funds Files the mortgage and deed at the county recorder's office

origination charges

These are loan costs: charges that cover administrative costs for processing the loan. Application and underwriting fees, for example.

What is a Homeownership Advisor?

They provide guidance throughout the home buying process

What is a Real Estate Attorney?

They review the offer you make, and helps to resolve issues like title insurance and environmental laws.

Who is the closing agent?

This is sometimes called an "escrow officer". They represent the title company and facilitate the final transaction. They conduct the closing (although the real estate attorney might do this).

What is a sheriff sale and trustee sale?

This is what most people think of when they think foreclosure: a property sold at a sheriff's sale, called a trustee sale in some states. Anyone can bid at these public auctions, but the foreclosing lender usually bids the amount owed to them and wins, planning to put the home back on the market later. This is the riskiest kind of distressed property to buy, so definitely consult a real estate attorney if you're interested in one. Here are some of the risks: Most foreclosed homes are sold "as is," and many need extensive repairs Usually, the home can't be inspected in advance, although you can bring an inspector to the sale Clear title is not guaranteed You're required to pay cash on the spot

what is a closing disclosure?

This key document itemizes your closing costs, the annual percentage rate, the interest rate, and other important information. Review it very carefully! Remember, you'll have three days, so take your time with it.

Which one of these protects you in the event of future ownership claims?

Title insurance

should u carry around your title insurance when looking at houses?

Title insurance comes into play when you actually buy your home, and there's no need to carry it around!

Comparative market analysis

To help you decide what to offer, your real estate agent should do a comparative market analysis, often referred to as a CMA or "comp." The CMA isn't a formal appraisal. It simply provides an estimate, usually expressed as a price range, of the home's value based on what similar homes in the area have been selling for. Chances are, the seller is aware of the CMA, so it gives both parties an idea of what would be a fair offer.

As part of the federal Community Reinvestment Act, banks are required to invest some of their earnings into programs that help increase homeownership.

True

true or false: you should convert periodic expenses to monthly average amounts.

True

Can we deduct mortgage closing costs?

We can deduct mortgage closing costs and earn tax credits on upgrades such as solar panels

Questions to ask when interviewing a home inspector

What sort of certification or training do you have? How long have you been working as an inspector? What do you include in your inspection? What do you exclude from your inspection? What type of inspection report do you provide? How long will the inspection take? Can I be there during the inspection or meet with you afterward? How much do you charge? Can you provide me with two or three references from current and former clients?

Can you get your credit score and credit report for free?

You can get your credit report for free once a year. You can get your credit score for a fee.

How can you get your credit score?

You can purchase it from one of the credit reporting bureaus.

why does foreclosure happen?

You could face foreclosure if you fall behind on your mortgage payments, of course (120 days behind, to be exact). But your property taxes or homeowner association fees can become an issue too. The main reason for delinquency is financial crisis, typically brought on by unemployment, major home repairs, medical bills, or overextended credit. Adjustable-rate mortgages can push homeowners over the edge too. When the interest rate goes up, the monthly payment becomes unaffordable. Which is why we don't recommend these mortgages!

How do you calculate discretionary income?

You take your monthly income minus fixed expenses

What is housing ratio?

Your housing ratio is the percentage of your monthly gross income that you spend on housing.