what to know before buying a house
TRANSCRIPT
RBFCU Financial Literacy Month
What to know before a buying a house
Conventional: If a mortgage loan is not insured or guaranteed by the federal government, it is considered a conventional loan. Fixed-Rate, Adjustable, Bridge Home, Balloon and Hybrid are types of conventional home loans.
Federal Housing Administration (FHA): Administered by the U.S. Department of Housing and Development. Term options include a 30-year fixed, 15-year fixed and adjustable rate options.
Veterans Affairs (VA): This loan is guaranteed by the U.S. Department of Veterans Affairs and may be issued by qualified lenders. This loan is designed to offer long-term financing to eligible American veterans or their surviving spouses. 100% financing is available and no down payment is required. Terms include 30-year fixed and 15-year fixed.
Loan Types
Fixed: The interest rate on a fixed mortgage is set at the time the loan is secured and will not change for the life of the loan. Benefit: consistent monthly mortgage payment. ARM: An adjustable rate mortgage is not fixed and instead may go up or down throughout the life of the loan. Typically there is a cycle to the ups and downs, but there is no guarantee. Benefit: this loan is right for someone who is prepared for payment fluctuations.
Neither of these options are better than the other, but can be reviewed based on your current financial situation.
Interest Rate Types
You will encounter many different people during your home buying journey. Get to know the players and understand what is expected of each.
Lender: The financial institution that lends the money to purchase the home.
Mortgage Loan Officer: The person who arranges the financing and assembles necessary documents.
Buyer’s Real Estate Agent: The individual that helps prepare the earnest money contract, presents the offer to the Seller’s Real Estate Agent or shows houses to the buyers.
Who you will meet along the way…
Seller’s Real Estate Agent: The individual that lists the house and advertises the property. They represent the seller in the transaction.
Home Inspector: The person who will inspect the home to determine the condition and identify possible problems.
Home Appraiser: The person who will estimate the market value of a home based on comparisons and similar properties.
Settlement Agent: The person who prepares the paperwork and details for closing the deal. This person could be a banker, attorney or title company closing agent.
Who you will meet along the way…
Owner’s Title: A policy issued when you purchase property. The policy covers the insured party against losses, up to the sale amount, resulting from disputes over rightful ownership of a piece of real estate.
Loan Title: A policy issued to lenders when a loan is insured. This policy protects the lender from loss incurred, up to the loan amount, if the resulting lien is invalid or in an inferior lien position.
Private Mortgage Insurance (PMI or MI): A policy that protects the lender against a buyer defaulting on mortgage payments. Most lenders require an insurance policy any time the buyer puts less than 20% down on the purchase of the home. A lender must automatically cancel PMI when your outstanding loan balance drops to 78% of the home’s original value.
Insurance Types
Homeowners Insurance: A form of property insurance designed to protect an individual’s home against damages to the house itself or to possessions in the home due to a catastrophic (CAT) loss such as a windstorm, hurricane, hail or tornado. The insurance also provides liability coverage against accidents in the home or on the property such as water damage caused by a plumbing leak within the home, burglary or theft, fire and liability loss. The policy must list the lender as the loss payee and must be in place prior to the loan going into effect.
Flood Insurance: Insurance that covers the structure of your home and personal property in the event of a flood.
Insurance Types
Escrow
Escrow: Funds that are a part of the total loan price, that are held in an account where the lender draws from to pay taxes and insurance premiums when they are due.
Most mortgages are set up with escrow unless you specify you want to handle it yourself.
Escrow is generally required if PMI is on a loan.
Ask yourself the following questions to find out if you need an escrow account.• “Am I a spender or a saver?”• “Do I have the discipline to put away enough money to cover my annual
taxes and insurance?”
Warranty Deed: A document that legally transfers ownership of property from one person to another. The deed is recorded in the public records with the property description and the owner’s signature.
Deed of Trust: A lien on the property that secures the promise to repay a loan. The agreement is between the lender and the buyer in which the property is collateral for the loan.
Deed Types
• Origination Fee• Discount Points• Credit Report• Appraisal• Title Insurance• Recording Fees• Underwriting Fee• Commitment Fee
• Settlement/Closing Fee• State Transfer Tax• Survey• Odd Days Interest• Homeowner’s Insurance• Property Taxes
Common Closing Costs
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with care, it is about the safest
investment in the world.”
-Franklin D. Roosevelt
For further information or questions, please contact the
Financial Education Department at [email protected]
orJennifer Crawford
(210)[email protected]
Michelle Herrera(210)945-3305