Real Estate Terms Explained: Short Sale and Foreclosure

As unfortunate as it can be when homeowners fall behind on mortgage payments and must face the possibility of losing their homes, short sales and foreclosures provide them options for moving on financially. The terms are often used interchangeably, but they’re actually quite different, with varying timelines and financial impact on the homeowner. Here’s a brief overview.

A short sale comes into play when a homeowner needs to sell their home, but the home is worth less than the remaining balance that they owe. The lender can allow the homeowner to sell the home for less than the amount owed, freeing the homeowner from the financial predicament.On the buyer side, short sales typically take three to four months to complete and many of the closing and repair costs are shifted from the seller to the lender.

A foreclosure occurs when a homeowner can no longer make payments on their home so the bank begins the process of repossessing it. A foreclosure usually moves much faster than a short sale and is more financially damaging to the homeowner. After foreclosure the bank can sell the home in a foreclosure auction. For buyers, foreclosures are riskier than short sales, because homes are often bought sight unseen, with no inspection or warranty.

Neither of these are an ideal situation for any homeowner to find themselves in, but understanding the difference is important to know you’re making the best financial choice for yourself. If you’re thinking of selling your home in a short sale, or interested in buying a foreclosed property, give us a call today

What is a Home Appraisal?

You’ve found your dream home, and now it’s time to make it your own. One of the first things you’ll want to check off your final closing list is the home appraisal. So, what exactly is that?

The home appraisal is essentially a value assessment of the home and property. It is conducted by a certified third party and is used to determine whether the home is priced appropriately. If you’re buying your home using a mortgage, your bank will require the home appraisal. This is different from a home inspection — an appraisal protects the financial interests of the lender, and while a home inspection protects the buyer from potential maintenance or repair issues.   

During a home appraisal, the appraiser conducts a complete visual inspection of the interior and exterior of the home. Their assessment will factor in a variety of things, including the home’s floor plan, functionality, condition, location, school district, fixtures, lot size, and more. Adjustments will generally be made if the home was recently renovated, or exterior upgrades like a deck or pool were put in place. The appraiser will also compare the home to several similar homes in the area — known as comps — that sold within the last six months.

Unlike a home inspection, an appraisal only looks at the surface value of the property. The appraiser will note any obvious damage, such as a badly dilapidated roof, but won’t conduct the same thorough tests you’ll get from a home inspector. The final appraisal report must include a street map showing the property and the comps, photographs of the interior and exterior, an explanation on how the square footage was calculated, market sales data, public land records, and more.

After the appraisal report is complete, the lender uses the information to ensure that the property is worth the amount they are investing. This is a safeguard for the lender, as the home acts as collateral for the mortgage. If a buyer defaults on the mortgage and goes into foreclosure, the lender generally sells the home to recover the money borrowed. 

As a buyer, the most important thing to note is that home appraisals protect the bank, not the homeowner. You’ll still need to schedule a home inspection to be sure that your home is in good condition and won’t require any unexpected repairs. 

Are you ready to close on your dream home? Give us a call! 

What is a Rate-and-Term Refinance?

Mortgage rates are lower than in recent years, which means now is a great time to think about refinancing your existing home loan. A mortgage refinance is a big decision, and making the right choice now could save you thousands of dollars in the future. If you’ve never considered refinancing before, you’re probably finding yourself overwhelmed with questions and unfamiliar terms. And that’s okay! If real estate finance was easy, you wouldn’t need us around.   

We’re here to help explain a few things you might want to know.

Today’s lesson: Rate-and-Term Refinance

A rate-and-term refinance changes the interest rate on your loan, the term (or length) of the loan, or both. Unlike with a cash-out refinance, this type of change doesn’t advance any money on the loan — which means you won’t see a lump sum of cash. Instead, this type of refinance can save you money by lowering your monthly payment or by allowing you to pay off your loan faster (saving you money in interest). Rate-and-term refinances are driven by drops in market interest rate values. 

If you purchased your home during a time of high market interest rates, you might want to consider a rate-and-term refinance now while the rates are lower. This type of refinance is also a great option for homeowners who have seen positive changes in their financial situation since they purchased. If your consumer credit score has improved drastically over the last few years you’ve owned your home, you could qualify for a much lower interest rate. 

Rate-and-term refinances aren’t right for everyone. If you’ve only been in your home for a few years and you haven’t experienced any major financial changes, you might be better off waiting a few years or looking for a different type of refinance. 

No matter what you decide, make sure you’re working with a team of trusted experts. There are so many individual factors to consider when refinancing your mortgage, and you’ll want someone who has the time to answer all of your questions and make sure your specific needs are meant. If you think a rate-and-term refinance is right for you, give us a call today! 

Real Estate Terms Explained: Title Insurance

If you’re a first-time buyer, you’re probably faced with a lot of unfamiliar terms as you complete the closing process. But don’t worry! We’re going to use the power of the blog to explain (most of) them to you. 

Today’s lesson: Title Insurance

What the heck is title insurance? 

Technically there are two answers to this question, because there are two types of title insurance: the lender’s insurance and the owner’s insurance. Both policies protect against future financial losses. To put it simply, if your home purchase falls through after closing, these insurance policies can save you and your lender from being financially responsible for a property home that you didn’t actually purchase. Most lenders will require this insurance, and you’ll find it included with the rest of your closing costs. Owner’s insurance is optional, but highly recommended. Both policies are a one-time fee that you pay at closing.   

Why would my purchase fall through after closing?

It’s an unlikely scenario, but it is possible. When you purchase a property, a title researcher will check the ownership history to make sure you have what is known as a “clean title.” This means that there are no pre-existing issues that could prevent the title from becoming legally yours. 

A pre-existing issue could be that a previous owner failed to disclose a creditor’s lien on the house, or the property is caught up in an inheritance dispute, or there are uncollected taxes on the property. In most instances these issues are the result of a minor error and can be cleared up quickly, but there are cases where the title issues take months or even years to resolve. And if you find yourself in one of those situations, you’ll be facing a mountain of legal fees and the potential that you’ll lose the property (and the money you invested) before you even unpack. 

Alright, I hear you. How do I get title insurance? 

Typically your agent or closing attorney will start the process for you. You’ll be charged a one-time fee (the exact cost will vary depending on a variety of factors), and even though you only pay for it once, the coverage will insurance your financial transaction as long as you own the property. Please note: this is NOT homeowners insurance — that’s a completely different type of policy and coverage. If you’re not sure how to find the right title insurance, talk to your closing agent or attorney. We live for this stuff. 

Title insurance may seem like yet another unexpected cost, but trust us, it’s worth it. If you still need convincing, give us a call! We’re here to help you every step of the way.