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Home Buying, Home Loans

How Do Real Estate Agents Get Paid

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Who pays a real estate agent is a very common question.
how are real estate agents compensated for their work? Here’s a brief overview on how real estate agents get paid. To understand who pays real estate commissions — whether it’s sellers or buyers or both — first take a look at how real estate agents are paid and how they share cooperating commissions.

Real Estate Commissions
Most real estate agents make money through commissions – payments made directly to real estate brokers for services rendered in the sale or purchase of real property. A commission is usually a percentage of the property’s selling price, although it can be a flat fee. To understand how real estate agents are paid, it helps to know about the relationship between an agent and a broker. Both agents and brokers are licensed by the state in which they work.

Real estate agents work for a real estate broker.

All fees paid to a real estate agent pass through the broker.

Only a real estate broker can pay a real estate commission and sign a listing agreement with a seller.

The broker’s compensation is specified in the listing agreement, a contract between a seller and the listing broker detailing the conditions of the listing. The rate of the broker’s commission is negotiable in every case; in fact, it is a violation of federal antitrust laws for members of the profession to attempt, however subtly, to impose uniform commission rates. Commissions are taken out of the sale proceeds, and it’s usually the seller who pays the commission, unless the buyer and seller negotiate a split. Most sellers factor the commission into the asking price, so it can be argued that the buyer pays at least some of the commission in either case (due to the higher asking price).

Sharing Commissions
Real estate commissions are often shared among many people. In a typical real estate transaction, the commission might be split four ways, among the:

Listing agent – the agent who took the listing from a seller

Listing broker – the broker for whom the listing agent works

Buyer’s agent – the agent who represents the buyer

Buyer’s agent’s broker – the broker for whom the buyer’s agent works:

To illustrate, let’s assume an agent takes a listing on a $200,000 house at a 6% commission rate. The house sells for the asking price, and the listing broker and the buyer’s agent’s broker each get half of the commission, or $6,000 each ($200,000 sales price x 0.06 commission ÷ 2). The brokers then split the commissions with the agents. A common commission split gives 60% to the agent and 40% to the broker, but the split could be 50/50, 60/40, 70/30, or whatever ratio the agent and broker have agreed upon. In a 60/40 split, each agent in our example would receive $3,600 ($6,000 X 0.06), and each broker would keep $2,400 ($6,000 X 0.04).

The final commission breakdown would be:

Listing agent – $3,600

Listing broker – $2,400

Buyer’s agent – $3,600

Buyer’s agent’s broker – $2,400

Co-Brokerage Splits
Divisions of fees among brokers are not always fair or equal, just like life. For example, a seller could sign a listing agreement for seven apples that stipulates the listing broker will receive four apples and will co-broker three apples to the selling broker.
It’s not always a 50/50 split. In a buyer’s market, sellers might want to consider asking the broker to give a larger percentage to the buyer’s broker. In a seller’s market, the buyer’s broker might receive less. There is no set formula.
Most divisions of the commission are locally based. In some parts of the country, it is very common for a listing agent to make more than the buyer’s agent. Be sure to ask about your local custom. The problem with co-brokerage fees is not necessarily whether to pay more to the buyer’s agent than it is to make sure buyer’s agents are not paid less than the local custom.
Listing Agents / Brokers
Legally speaking, only brokers can list homes. So, while you may work with a listing agent and agree to the terms of the deal, their broker legally holds the listing. What’s more, all commissions flow through brokers, on both the buy side and sell side of the transaction. This isn’t super important to know, as a consumer, but it’s something most people don’t know and it’s somewhat interesting.
Listing agents represent their customers (sellers). Their typical fee is 5 to 6% to list and market a home. Prices are negotiable and vary by market based on local custom. It’s illegal for real estate agents and brokers to collude and fix listing fees; that’s a violation of antitrust laws.
Some discount brokers and for sale by owner (FSBO) companies agree to be paid less than the local norm for listing a home. However, low listing fees can be problematic as there is very little commission left over to split with buyers’ agents. What’s more, with less money on the table, discount brokers are less likely to spend what is required for professional photography, advertising and the myriad of other expenses needed for properly marketing and selling a home.
So just how are homes marketed? Marketing and advertising budgets are deployed the following ways.
Advertising

Print publications like newspapers and specialty publications

Personal website

Office website

International syndication (especially for luxury properties)

Billboards

Internet advertising

Direct mail

Yard signs

Mailers

Premium placement on real estate portals

Television

Social media

Directories

Telemarketing

Flyers

Yard signs

Marketing
• Local MLS (annual membership fees)
• Property photographs
• Video
• Copywriting
• Open houses
• Home staging

Buyer’s Agents
As explained above, agents who represent buyers get paid a portion of the proceeds of the listing fee. Buyer’s agents incur marketing and advertising expense, too; all agents need to spend money on advertising to gain market share, attract customers and increase awareness of their brands.

No Settlement Can Equal No Pay
In general, commissions are paid only when a transaction settles. There are instances, however, when a seller is technically liable for the broker’s commission even if the transaction is not closed. If the broker has an offer from a ready, willing and able buyer, the broker may still be entitled to a commission if the seller:

Has changed his/her mind and refuses to sell,

Has a spouse who has refused to sign the deed (if that spouse had signed the listing agreement),

Has a title that contains uncorrected defects,

Commits fraud in regard to the transaction,

Cannot deliver possession to the buyer within a reasonable time,

Insists on terms that were not in the listing agreement, or

Has mutually agreed with the buyer to cancel their transaction.

In some cases, real estate agents are employed by their broker and paid a salary. Redfin.com, for example, is an online property search site that employs a staff of full-service real estate agents who are paid a salary plus a commission dependent upon customer satisfaction ratings collected by the company. It is far more common, however, for agents to be paid a percentage of the commission.

The Bottom Line
Most real estate agents make money through commissions paid directly to brokers when transactions are settled. A single commission is often split multiple ways among the listing agent and broker, and the buyer’s agent and broker. The commission split a particular agent receives depends on the agreement the agent has with his or her sponsoring broker.

for more details, original Source https://www.rubyhome.com/blog/how-realtors-get-paid/
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Home Buying, Home Maintenance

What is HOA [ Homeowners Associations]

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Homeowners’ associations (HOA) are common in many new, single-family housing developments, as well as in condominium and townhouse complexes. An HOA is the governing body of the development or complex, usually comprising homeowners who have volunteered to serve on the HOA board.

Membership in the HOA Is Mandatory
When you buy a property governed by a homeowners’ association, you automatically become a member of the association. You don’t have the choice of not joining. The purchase of your home becomes a contract with the HOA. You agree that you’ll obey all the HOA rules and pay regular dues and any special assessments. HOA regulations are usually set by a committee or board of directors and then enforced by a paid management company or a group of volunteers. You can become involved with the HOA in order to have a voice in the decisions being made. Homeowners can request a rule change or an individual waiver, but there’s no guarantee that your request will be granted.

How much are HOA fees?
To cover these maintenance expenses, homeowners associations collect fees (monthly or yearly) from all community members. For a typical single-family home, HOA fees will cost homeowners around the $200 to $300 per month, although they can be lower or much higher depending on the size of your unit and the services provided. The larger the home, the higher the HOA fee—which makes sense, because the family of four in a three-bedroom condo is probably going to be using the common facilities more than a single woman living in a studio.

Rules for Homeowners
HOA rules are called covenants, conditions, and restrictions (CC&Rs). CC&Rs usually apply to both you, the homeowner, and to your home. The CC&Rs might cover what color you can paint your home, what you can plant in your yard, how many cars you can own and park, whether you can own a pet, and whether you can rent the property to someone else. There are usually noise restrictions, as well.
Rules differ between different HOA-governed communities, so carefully study the CC&Rs before you buy. Receiving a copy at closing is too late. Better to add a contingency to your purchase contract requiring that you receive, and have a chance to review the relevant governing documents (and perhaps have you attorney review them, too), well in advance of the closing.
Penalties May Be Imposed for Breaking HOA Rules
When a homeowner breaks a rule—for example, paints a house the wrong color, or brings in a dog that exceeds the weight restrictions—the HOA may take action. Legally speaking, many HOAs are corporations; that is, legal entities that can enforce contracts with their homeowners.
The action may simply be to require the homeowner to reverse the violation; perhaps repaint the house, or give away the dog.
However, another common penalty is requiring the homeowner to pay a fine. If the homeowner refuses to pay, the HOA can take more punitive steps, up to and including forcing the sale of the home.

HOA benefits
Many homeowners prefer to live in an HOA for several reasons, including:
• Community appearance: Homes within an HOA must meet the standards set by the association or face a fine, so you’re less likely to see unkempt lawns, peeling paint or a garishly painted house. Some HOAs have a design review board with the power to approve any changes to your home’s exterior, and which establishes a color palette for exterior paint and trim. Many HOA’s have rules about how many cars or even what type of vehicles can be parked on your property. For example, they may ban commercial vans or RVs.
• Low maintenance: Depending on the HOA, services such as trash and snow removal and lawn care are handled by the association, leaving less work for the homeowner. Typically, common areas are maintained by the association.
• Recreational amenities: While not all HOAs have swimming pools and tennis courts, many offer a range of amenities such as a community center, walking trails, sports courts and playing fields reserved for residents.
• Association management: If you have a problem with your neighbor’s dog barking, loud parties or a dispute over a tree, you can ask the management to handle the issue rather than getting directly into a spat with the homeowner next door.

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What is CDD Fee [ Community Development District Fee ] in Florida

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What CDD stands for is Community Development District Fee. The developer can added the cost of the infrastructure, (electrical, roads, sewer systems, sidewalks, play grounds, community pools, tennis courts, water parks, etc.) into the cost of each home site. It will increase the cost of the house. To avoid this now the developers usually put the cost of all of that into a BOND, the CDD. The bond charge is usually apportioned to the size of each home site.

The bond is payable for the improvements over a period of usually 30 years. The cost of maintaining these improvements goes on in perpetuity, yeah forever! The CDD bond is paid off in 30 years buy not the maintenance on the improvements. Usually in this case the streets themselves are private, not public streets. And, sometimes there are no amenities, just the roads, electrical, cable and sewer.

CDD fees are divided into two parts: The Capital Bond Assessment is the repayment portion of the loan, and The Operations and Maintenance Assessment is for operations and maintenances of the common area amenities (i.e., pools, parks, trails, tennis courts, and main club house). Also most people mistakenly think this is a tax and is tax deductible. The bill for the CDD is sent with the tax bill, but is a bond and technically NOT tax deductible.

At the point when a certain percentage of the community is owned by the homeowners and not the developer, the neighbors will run the CDD and not the developers. This gives the homeowners more control of their community, like a Homeowners Association, but will not really change any liability to the CDD itself. The cost of the bond is also usually adjustable, so it is NOT a fixed cost. It may increase or decrease.

There are 600 Community Development Districts in Florida, 438 of which were begun in 2003 through 2008. They have issued $6.5 billion in municipal bonds to finance their infrastructure.

Florida Statute 190.003 Definitions of a CDD.
–Ad valorem taxes levied on real and tangible personal property and which are generally referred to as general obligation bonds.
(2) “Assessable improvements” means, without limitation, any and all public improvements and community facilities that the district is empowered to provide in accordance with this act.
(3) “Assessment bonds” means special obligations of the district which are payable solely from proceeds of the special assessments levied for an assessable project.
(4) “Board” or “board of supervisors” means the governing board of the district or, if such board has been abolished, the board, body, or commission succeeding to the principal functions thereof or to whom the powers given to the board by this act have been given by law.
(5) “Bond” includes “certificate,” and the provisions which are applicable to bonds are equally applicable to certificates. The term “bond” includes any general obligation bond, assessment bond, refunding bond, revenue bond, and other such obligation in the nature of a bond as is provided for in this act, as the case may be.
(6) “Community development district” means a local unit of special-purpose government which is created pursuant to this act and limited to the performance of those specialized functions authorized by this act; the boundaries of which are contained wholly within a single county; the governing head of which is a body created, organized, and constituted and authorized to function specifically as prescribed in this act for the delivery of urban community development services; and the formation, powers, governing body, operation, duration, accountability, requirements for disclosure, and termination of which are as required by general law.
(7) “Cost,” when used with reference to any project, includes, but is not limited to:
(a) The expenses of determining the feasibility or practicability of acquisition, construction, or reconstruction.
(b) The cost of surveys, estimates, plans, and specifications.
(c) The cost of improvements.
(d) Engineering, fiscal, and legal expenses and charges.
(e) The cost of all labor, materials, machinery, and equipment.
(f) The cost of all lands, properties, rights, easements, and franchises acquired.
(g) Financing charges.
(h) The creation of initial reserve and debt service funds.
(i) Working capital.
(j) Interest charges incurred or estimated to be incurred on money borrowed prior to and during construction and acquisition and for such reasonable period of time after completion of construction or acquisition as the board may determine.
(k) The cost of issuance of bonds pursuant to this act, including advertisements and printing.
(l) The cost of any election held pursuant to this act and all other expenses of issuance of bonds.
(m) The discount, if any, on the sale or exchange of bonds.
(n) Administrative expenses.
(o) Such other expenses as may be necessary or incidental to the acquisition, construction, or reconstruction of any project or to the financing thereof, or to the development of any lands within the district.
(p) Payments, contributions, dedications, and any other exactions required as a condition to receive any government approval or permit necessary to accomplish any district purpose.
(8) “District” means the community development district.
(9) “District manager” means the manager of the district.
(10) “District roads” means highways, streets, roads, alleys, sidewalks, landscaping, storm drains, bridges, and thoroughfares of all kinds and descriptions.
(11) “Elector” means a landowner or qualified elector.
(12) “General obligation bonds” means bonds which are secured by, or provide for their payment by, the pledge, in addition to those special taxes levied for their discharge and such other sources as may be provided for their payment or pledged as security under the resolution authorizing their issuance, of the full faith and credit and taxing power of the district and for payment of which recourse may be had against the general fund of the district.
(13) “Landowner” means the owner of a freehold estate as appears by the deed record, including a trustee, a private corporation, and an owner of a condominium unit; it does not include a reversioner, remainderman, mortgagee, or any governmental entity, who shall not be counted and need not be notified of proceedings under this act. Landowner shall also mean the owner of a ground lease from a governmental entity, which leasehold interest has a remaining term, excluding all renewal options, in excess of 50 years.
(14) “Local general-purpose government” means a county, municipality, or consolidated city-county government.
(15) “Project” means any development, improvement, property, utility, facility, works, enterprise, or service now existing or hereafter undertaken or established under the provisions of this act.
(16) “Qualified elector” means any person at least 18 years of age who is a citizen of the United States, a legal resident of Florida and of the district, and who registers to vote with the supervisor of elections in the county in which the district land is located.
(17) “Refunding bonds” means bonds issued to refinance outstanding bonds of any type and the interest and redemption premium thereon. Refunding bonds shall be issuable and payable in the same manner as the refinanced bonds, except that no approval by the electorate shall be required unless required by the State Constitution.
(18) “Revenue bonds” means obligations of the district which are payable from revenues derived from sources other than ad valorem taxes on real or tangible personal property and which do not pledge the property, credit, or general tax revenue of the district.
(19) “Sewer system” means any plant, system, facility, or property, and additions, extensions, and improvements thereto at any future time constructed or acquired as part thereof, useful or necessary or having the present capacity for future use in connection with the collection, treatment, purification, or disposal of sewage, including, without limitation, industrial wastes resulting from any process of industry, manufacture, trade, or business or from the development of any natural resource. Without limiting the generality of the foregoing, the term “sewer system” includes treatment plants, pumping stations, lift stations, valves, force mains, intercepting sewers, laterals, pressure lines, mains, and all necessary appurtenances and equipment; all sewer mains, laterals, and other devices for the reception and collection of sewage from premises connected therewith; and all real and personal property and any interest therein, rights, easements, and franchises of any nature relating to any such system and necessary or convenient for operation thereof.
(20) “Water management and control facilities” means any lakes, canals, ditches, reservoirs, dams, levees, sluiceways, floodways, pumping stations, or any other works, structures, or facilities for the conservation, control, development, utilization, and disposal of water, and any purposes appurtenant, necessary, or incidental thereto. The term “water management and control facilities” includes all real and personal property and any interest therein, rights, easements, and franchises of any nature relating to any such water management and control facilities or necessary or convenient for the acquisition, construction, reconstruction, operation, or maintenance thereof.
(21) “Water system” means any plant, system, facility, or property and additions, extensions, and improvements thereto at any future time constructed or acquired as part thereof, useful or necessary or having the present capacity for future use in connection with the development of sources, treatment, or purification and distribution of water. Without limiting the generality of the foregoing, the term “water system” includes dams, reservoirs, storage, tanks, mains, lines, valves, pumping stations, laterals, and pipes for the purpose of carrying water to the premises connected with such system, and all rights, easements, and franchises of any nature relating to any such system and necessary or convenient for the operation thereof.

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Closing Disclosure

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At least three days before your closing, you should receive a Closing Disclosure, which is a five-page document that gives you more details about your loan, its key terms, and how much you are paying in fees and other costs to get your mortgage and buy your home.

Many of the costs you pay at closing are set by the decisions you made when you were shopping for a mortgage. Charges shown under “services you can shop for” may increase at closing, but generally by no more than 10 percent of the costs listed on your final Loan Estimate.

Here is a look at the general contents of each page of the Closing Disclosure.

Page 1: Information, loan terms, projected payments costs at closing

Page 2: Closing cost details including loan costs and other costs

Page 3: Cash needed to close and a summary of the transaction

Page 4: Additional information about your loan

Page 5: Loan calculations, disclosure information and contact information

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Buyers Guide To Closing Cost

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There are costs associated with purchasing a home. Check out a sample Closing Disclosure, which outlines terms and costs of your transaction. Here’s a review of many of the common fees.

Origination: The fee the lender and any mortgage broker charges the borrower for making the mortgage loan. Origination services include taking and processing your loan application, underwriting and funding the loan, and other administrative services.

Discount Points: Points are a percentage of a loan amount. For example, when a loan officer talks about one point on a $100,000 loan, this is 1 percent of the loan, which equals $1,000. Lenders offer different interest rates on loans with different points. You can make three main choices about points. You can decide you don’t want to pay or receive points at all. This is a zero-point loan. You can pay points at closing to receive a lower interest rate. Alternatively, you can choose to have points paid to you (also called lender credits) and use them to cover some of your closing costs.

Underwriting: Paid to the lender, this fee covers the cost of researching whether or not to approve you for then.

Appraisal Fee: This charge pays for an appraisal report made by an appraiser.

Credit report: This fee covers the cost of a credit report, which shows your credit history. The lender uses the information in a credit report to help decide whether or not to approve your loan and how much money to lend you.

Flood determination: This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance is paid separately.

Home inspection: Fee to verify the condition of a property and to check for home repairs that may be needed before closing.

Pest inspection: This fee is to cover inspections for termites or other pest infestation of your home.

Survey: The lender may require that a surveyor conduct a property survey. This is a protection to the buyer as well. Usually the buyer pays the surveyor’s fee, but sometimes this may be paid by the seller.

Title insurance binder: Commitment to issue a title insurance policy at future date.

Lender’s title insurance: The cost of the lender’s policy, which protects the lender’s investment.

Owner’s title insurance: The cost of the owner’s policy, which protects the homeowner’s investment for as long as they, or their heirs, own the property.

Settlement: This fee is paid to the settlement agent or escrow holder. Responsibility for payment of this fee can be negotiated between the seller and the buyer.

Title search: The fee to search the public records of the property you are purchasing.

Document Preparation: This fee covers the cost of preparation of final legal papers, such as a mortgage, deed of trust, note or deed.

Notary: This fee is charged for the cost of having a person who is licensed as a notary public swear to the fact that the persons named in the documents did, in fact, sign them.

Attorney fees: Both the homebuyer and the seller might have their own legal representation to prepare and record legal documents. Frequently, however, where an attorney is acting as a settlement agent, there may only be one involved in the closing. Who pays for those services is a matter of contract negotiation.

Recording fees: These fees may be paid by you or by the seller, depending upon your agreement of sale with the seller. The buyer usually pays the fees for legally recording the new deed and mortgage.

Transfer tax: This tax is collected in some localities whenever property changes hands or a mortgage loan is made, can be quite large and are set by state and/or local governments. City, county and/or state tax stamps may have to be purchased as well.

Homeowner’s insurance premium: This insurance protects you and the lender against loss due to fire, windstorm, and natural hazards. Lenders often require the borrower to bring to the settlement a paid-up first year’s policy or to pay for the first year’s premium at settlement.

Mortgage insurance premium: The lender may require you to pay your first year’s mortgage insurance premium or a lump sum premium that covers the life of the loan, in advance, at the settlement.

Prepaid interest: This is money you pay at closing in order to get the interest paid up through the first of the month.

Property taxes: Usually six months of county property taxes.

Home warranty: Fee for an insurance policy to protect you from cost of unexpected failures to the major systems and appliances in your home.

Real estate commission: This is the total dollar amount of the real estate broker’s sales commission, which is usually paid by the seller. This commission is typically a percentage of the selling price of the home.

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Home Buying process – Make an OFFER to close

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If you’ve been searching for a home for some time, you might have a sense of home values in your area.

If you’re working with a real estate agent, he or she will have access to sales prices via their subscription to the local Multiple Listing Service (MLS). What’s more, they can see what homes did not sell, which also indicates potential asking prices that were too high.

Market conditions also play a role. Hot or cold markets can move short-term prices up or down based on current demand. Prices for homes sold a month or two ago may not reflect today’s values. Beware of making lowball offers as they are often roundly rejected.

Loan Approval Or Qualified Letter

You need to attach Pre Approval or Pre Qualified Letter with the offer you submit. It’s good to have Pre-approved letter than pre-qualified letter. You can see more detail in mortgage-pre-qualified-vs-pre-approved

Offer

In Florida, offers should be made in writing, using a “AS IS” Residential Contract For Sale And Purchase. Using a legally-binding sales contract is the smartest way forward. As-Is Contract include and the necessary pieces of information the law requires, such as:
- Legal address of the property
- Purchase price and terms
- Details of the earnest money
- Contingencies
- Closing costs, including prorated taxes that may split between the buyer and seller
- Duration of offer (expiration) and expected closing date
Time is of the essence. We recommend giving sellers 24 hours to answer. A stated time in which they need to respond to your offer helps reduce any gaming so that sellers aren’t sitting around waiting for better offers to come their way. Establish an expectation that you’re not interested in playing games.

Contingencies

Smart real estate offers include contingencies; conditions that must be satisfied before the deal consummates. They also protect your good faith deposit which you can get back if the conditions you stipulate in the purchase contract are not met.

For example, while you may have been pre-approved for a loan, you’ll want to include a contingency that final loan approval must be in place before the deal closes. What’s more, the deal may be contingent upon the home’s appraised value or certain repairs the seller must make.

Here are some common contingencies:
- Final approval for financing
- Appraisals
- Inspections
- Completion of repairs
- Sale of a buyer’s existing home
- Expected move-in date
Escalation Clauses

What if the market is “hot” and sellers receive multiple offers at the same time? There’s a way to deal with that – it’s called an escalation clause. Escalation clauses spell out a willingness for a buyer to pay more than their offer price if other buyers outbid them. Clauses include an incremental bid over the competing offer along with a cap, or maximum amount the buyer will pay under any circumstance.

Here’s how it works:
- Buyer offers $250,000
- or $1,000 more than competing offers,
- not to exceed a $275,000.
Earnest Money / Good Faith Deposit

When you put a written offer on a home, an earnest money deposit typically accompanies it. Earnest money is put down and made in good faith, to indicate to the seller that you are serious about buying the house. Good faith deposits essentially pull the house off the market for any other buyers. The amount of earnest money is typically 1 to 3 percent of the purchase price or whatever is prescribed by local custom. As a buyer it is always good to have minimum earnest money deposit. Even you walk out in between you will not lose much money.

Negotiation

If the offer is reasonable, a seller might accept it immediately. However, some negotiation is likely. Many times, small items like the move-in date needs to be sorted out; nothing that will throw the deal off course.

Conversely, the offer may be rejected, or the seller comes back with a counter offer. The number of times offers and counteroffers go back and forth between buyers and sellers has no limit, but rarely does this get out of hand.

Here’s a breakdown:
- You make an offer
- Offer is accepted, rejected or countered by seller
- In the case of a counter offer made to you, you can accept, reject or keep the ball in the air by countering again
- Counter offers can go back and forth as many times as it takes until there is an acceptance or final rejection
When the buyer and seller have accepted the price and terms of a As Is Residential contract, but contingencies remain (very common), the status of the deal is considered “active under contract.” At this point, it is more likely than not that the deal goes through. However, some the remaining items below can still jeopardize the outcome.

THE OFFER IS ACCEPTED! NOW WHAT?

Here’s what happens after your offer is accepted – the remaining steps carried out in the final phase of the home buying process.

Inspections

Inspections reveal the condition of the home, not the value of it. Inspections are not required unless VA or FHA loans are used. However, inspections are highly recommended as they can reveal flaws not easily identified by sight. You’ll feel better about buying a home that is in good condition where the plumbing, electrical systems and foundation (to name a few) perform as expected. It is good to have the inspection after contract signed. Your real estate agent will guide you on this. Your offer might have mentioned the days for inspection period. If any major Issues find on the instruction you can walkout with your earnest money. In other way you can negotiate the price based on inspection result or can ask for any warranty.

Even for new construction homes, inspections are a good idea. Inspectors will look for shoddy workmanship, incomplete work, or anything not built to code.

Appraisals

An appraiser will visit the house and determine what it’s worth. Why does this matter? For home buyers that use financing (as most do), it’s important to know that lenders will not make loans in amounts that exceed the fair market value of the home. Buyers can pay more than the appraised value, but they will have to come up with the difference – in cash – between the purchase price and the loan amount.

Example:
- $300k proposed purchase price
- $280k approved loan amount
- $265k appraisal
- Result: Bank will not lend more than the fair market value of the property
What’s more, loan program guidelines state a maximum loan to value (LTV) ratio. Some programs allow ratios as high as 97%, but let’s look at an example of similar transaction where a conventional loan, with a cap of 80% LTV, is used.

Example:
- $500k proposed purchase price
- $400k approved loan amount ($100k down payment, 80 LTV)
- $475k appraised value (84 LTV)
- Result: Loan to value exceeds 80% maximum, the buyer would need to bring $120k to closing because the new maximum loan amount is $380k
These are two reasons why low appraisals can make deals go sideways, if not die altogether.

Legal Disclosures

The law requires that home buyers receive a certain number of disclosures that itemize any material facts that could affect their decision move forward with the deal. Each state has a certain number of required disclosure forms.

Here are some potential issues that may arise:
- Defects like mold, leaky roof, lead-based paint
- Pest infestation – damages to wood caused by termites or carpenter ants
- Natural hazards – seismic hazard zones, flood zones, fire risk
- Seller Property Discloser – Known facts bout the house
- Lead Based paint addendum ( Prior to 1978)
- HOA disclosure (if required)
- Condo rider (only for condo)
What’s more, sellers must divulge any known defects via a legal document called a Seller Property Discloser.

Title Report

Escrow companies will pull a title report showing the ownership history of the subject property and any encumbrances placed upon it such as liens. Title reports identify anything that would prevent you from owning the home free and clear when the deal closes and ensures that the seller owns the home and has the legal right to transfer title.

Lender Docs

Assuming you were already pre-approved for a mortgage, your lender’s underwriting team will take a final look before giving the “thumbs up” to proceed, known as “clear to close.” Your credit report is pulled again to make sure no new debts have been taken on since the initial approval.

A Closing Disclosure (formerly the HUD-1 Settlement Statement) is drafted showing all the transaction fees and impounds (like pre-paid taxes) down to the penny. If the final Loan to Value (LTV) is less than 80, mortgage insurance is ordered.

Order Insurance

Hazard insurance will also be ordered at this stage. Here’s why. Houses securitize (back) a mortgage. As the underlying asset, lenders want to protect the value of the property in case something goes wrong. Thus, lenders will require insurance coverage.

Depending upon the location of the property, flood and earthquake insurance may also be required.

Home warranties, which typically cover major systems (heating, cooling, plumbing) and appliances are not mandatory. However, many buyers choose to purchase a warranty to prevent unexpected out-of-pocket expenses.

Final Walkthrough

You’ll have the opportunity to make a final walk-through of the home before taking possession of it. Walk-throughs are not required, but recommended, to make sure nothing about the house has changed since the last time you viewed it. You have the right to review any agreed-upon repairs or double-check appliances, windows, plumbing, heating, air conditioning, etc.

Contingency Removal

If there were contingencies included in the purchase contract, the satisfaction of them would have also been specified in the AS-IS Contract. Many common contingencies would be completed as a matter of routine, such as a home inspection, appraisal, final loan approval, etc. With contingencies removed, the status of the home changes to ‘pending.’ The only left to do is finalize the deal at closing.

Closing

This is it, the moment for which you’ve been waiting. Closings typically take place at the offices of a title company and sometimes an attorney’s office. Just a heads up: there’s lots of paperwork. You’ll sign so many documents that your hand and wrist may be cramped when finished.

After the signing ceremony, down payment funds will be transferred (less the earnest money you’ve already committed) from your bank to the escrow company.
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Home Buying, Home Loans

Mortgage Pre-Qualified Vs. Pre-Approved

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Pre-Qualified
In the Mortgage process pre-qualified is the first step towards mortgage. It can be done over the phone or in the internet. It does not involve any cost.
Loan pre-qualification does not include an analysis of your credit report or it does not look past the statements you have made about your income, assets, and liabilities.
It means that a lender has evaluated your creditworthiness and has decided that you probably will be eligible for a loan up to a certain amount.

The pre-qualification letter is an approximation—not a promise—based solely on the information you give the lender and its evaluation of your financial prospects. It gives you an idea of the mortgage you might qualify for.

It can help you if you are not aware of your current financial position towards your mortgage amount

Pre-Approved advantages:
The pre-approval process begins when your lender creates a loan file with your loan application
The lender will go through your financial information like credit report, pay stubs, bank statement, salary, assets, and obligations.
After the process lender will issue the pre-approval letter for the specific mortgage amount. Your loan is contingent only on the appraisal of the home you choose.

The pre-approval letter spells out things like the maximum loan amount, loan type (conventional/ VA/ FHA) and any conditions that must be met before final mortgage approval is made. Conditions include things like a satisfactory property appraisal and proof of a clear title.

The pre-approval gives you edge over others.
The reliability and simplicity of your offer stand out over other offers

Key documents required for pre-approval process
1. Borrower Identification
  A state-issued photo ID driver’s license or identification card. All borrowers/co-borrowers must provide ID.
2. Tax Returns
  • 2 years of tax returns and W-2 forms if you work for a company.
  • If you are self-employed, then you’ll most likely be asked for a profit & loss (P&L) statement and federal tax statements for the last two years.
3. Pay Stubs
  • Provide the most recent 30 days of pay stubs or profit/loss statement.
4. Bank Statements
  Provide 2 months of the most recent, complete bank statements. Include all pages for all accounts. Statements much show your complete account numbers.
  • Savings
  • Checking
  • Brokerage statements
5. Other Documents for Pre-Approval
  If applicable, the following documents may also be requested of you:
  • Bankruptcy discharge paperwork
  • Divorce decree
  • Social Security/Disability Statement
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