top of page

Frequently Asked Questions

Everything You Need to Know

“Realtor” is the symbol of a professional in the real estate business. Many people use the term Realtor synonymously with ‘real estate agent’ or ‘salesperson’. This assumption is incorrect. Not every real estate agent is a Realtor. Realtor is a designation that applies to one who pursues continuing education, abides by a strict Code of Ethics, stands for private property rights, and opposes discrimination in housing. You may be aware that Realtors are required to hold a state real estate license, but there are many other designations that a well-educated Realtor can hold. To become a licensed real estate agent, one must meet minimum requirements outlined by state statutes. To renew a real estate license, the state’s real estate commission requires that an active agent take a required number of continuing education courses every three years. A Realtor organization is based upon a Code of Ethics to which each member agrees to adhere. Within the Code are provisions that govern fair housing, professional conduct, and advertising. Realtors also work as “watchdogs’ for legislation that negatively affects private property, property taxation, and real property rights in relation to buying and selling land and homes. Realtors are the true professionals in real estate.  For a more detailed explanation, click here.

When you are prequalified, the lender gives you an estimate but does not formally commit to giving you a loan. Sellers often want to see that a buyer is prequalified for a loan, before they agree to accept the buyer’s purchase offer.

The Real Estate Settlement Procedures Act requires the lender to disclose certain information about a loan, including the estimated closings costs and Annual Percentage Rate.

You can build equity in three ways. First (and easiest) is from market appreciation. Second, when making your monthly mortgage payment, try to send a little bit more. This will go directly to the principal of the loan, rather than the interest. Be sure your lender knows to put the extra toward principal, and not the next month’s payment. Even an extra $50 per month can quickly build equity, as well as knock years off of your loan. The third way to build equity into your house is to make improvements. There are a variety of ways to remodel and make positive changes to the interior and exterior of your home. One of the best ways is to add square footage/living space.

MLS stands for Multiple Listing Service. It’s a network of real estate listings in an area, where buyers can (through a Realtor or the Internet) view what is available in their price range, and with the features they are looking for. It is a system usually run and supported by the local Real Estate Board that has details of almost every home, land, and business listed for sale with a real estate agent.

DOM stands for “Days on Market”. This number allows buyers to see how long the property has been for sale. Some people believe that the longer a property has been on the market, the more motivated a seller might be.

A debt-to-income ratio is important to your lender. To figure out where you stand on the ratio, you must first understand the meaning of the figure. Lenders use various ratios, but the most common is 28/36. The first number, (also known as the front-end-ratio) is the percentage of your gross monthly income that you could comfortably afford to spend on your housing payment. This figure includes escrow for taxes and insurance. The second number, (also known as the back-end-ratio) is the percentage of your gross monthly income that should be spent on all long-term monthly debts combined.

Lenders look into your credit rating, debt/income ratio, and many other documents to determine how much you can borrow. In addition, loan qualifications have been changing over the last year or so. As a rule of thumb, you’ll need to determine your gross income (before taxes) for all people that will be on the loan (borrower and co-borrower). Multiply this number by 2 to 2.5 This will give you a general idea of what you might qualify for. If you have a large down payment combined with little to no debt, the lender may believe that you can afford a more expensive home than this rule of thumb.

Earnest money is something of value (called “consideration”) that a buyer puts forth to bind an agreement, such as the sale of real estate. Earnest money is forfeited by the buyer if he or she fails to carry out the terms of the contract. It’s up front money from a buyer to show a seller that the buyer is serious about the purchase. The money is usually deposited into an escrow account and is usually applied toward the buyer’s down payment.

Closing costs are expenses incurred by buyers and sellers when the ownership of the property is transferred. These are usually negotiable items as to who will be responsible for their payment. Examples of closing costs include recording fees, documentary fees, real estate commission, taxes prorations, settlement fees, and title insurance.

Contingencies are “what ifs” in a real estate purchase and sale contract. They allow a buyer or seller to void the contract if certain items aren’t met. Examples of real estate contingencies are appraisal, inspection, house sale, and loan approval contingencies.

An acre of land is an area of land equal to 43,560 square feet. It is often compared to the size of a football field (without the end zones). One square mile is equal to 640 acres, called a “section”.

The best answer is “as many as it takes to find a home that works for you”. Purchasing a home will most likely be the single largest investment you will make, so it is important to make sure you find a home that meets your current and future needs. It’s best not to look at just one home, but also not to look at more than 6 or 7 in one day. It’s common to confuse the features if you view too many in one day. Bring a notepad and pen and take notes on your likes and dislikes of each home.

Title Insurance insures a buyer that he or she is getting clear title to the property without any liens or encumbrances. A title insurance company researches the county records to see what has been recorded on the property. The title commitment will show what loans need to be paid off and what restrictions, if any, are on the property. The cost is determined by the sale price and varies with insurers. Typically, the seller pays for the policy, and any endorsements required by the buyer’s lender are usually a buyer’s responsibility.

What are comparables or "comps"?

Recently sold properties that are similar in size, location, and amenities to the home for sale are considered “comps”. You may hear this word when an appraiser or Realtor is helping to determine the fair market value of a property.

Also known as “hazard insurance”, homeowners insurance covers losses caused by fire, hailstorms, or other casualty on the property. Lenders usually require the buyer to have insurance in an amount equal to or greater than the loan amount. Flood insurance is required by the lender if the property is in a flood hazard area/flood plain. Condominiums and townhomes are somewhat different, as certain items may be covered by the homeowner’s association fees.

Mortgage life insurance is optional and is usually term life insurance that is obtained in the amount of the loan on the home. Paid for by the buyer/borrower, it is usually taken out in an amount that will pay the house loan off, if the buyer dies.

A loan commitment letter is given by the lender to the borrower stating the terms under which the lender has agreed to the loan. This is often considered “loan approval” which will allow the buyer to proceed with consummation of the real estate purchase.

Home warranty plans can be purchased at the time a home is bought. They usually cover major items in the home such as the furnace and appliances. It is not a replacement for homeowners insurance, but can provide additional coverage for some items.

An appraisal is an estimate of the value of a piece of property by a licensed, trained, and experienced individual called an appraiser. They are usually required by a lender to determine how much the property is worth in ascertaining how much they will loan on the property.

A prepayment penalty is a penalty fee charged to the borrower for paying off a mortgage early, thus allowing banks (or owners, if they do the financing) to still make money off of the loan. Most loans these days do not have prepayment penalties, but it is advisable to check into this before signing any loan paperwork.

The closing is the culmination of everything in a real estate transaction. It’s where the title, known as the deed, transfers from seller to purchaser. Closings may be held at a title company, or at the real estate agent’s office. The title company researches the chain of title to the home. Assuming the title is clear, all inspections are satisfactory, and all contingencies have been met, the title company (closing/escrow agent) will facilitate the closing by providing an explanation of documents to be signed, collection of and disbursement of funds, and a last minute check by the title company to make sure that a clear title to the property will be transferred.

Webster defines a covenant as “a formal binding agreement”. When property is recorded at the county Courthouse, covenants become “deed restrictions” that pass with transfer of ownership of the property. Also known as CC&Rs (covenants, conditions, and restrictions), these documents should be read thoroughly prior to entering into a home or land purchase agreement. That shed, fence, or guest home may not be allowed. When purchasing land, watch for minimum building square footage on proposed homes. However, some people prefer the freedom of having no deed restrictions. Although most newer subdivisions have adopted covenant controls, there are many areas without them. If such controls are objectionable, covenant controlled areas may be places to avoid.

When purchasing a home, it is important to perform a thorough assessment of the home’s structure, equipment, and surroundings. Real estate purchase contracts provide appropriate language to protect buyers from purchasing a structurally unsound home, while at the same time protecting sellers from liability. An inspection can be made by an inspection service company, or a buyer may choose to inspect the home him or herself.

The Real Estate Settlement Procedures Act requires the lender to disclose certain information about a loan, including the estimated closings costs and Annual Percentage Rate.

bottom of page