Buying a Home Part 1
Buying a home is an exciting time, but the homebuying process can also be complex. Many factors affect how long the purchasing process actually takes, but there are a few steps that are universal in most home purchases:
- Decide if you’re ready: determine your financial readiness and become a good mortgage candidate.
- Get a pre-approval letter and set your budget: a preapproval letter tells sellers that a lender believes you qualify for a specific mortgage, thus speaking to your buying power.
- Decide on a property: A real estate professional can help you narrow down potential properties after you determine your budget and what you really want in a home.
- Make an offer: Your budget isn’t just about price; you can also negotiate necessary repairs, which party pays for closing costs and other items.
Buying a Home Part 2
You made an offer on a home and the seller has accepted. There are still some steps to complete before you can close the transaction and move in.
- Sign a purchase agreement: Also called a sales contract, this document outlines the details of the sale and is held by your attorney or escrow officer until the transaction closes.
- Inspect the home: You may wish to schedule a buyer’s home inspection, wherein you can get a professional opinion of the condition of the home.
- Check repairs and prepare to close: A final walk-through of the home will help you make sure that agreed-upon repairs were made and other items in the purchase agreement were fulfilled.
- Close the transaction: At closing, your lender may require you to purchase homeonwers insurance. This is also when you can purchase an owner’s policy of title insurance, which will help protect you from past issues that could affect your ownership rights.
What is Title Insurance
So what exactly is “title insurance”? Well, when a property is financed, bought or sold, a record of that transaction is generally filed in public archives. Likewise, records of other events that may affect the ownership of a property, like liens or levies, are also archived. When you buy title insurance for your property, a title company searches these records to find – and remedy, if possible – several types of ownership issues.
First, the title company searches public records to determine the property’s ownership status. After this search, the underwriter will determine the insurability of the title.
Even the most skilled title professionals may not find all problems associated with a property, though. Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify. So after the title company finishes its searching, it also provides insurance title policy that will help protect you from a variety of issues that might be uncovered later.
If you take out a mortgage loan when you buy your property, your lender will require a loan policy of title insurance. This protects the lender’s interest in your property until your loan is paid off or refinanced.
On the other hand, an owner’s policy of title insurance insures your ownership rights to the property. Even though you’ll pay for this policy only once, your coverage will last as long as you own your home. A real estate purchase may be the largest financial investment you ever make. So, when you buy an owner’s policy of title insurance, just think of it as buying some peace of mind!
The Cost of Title Insurance
You may know how traditional insurance models work, but the title insurance process differs greatly from property and casualty insurance, like health or auto. This is because:
- Title insurance helps eliminate past risk, rather than assessing the probability of future risk
- Title insurance claims are less common than other types of insurance claims, due to the fact that risk mitigation is performed as part of the title insurance process
- Title insurance providers search public records and court documents to assess and remove (if possible) any “clouds” or title issues on a property.
- A large portion of your policy’s cost (90 percent according to the American Land Title Association) actually goes toward the search and examination process.
- An owner’s title insurance policy is a one-time purchase, and remains active as long as you hold interest in the property.
- In most states, the cost of an owner’s policy is based on the home’s price, while a lender’s policy is based on the amount of the loan.
Get more information by calling a First American Title office in your area, or use First American’s Title Fee Calculator, located at firstam.com.
Types of Title Insurance
Your closing costs might include two types of title insurance policies, but do you know how these policies differ?
Loan policy: Your lender requires title insurance when you secure a mortgage. A loan or lender’s policy protects the bank or lending institution for as long as they maintain an interest in your property—typically until your mortgage is paid off. If you refinance your loan, you’ll need to purchase a new policy to cover the new loan.
Owner’s policy: An owner’s policy of title insurance helps protect your rights as the homeowner for as long as you or your heirs own the property. In some areas, it’s standard for the seller to purchase the owner’s policy for the buyer, whereas in other areas the owner’s policy is a recommended buyer purchase.
The Title Search Process
If you’ve ever purchased a home, you have likely also purchased title insurance. But do you know what it really takes to properly insure the title to your property? A few things you may not know about the process:
- A title order begins with an in-depth search starting with a review of public records.
- The search can be complex because, depending on your geographic location, property information may be filed any number of ways.
- Title companies, like First American, have created systematic search methods and large information databases that lead to faster and more accurate research.
- Title searches uncover possible title issues, like liens, judgments and information on prior loans, sewer assessments taxes and other issues.
- Newly constructed properties still require a thorough search, as the land has likely changed hands many times, and there is no guarantee that subcontractors or suppliers have not placed liens on the property.
- The data collected from a title search helps reduce the risk of future title problems with your home and makes your title policy—and the process of underwriting it—a valuable investment.
Common Title Problems
Have you ever wondered why you need title insurance? Title problems can surface after you close on your home and affect your homeownership rights. Some of the more common title problems include:
- Errors in public records, like a filing mistake or inaccuracy on a former deed
- Unknown liens resulting from unpaid debts of former owners
- Missing heirs who come forward years after the owner passes away and you’ve purchased the home
- Forgeries, like forged or falsified documents
- Survey or boundary issues that may affect your ownership and cause disputes
Title professionals are skilled at identifying—and curing, if possible—these types of problems and countless others before you take ownership. Your title policy then serves to help protect you from those issues that may still remain undiscovered.
How to read a Commitment for Title Insurance
Once you’ve opened escrow on a property, you will receive a commitment for title insurance. This will describe the terms under which a title policy will be issued.
The title commitment will include items such as the owner’s name, property legal description, any exceptions to the title policy and the requirements which must be completed before we can issue a title policy. One example of a requirement is the release of a deed of trust securing a loan. The loan must be paid in full in order to secure a release and issue a title policy.
It is important to review your title commitment and understand any exceptions or exclusions from title policy. Your title representative or escrow officer can help you with any questions about your title commitment.
What is Escrow Part 1
Buying a home is an exciting event, but the process of completing that purchase can be complex. When you make an offer on a property and sign a sales agreement with the seller, the next step is to open an escrow account.This account keeps funds and paperwork in the care of a neutral third party – like an escrow or title company – until all the requirements of the sale have been met. Watch this video to learn more about the process, keeping in mind that many aspects of the escrow process vary depending on local customs.
What is Escrow Part 2
To complete the purchase of your home, you’ll have a major role to play throughout the escrow process. Your escrow officer will be required to follow the closing instructions and meet the requirements outlined in the sales contract you and the seller previously signed. It’s important to direct any questions regarding the escrow process to your escrow officer, and any questions about your loan directly to your lender. Watch this video to learn more about closing your transaction. And congratulations on your new home!
Good Faith Estimate
When you apply for a mortgage, your lender will send you what’s known as a Good Faith Estimate, often called a GFE. The GFE:
- Is a standardized government form that lets you review your potential loan and estimates the cost of settlement services
- Gives you an easy-to-read breakdown of your loan, including interest rate, origination charges, title insurance costs, transfer taxes and other associated costs
- Breaks down your closing costs and shows which costs are fixed and which may change
- Features a tradeoff table to compare different loan options from your lender
- Features a shopping cart to help you compare loans from various lenders
Buying a home can be complex. Your GFE can be a great tool to help you navigate and compare costs and assist you on your way to homeownership.
Understanding the HUD 1
When it’s time to finalize your home purchase, a settlement agent will prepare a HUD-1 Settlement Statement. This standard form lists the costs involved in your transaction and notes who is responsible for each. This 3-page guide helps you:
- See basic transaction information like names, addresses and loan type at a glance
- View an outline of the costs for each party to the transaction (except in some areas, where HUD-1 statements are prepared individually for the buyer and the seller)
- Note details on costs and other figures, including: real estate broker fees, appraisal fee, origination charges, advanced payment of homeowners insurance or interest fees, reserves deposited with the lender, title insurance charges and government recording and transfer charges
- Compare actual charges to the approximations you received in your Good Faith Estimate
Walking through your HUD-1 with a knowledgeable settlement services professional can help you better understand the closing process. Don’t hesitate to ask questions or point out discrepancies.
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- Can Lenders Request More Information?
- Do Lenders HAVE To Approve In 3 Days?
- TRID: What Is A Business Day?
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- Refunds: If Your Loan Exceeds Your Estimate
- Can Creditors Revise Loan Estimates?
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- Loan Estimates: Terms, Payments, Closing
- Loan Estimates: Loan Costs
- Loan Estimates: Services You Can't Shop
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- Calculating Your Cash To Close
- Understanding Loan Estimate Comparisons
- Your Rights For Closing Disclosures
- Closing Disclosures: Understanding Page 1
- Closing Disclosures: Closing Costs
- Closing Disclosures: Understanding Summaries
- Closing Disclosures: Important Additions