Real Estate 101

This page contains a plethora of information about common questions we get from buyers and sellers. Please let us know if you do not find what you are looking for. We want this to be a great resource for YOU. Click the links below to jump to the highlighted topics, or simply scroll down the page. Note that the "real estate terms" link will open a .pdf file. This file is full-text searchable within Adobe Acrobat.

If you have questions on the process of buying or selling real estate, you may also want to visit our Buying and Selling pages.

Bookmarks on this page:
Closing Costs
Escrow
Mortgage Escrow Account
Title Insurance
Private Mortgage Insurance (PMI)
Living Trusts
Mortgage vs. Deed of Trust
Real Estate Terms

If you need help understanding any of this information, please do not hesitate to call us at 818.LVTMGRN (818.588.6476), or simply fill out a contact form by clicking here and one of our team members will respond to you shortly.

Closing Costs

There are certain standard costs associated with closing the sale of a house. Some of these fees are split between the buyer and the seller, as spelled out in the sales contract. All other fees are connected with your mortgage financing.  We will walk you through the closing costs, answering any questions you may have.

 Buyers will receive a "Good Faith Estimate" of closing costs at the time the loan application is submitted to the lender.  We will be glad to review the "Good Faith Estimate," with you, answering questions and highlighting missing costs and estimates we believe to be low or high.

Standard Closing Costs

Loan-Related Costs (Nonrecurring Costs)

• Loan Origination Fee (optional)

• Points (optional)

• Appraisal Fee

• Credit Report

• Loan Processing Fee

• Underwriting Fee

• Tax Service Fee

• Flood Certification

• Wire Transfer Fee

 Nonrecurring 3rd Party Fees

• Escrow Fee

• Loan Tie-in Fee

• Messenger/Fed-Ex/Email Fee

• Notary Fee

• Title Insurance

• Sub Escrow Fee

• Recording Fees

Recurring Costs

• Homeowners Insurance

• Flood Insurance (when required)

• Prepaid Interest 

• Pro-rated Taxes

• Tax and Insurance Impounds (when applicable)

• Private Mortgage Insurance (when required)

Escrow

To finalize the sale of the home a neutral, third party (the escrow holder, a.k.a. escrow agent) is engaged to assure the transaction will close properly and on time. The escrow holder insures that all terms and conditions of the seller's and buyer's agreement are met prior to the sale being finalized. This includes; receiving funds and documents, completing required forms, and obtaining the release documents for any loans or liens that have been paid off with the transaction. This helps to assure you clear title to a property before the purchase price is fully paid.

The documentation the escrow holder may collect includes:

• Loan documents

• Tax statements

• Fire and other insurance policies

• Title insurance policies

• Terms of sale and any seller-assisted financing

• Requests for payment for various services to be paid out of escrow funds

Upon completion of all escrow instructions, closing can take place. All outstanding payments and fees are collected and paid at this time (covering expenses such as title insurance, inspections, real estate commissions). Title to the property is then transferred to the seller and appropriate title insurance is issued as outlined in the escrow instructions. At the close of escrow, payment of funds shall be made in an acceptable form to escrow. As your real estate agents, we will inform you of the acceptable form.

Mortgage Escrow Account

A Mortgage Escrow Account is established to pay on-going expenses while there is a loan on the house. These expenses include property taxes, home insurance, mortgage insurance, and other escrow items. Generally, the Escrow Account is partially funded at closing and the homebuyer makes on-going contributions through their monthly mortgage payment.
 

Title Insurance = Peace of Mind

Purchasing a home is probably the single biggest investment you will ever make. Before closing on the house, you will want to know that no other individual or entity has a right, lien or claim to the property.

Determining that your rights and interests to the property are clear is the business of a title insurance company.

 For a modest, one-time title insurance premium, you will receive continuous title insurance protection in an amount equal to the purchase price of the property or its current market value. This premium typically includes your "owners" policy as well as the "lenders" policy.

One of the marked advantages of title insurance is that prior to a policy being issued, the title insurance company completes extensive research into relevant public records, maps, and documents to trace ownership of the property and determine if anyone other than you has an interest in the property. Through its research, the title insurance company can usually identify any title problems that may arise and have these problems cleared-up prior to closing.

Your title insurance owner's policy will describe the property and outline any recorded limitations on your ownership. It will also set forth the title insurance company's responsibilities should any claim covered by the policy terms arise. Typically, your title insurance will protect you from loss:

• if someone contests your title in legal action (the title insurance company will defend the title at no expense to you),

• or if there is a title defect that cannot be eliminated (the title insurance company will protect you from financial loss - up to the amount of the policy)

Private Mortgage Insurance (PMI) helps you get the loan

Private Mortgage Insurance, also known as PMI, is a supplemental insurance policy you may be required to obtain in order to get a mortgage loan. PMI is provided by private (non-government) companies and is usually required when your loan-to-value ratio — the amount of your mortgage loan divided by the value of your home — is greater than 80 percent.

 PMI is not a bad thing — it allows you to make a lower down payment and still qualify for a mortgage loan. In fact without PMI, many of us would not be able to purchase our first home.

How is PMI calculated?

Your PMI premium is fixed based on plan type (loan-to-value ratio, loan type, loan term, etc.) and is not related to your particular credit history or other individual characteristics. With a 10% down payment, PMI typically amounts to about one-half of one percent of your mortgage amount annually, according to the Mortgage Bankers Association, and the premium payment is usually rolled into your monthly mortgage payment. On a $200,000 mortgage, you may be paying $1,000 per year for PMI.

Living Trusts

Created while you are alive, a revocable living trust lets you control the distribution of your estate. Ownership of your property and assets is transferred into the trust. You can serve as trustee or you can appoint another to serve as trustee. If you serve as trustee, you must appoint a successor to serve as trustee upon your death.

Properly drafted and executed, a revocable living trust can avoid probate and delays as the trust owns the assets not the deceased. Consult with your attorney and/or CPA before deciding a revocable living trust is the right choice for you.

Advantages to a Living Trust Holding Title

• A husband and wife can establish a joint revocable living trust.

• While the trustor serves as a trustee or a co-trustee, a separate tax return is not required for the trust.

• The revocable living trust allows the trustee to buy, sell and finance assets just as before.  

• In the event of incapacitation, management of the living trust passes to the successor trustee without the necessity of a court-appointed conservator. 

• The living trust can be cancelled or changed at any time before death or incapacitation. 

• Probate - including multi-state probate - is avoided when assets are held in a living trust. (Often probate takes 9 to 12 months.) 

• Privacy. When a decedent dies with a living trust, the provisions of that trust usually do not become public. 

• Litigation is discouraged by a living trust.

• A married couple with a living trust can reduce or eliminate federal estate taxes by setting up an Exemption Trust. While both are alive, the assets remain in the revocable living trust. Upon the death of a spouse, the trust is split into two trusts: the survivors trust and an exemption trust. (For tax purposes, the surviving spouse and the exemption trust are two separate taxpayers.)

Disadvantages of a Living Trust

• A living trust will cost more to set-up than an estate plan with only a will.

• A trust agreement with a new will must be set-up. 

• Transferring assets into the living trust will require paperwork and incur costs not encountered with a less elaborate estate plan. 

• Handling an Exemption Trust may require extra effort from the surviving spouse. 

• Some lenders may require property held in a living trust be removed from the living trust to refinance the property.

Common Terms

• Trustor: Creates the revocable living trust and transfers major assets into it. (A husband and wife can have a joint living trust or each can have their own living trust.)

• Trustee: Manages the living trust's assets.

• Beneficiary: Receives the assets of the living trust.

• Initially the trustor, trustee and beneficiary are the same person(s).
   

Mortgage vs. Deed of Trust

Many of us incorrectly call our home loan a mortgage, but in fact, a mortgage is not what your lender gives you to buy a home. A mortgage is actually the formal document proving the legal claim or lien on a piece of property that you give to the lender who holds it as security for the money you borrowed. The lien is recorded in public records. On a mortgage, you pledge the property as security for the repayment of your loan, but you do not transfer title to the lender.  

If you (the mortgagee) repay your loan in accordance with the terms of the mortgage, it is canceled or satisfied by the lender (the mortgagor). However, if you do not repay your debt, the lender has the right to sell the secured property to recover funds through a court proceeding called foreclosure.

In some states, a deed of trust is used in place of a mortgage. While a mortgage involves two people (the borrower and the lender) a deed of trust involves three people - the borrower (or trustor), the lender (the beneficiary) and a trustee, a neutral third party, such as an attorney or a title agent. The deed of trust is also recorded in public records.

In a deed of trust transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the loan to the lender. The deed of trust is cancelled when the debt is paid. However, if you default on your payment of the loan, the trustee may sell the property at the request of the lender without a court proceeding.

Real Estate Terms - Clicking will open the terms in a .pdf file.

If you have questions on the process of buying or selling real estate, you may also want to visit our Buying and Selling pages. If you need help understanding any of this information, please do not hesitate to call us at 818.LVTMGRN (818.588.6476) or simply fill out a contact form by clicking here and one of our team members will respond to you shortly.