I.                   Common Real Estate Terms

A.     Interest Rate – The percentage of the loan amount that is due on a yearly basis.

B.     Annual Percentage Rate or APR – This is the same as interest rate but with the loan related closing costs included.

C.    Discount Fee or Points – The fee paid as loan closing costs to lower the yearly interest rate of the loan.  Usually expressed as a percentage of the loan amount.

D.    2/1 Buydown – Up front money can be paid to reduce the interest rate by 2% for the first year 1% for the second year.  This is often paid by new home builders as an incentive for the buyer.

E.     Down Payment – The initial money paid to reduce the amount of the loan.

F.     Loan-to-Value or LTV – A ratio which is expressed as a percentage of the loan amount divided by the value of the property.

G.    Origination Fee – The fee charged by the mortgage company to do the loan.  Sometimes this fee can be lowered or waived.

H.     Appraisal Fee – The fee charged by the mortgage company to get the property appraised for value by a licensed appraiser.

I.         Flood Certificate Fee – The fee charged by the mortgage company to determine if the flood plain status of the property.

J.      Improvement Location Certificate Fee – The fee charged by the mortgage company to get a drawing made that shows the location of the home in relation to the land.  This is not always required.

K.     Credit Report – The report showing the credit history based upon the results of the three major credit agencies

L.      Time is of the essence – The dates called out in the contract are adhered to.  Changes to the contract must be made to alter the dates.

M.    Arrears – A bill or some obligation that is paid at the end of the time period for which the bill applies.

II.                 Loan Comparison

Comparison Item	VA Loan	FHA Loan	Conventional Loan
Available to	Veterans and current armed service personnel	Anyone	Anyone
Loan related closing costs	Some that buyer cannot pay Buyer pays most but can ask seller to pay	Little that buyer cannot pay Buyer pays most but can ask seller to pay	Most paid by buyer Buyer pays most but can ask seller to pay
Down payment	None required	3% minimum	As little as zero Depends upon the loan program chosen
Loan Limits	$359,650 maximum Based on credit, income and debt	$197,980 maximum Based on credit, income and debt	Based on credit, income and debt
Origination Fee	Yes	Yes	Yes
Up-Front Fee based upon the loan amount	Funding fee of 2.15% or 3.15% Can be financed into the loan Can be waived if veteran is disabled	Mortgage Insurance Premium (PMI); about 1.75% Can be financed into the loan Waived if LTV begins at 80% or lower; except o n Condos	None
Monthly fees besides interest	None	Mortgage Insurance Premium (PMI) Monthly about 0.5% until LTV below 78% Waived if LTV begins at 80% or lower	Private Mortgage Insurance (PMI) Monthly about 1% until LTV below 78% Waived if LTV begins at 80% or lower

III.              Loan Process

These basic steps can vary somewhat depending upon which mortgage or real estate companies you talk to.

A.    Pre-Qualification

This is based upon the credit, income and debt information given by the buyer.  It is usually unverified by the loan officer at this time.  This information determines the price range that will be used when searching for a property.

B.     Pre-Approval

This is the same as pre-qualification but with credit history information from a credit report.  This information is enough for the loan officer to provide a lender letter stating the buyer’s ability to purchase.

C.    Loan Application

At this step the person provides all personal information as needed including pay check stubs, bank account statements, W-2 forms, income tax returns, type and amount of loan needed, property being used as collateral, etc.  This information along with the information gathered at the previous two steps is used.  This must be done by a certain date as specified in the buy/sell contract.

D.    Loan Commitment

The mortgage company is obligated to commit to the loan by a certain date according to the buy/sell contract.  There may be additional items that the person must do to get the loan.  These are called loan conditions.

E.     Funding

The funding of the loan takes place at closing.  If the person has complied with all the mortgage company request for information and no new credit history issues have come up then the loan will be given.

IV.             100% Financing Options

A.     VA Loans – The VA will allow a buyer to finance at 100% plus the funding fee.

B.     80/20 Loans – 1^st mortgage with 80% of the sales price and 2^nd mortgage with the remaining 20% of the sales price.  The interest rate on the 2^nd mortgage is usually higher.

C.    CHFA – Colorado Housing Finance Authority - An organization that pays your down payment for you.  You do not have to pay it back until you sell your home or refinance.  There is no interest for this service.  There are specific rules regarding who is eligible, length of ownership required, what you can do with the property and penalties.

D.    El Paso County Bond – The county of El Paso has a program to help first-time home buyers with down payment and closing cost.  Up to $10,000 can be used.  The buyer must qualify and fulfill their requirements.

V.               Negotiation

A.     Your first offer should be your best offer – When there is a chance that the seller will be able to review more offers besides yours, then make your initial offer the best offer you can make.

B.     Counter Proposal – This is the offer that the seller makes to change your initial offer.  Sometimes this can be done verbally but then would be followed up with signed documents.  The buyer can change the counter proposal with their own changes.

C.    Buyer’s Market – When there are more sellers than buyers.  The buyers can typically offer less.

D.    Seller’s Market – When there are more buyers than sellers.  The sellers can be more selective of the offers that they accept and can demand full price and get it.

E.     Earnest Money – In the form of a personal check or a promissory note and sent with the offer.  The listing company deposits it into their trust account but only after the offer has been acceptance by both buyer and seller.

F.     Things to Consider when making your offer

1.      Comparative Market Analysis (CMA) – This is done by your agent to determine the fair market value of the home in the current market.  Homes in the area that sold in the past 6 months are compared to the home.

2.      Vacant Home – The sellers have moved out and are living somewhere else making another mortgage or rent payment.  – OR – The sellers had their renters move out and they are now making the mortgage payment.  In either case, the sellers are more likely to be willing to accept a lower price for the home.

3.      Time on market – The longer the home has been on the market the more willing the sellers are to accept a lower price for the home.

4.      Price Reductions – Over time the home will be reduced in price to encourage additional buyers to be interested in it.  The home may be due for another price reduction.

5.      Market conditions – General conditions in the overall real estate market may affect the price of the home.  The national and Colorado economy as well as interest rates may affect the price as well.

6.      Other offers – If a seller has an offer in process or coming then you may want to make a slightly better offer so your offer will be selected instead.

7.      How much buyer wants property – The buyer may offer more for the home in order to minimize the chance of not getting the offer accepted.

8.      Resale value – The length of time that you hold the property and the future market conditions will affect the future resale value.

9.      Location – The location of the property will affect its value and how easy it will be to sell to someone else.

VI.             Contract Terms

A.     3^rd Party Compensation – The broker is only being paid by the transaction not by any other parties.

B.     Assignment of Contract – The contract cannot be given to someone else instead of the signers without written permission from all parties.

C.    Discrimination – The broker cannot discriminate nor help the client discriminate based upon race, creed, color, sex, martial status, national origin, familial status, handicap, religion, or ancestry.

D.    Megan’s Law – It is the responsibility of the client to investigate the presence of any sex offenders in the area of concern.

E.     Mediation – Parties agree to meet with a mediator to discuss any contractual differences.  This is non binding so both parties must agree to the decision.

F.     Counterparts – Signers of a contract can sign different physical copies of the same document and it will still be enforced.  Together they are the same as if all signers signed the same physical copy.

VII.         Agency

A.     In Company Transaction – When the buyer and the seller are represented by the agents of the same company.  When the same broker represents both the buyer and the seller then the broker can represent both as a transaction-broker.

B.     Agency and Transaction-Broker Comparison

1.      Coach vs. Referee – A buyer or seller agent can act like a coach would in a competitive game.  When the same broker represents both the buyer and the seller as a transaction-broker then it is more like the role of referee in a competitive game, facilitating the game and being fair to both sides.

2.      Advocate vs. Negotiator – A buyer or seller agent can be your advocate but a transaction-broker can be more like a negotiator.

3.      Duties and Services

Duty or Service	Buyer Agent	Seller Agent	Transaction-Broker
Seek a price and terms acceptable	Yes	Yes	No
Assist in the completion of the offer	Yes	Yes	Yes
Present all offers	Yes	Yes	Yes
Disclose adverse material facts	Yes	Yes	Yes
Counsel as to benefits and risks	Yes	Yes	No
Advice to obtain expert advice	Yes	Yes	Yes
Account for any money or property	Yes	Yes	Yes

C.    How to Avoid Transaction-Brokers

1.      Sign calls – Avoid calling the listing agent from a sign.  Remember initially the listing agent represents the seller.  You want to be represented too.

2.      Advertisement calls – Normally listing agents advertise for their own properties.  Remember initially the listing agent represents the seller.  You want to be represented too.

3.      Default position – If you have not entered into a written agreement with an agent then you are being represented as a transaction-broker.  Agree to have you agent represent you as an agent.

VIII.      Closing Costs

A.     Pre-Paids

1.      Hazard Insurance – One year is paid in advance plus an additional 3 months for the reserve account.

2.      Property Taxes – Three months worth is put into the reserve account.

3.      Interest – The buyer pre-pays for any interest from the closing day until the 1^st of the following month.

B.     Recording Fees

1.      Warranty Deed – This is for the title.

2.      Deed of Trust – This is for the loan.

C.    Loan Fees

1.      Origination Fee

2.      Appraisal Fee

3.      Flood Certificate fee

4.      Credit report fee

5.      MIP – FHA loans

6.      Improvement location certificate fee

7.      Various loan fees like underwriter, processing, and closing fees

D.    Title Company

1.      Title Insurance

2.      Title Insurance rider fees

3.      Tax certificate fee

4.      Tax service fee

E.     Miscellaneous Fees

1.      Documentary Fee - $.01 per $100 of sales price

2.      Home Inspection

3.      Home Warranty – Can cover the seller while selling the home and the buyer for 12-14 months after buying the home.

IX.            Sell / Buy Dilemma

A.     List first then buy

1.      List old house with agent

2.      Get under contract – allow extra time to find and buy a new home

3.      Search for new home

4.      Make offer on new home – make closing near same day as old home

B.     Buy first then sell – This approach can be more costly.

1.      Find new home

2.      Make offer on new home – make contingent upon sell of old home during a reasonable amount of time

3.      List old home

4.      Old home does not sell in time

a)     Lower price of old home

b)     Remove contingency on new home (puts earnest money in jeopardy

X.               Home Selection Process

A.     Search the MLS database using general criteria.  Include any FSBO as available.  1,000’s can be reduced to less than 100.

B.     Review possible homes on the screen as needed.  Can be reduced to less than 30 choices.

C.    Print out as needed for further review.

D.    Choose at least 5 to see in person.

E.     Visit each one and make a selection.

F.     Do a CMA to determine the current value and establish a fair price.

G.    Things to consider as you are narrowing down the choices.

1.      Value

2.      Location

3.      School District

4.      Neighborhood

5.      Resale potential value

6.      Listed price

7.      Square footage of home

8.      Size of lot

9.      Other features as to your taste

XI.            Home Buying Process

A.     Financing

1.      What type of loan, what loan maximums, what terms?

2.      How much do you want to put down and borrow?

3.      Credit issues?, get well plan, stay well plan

4.      What should my house price range be?

B.     Find House

C.    Make an Offer

D.    Apply for the Loan

E.     Home Inspection

F.     Appraisal

G.    Walk-Thru Inspection

H.     Review Closing Settlement Statement

I.         Closing Day

XII.         CMA – Comparative Market Analysis

A.     Select at least 3 homes with the following criteria

1.      Have sold in the last 6 months of the offer date

2.      In the same area as the subject home

3.      About the same size and style as the subject home

B.     Compare the subject home with the 3 selected homes in the following areas

1.      Bathrooms

2.      Finished square footage

3.      Unfinished square footage

4.      Fireplaces

5.      Garage spaces

6.      Air conditioning

7.      Age of home

C.    Assign monetary values to the 3 selected homes

1.      Add monetary value when the selected home is worse than the subject home.

2.      Subtract monetary value when the selected home is better than the subject home,

3.      No change in the monetary value when the selected home is the same as the subject home.

D.    Tally up the price of each selected home by adding or subtracting each monetary value feature as needed.

E.     Take an average of the tallies to determine the final value of the subject property.  A particular selected home may hold more weight because it is a better match to the selected home.

XIII.      Important Dates in an Offer - Time is of the essence

Date ()	Description	Action Required by Buyer	Action Required by Seller
Acceptance Deadline	The date that the offer must be accepted by the seller.		X
Loan Application Deadline	The date that the buyer must have applied for the loan.	X
Seller’s Property Disclosure Deadline	The date that the seller must have filled out the Seller’s Property Disclosure document and given to the buyer		X
Inspection Objection Deadline	The date that the buyer must have filled out the Inspection Notice and given to the seller	X
Resolution Deadline	The date that the seller must have responded to the Inspection Notice identifying what items will be corrected.		X
Property Insurance Objection Deadline	The date that the buyer can terminate the contract if hazard insurance is not acceptable.
Appraisal Deadline	The date that the mortgage company must have the appraisal on the property completed.
Loan Commitment Deadline	The date that the mortgage company must have given the buyer the commitment of the loan with any conditions.  The buyer must give the seller written notice if they cannot get the loan.	X
Closing Date	The date that the buyer and the seller go to the title company to sign all final documents to complete the transaction.	X	X
Possession Date / Time	The date and time that the seller must vacate the property and the buyer will take possession of the property.	X	X

XIV.      Property Taxes

A.     Based on the value of the land and home

B.     Paid in arrears – after the tax year is completed for the previous year

C.    Payment Methods

1.      First half of taxes due by 28 Feb for the previous year

2.      Second half of taxes due by 15 Jun for the previous year

3.      Full amount of taxes can be paid by 30 Apr for the previous year

D.    Prorated for current year

1.      Seller pays up to the day before closing

2.      Buyer pays for the day of closing

E.     Unpaid taxes are put into reserve account maintained by the mortgage company

XV.         Your Monthly Investment

A.     Principal – Starts out small and gets larger as time moves on

B.     Interest – Paid in arrears – for the previous month – Starts out large and gets smaller as time moves on

C.    Taxes – 1/12 of the year taxes; This can change when the taxes are changed.

D.    Insurance – This is the hazard insurance for fire, hail, some water, theft, liability, etc.  This can change as coverage or the value of the home changes.  This is paid every year on the closing date to cover the home for the following year.

E.     These first four items are called PITI.

F.     MIP for FHA loans and PMI for conventional loans

G.    Impound or Reserve account – Maintained by the mortgage company to cover the payment of the hazard insurance and property taxes.  When the home is sold you get this money returned to you.

H.     The sum of the principal and the interest remain the same through out the life of the loan.