499 Week 5 A/ For WIZARD KIM

Executive Summary

The final exchange that occurs during the purchasing and selling of reals estate is what is called real estate closing. Various terms are sued during the process of real estate closing, and such terms include title search, deed of trust, mortgage, and warranty (Bannerjee, 2013). The title search determines who has the rights of ownership of the property. It helps to confirm the current owners and determine if the property has liens against it. A deed of trust is an agreement between the buyer and the lender that the home buyer will repay the loan (Bannerjee, 2013). In case the home buyer defaults to pay, the trustee carries out non-judicial foreclosure to recover the money.

A deed of trust helps the buyer to be committed to pay the loan to get home. It has a disadvantage in that the buyer loses the home if they fail to pay the loan (Bannerjee, 2013). A mortgage is a loan given to the home buyer by the lender where an agreement is signed (Ghent, 2011). The mortgage also involves a trustee. The buyer gets home if they pay the full loan, but they lose the home if they default in paying the loan. A warrant is a cover to the home buyer for break down in systems and appliances in the home (Steiger, 2009). It gives the buyer peace of mind since they know they are covered. Sellers who offer warranty standout in the market. 

Real Estate Closing

Real estate closing refers to the final exchange that occurs when selling and purchasing real estate occurs. Transfer of the title deed to the buyer is done. Additionally, the transfer of insurance policies and financial documents is occurs (Bannerjee, 2013). The terms used in real estate closing include title search, deed of trust, mortgage, and warranty.

Title Search

A title search is a process of determining the rights for a real estate property, and who the rights belong to (Bannerjee, 2013). All the title records that apply to the property are searched to determine if the title is good. Hence, it becomes possible to know whether the person who holds the property has the right to do so. A title search is essential to the seller, real estate agent, buyer, and the closing agent.

Why it is Important

1 It helps to determine if the property has any Liens against it

Liens refer to the ownership of property that belongs to another person until they pay the debt. Searching liens helps to determine if the property has registered mortgages against it and who issued the mortgage (Bannerjee, 2013). Any undischarged mortgage has to be discharged before the deal can be closed.

2 Determination of bylaws registered to the property

It is essential to know if there are any bylaws registered to the property. If the home has bylaws attached to it, there are certain things that you cannot do (Bannerjee, 2013). For instance, the look or particular features of the home cannot be changed and that is protected under the law. Additionally, it is good to consider whether the home is strictly for residential purposes or can be used partially for commercial purposes. Also, it is good to find out if the property can be divided or not.

3 It helps to find out any easements on the property

“Right of way” is the other way to think about easements. For instance, your immediate neighbor has right to use the driveway to access their house or the road. The neighbor has the right to access the driveway as many times as you if it is between your homes (Bannerjee, 2013). It is hence essential to find this out since issues like blocked driveways occur. Besides, there might be an issue of driveway repair.

4 It helps to confirm the property identification number and the legal description

Identification of the legal description and property identification number is a very important step legally (Bannerjee, 2013). For instance, if there is a typo that was made by the realtor during the agreement, it can make a person own a different property or own nothing. For one to see where the location of the property lines and the actual building site is, it is essential to have a survey.

5 It helps in the verification of the current owners and any other person involved

Validating that the sellers are the true owners of the property is critical. It helps to see the number of times that the property has changed hands. If the property has had several owners within a short period, that could raise the alarm (Bannerjee, 2013). Other people who are connected to the house or home are identified. For example, an uncle who had co-signed and has not been removed from the title. It also helps to find out any other person who has not been disconnected from the property’s ownership and can have a say in your property ownership.

Deed of Trust

A deed of trust is an agreement between the lender and the home buyer that the home buyer will repay the loan. The third-party called the trustee holds the title until the home buyer repays the loan. A deed of trust is recorded in the public records and acts as the security to your loan (Bannerjee, 2013). Borrowers must sign it if the state requires it in case they want to take out a home loan. The deed of trust is vital to the lender, the trustee, and the trustor. The trustor is the borrower.

The trustee does not represent either the lender or the borrower. They act like a company that has the power to sell the property in case the borrower fails to repay the loan. If the borrower defaults, the trustee writes a default note. However, another trustee is substituted by the trustee to handle the foreclosure. A formal substitution of trustee is done. A foreclosure means that the trustee can sell the property of the defaulter without a court procedure (Bannerjee, 2013). Some states require that some time has to pass for the trustees to do the foreclosure. Additionally, the borrower is given time in some states to repurchase the property after non- judicial foreclosure occurs.

The promissory note is not publicly recorded and has the terms of the loan, such as the payment obligations and interest rate. It is marked paid in full after the borrowers pay the loan completely and is returned to them. The borrower must read the deed of trust and the promissory note before signing them. It gives them a chance to identify mistakes that may have occurred during preparation (Bannerjee, 2013). Items that should be appropriately reviewed include any penalties in prepayment, the property’s address, the ride for adjustable interest rate, the interest rate, the loan’s principal balance, and the spelling of the names of trustors.

The deed of trust is vital because of the following:

1 It shows the names of the parties that are involved. These parties include beneficiary, trustor, and the trustee. In case of any issue, these people can be easily identified and brought forth.

2 It shows the date for the inception and maturity of the loan. That allows the borrower to get well organized and make sure that they do not default. They will get to know the amount of money that they will be paying after a certain period.

3 It shows the mortgage’s provision and requirements.

4 It shows the original loan and its amount.

5 It shows the late fees.

6 It shows the legal procedures that will be followed if a default occurs.

7 It shows riders who might be there in case of clauses such as prepayment penalties.

8 It shows the clause that gives details regarding when the homeowner will be considered delinquent.

A deed of trust is advantageous in that it makes the buyer plan on how to meet financial obligations regarding loan payment (Bannerjee, 2013). To the lender, it acts as proof that they had an agreement with the borrower. It has a disadvantage in that the buyer loses the home if they fail to pay the loan.

Mortgage

It is a loan given to the home buyer by the lender, where an agreement has to be signed. The home buyer gets the title of the property after they pay the loan in full. The lenders do a careful examination of the debt to income ratio and down payment and credit score (Ghent, 2011). The borrower should research the type of institution they want to get the loan from, the repayment period, and whether the loan should be fixed or variable.

For most lenders, they will require a higher credit score of about 680 and above. The highest credit score, the lower the interest rate. Those who have low credit scores will still get loans, but their interest rates will be high (Ghent, 2011). Another critical determinant of qualifying for a mortgage is the income of an individual. Those who have a poor debt to income ratio, their mortgages are likely to be denied.

However, some people are not aware of what debt to income ratio is. It is obtained by dividing the payments of monthly debt with the person’s gross income. The ratio is used to determine the ability of the borrower to handle the mortgage (Ghent, 2011). Lenders need to see a good debt to income ratio for them to give loans. Most of the time, they like the ratio to be around 36%. However, the federal government states that the highest ratio for one to qualify for a mortgage is 43%.

Those people whose debt to income ratio is problematic should strive to raise their monthly income and pay debts. For instance, they could get a second job or make their primary job better. Other ways to get more money include cutting down on expenses. That will make more money available to pay for a student loan, car loans, and other debts (Ghent, 2011). Also, there should be no additional debt during the process of buying a home. Reducing the debt to income ratio to around 28% is a safe bet to get the home loan. Having a bigger down payment is advantageous to the buyer since they will reduce the amount of money they will borrow and also decrease the amount of money they will repay (Ghent, 2011). The mortgage is vital to the lender and the borrower due to the following:

1 The borrower can get the amount of money that they need to get their home. Their dream of owning a home becomes a reality.

2 The lender gets interest after the borrower repays the loan in full.

3 The credit history of the borrower is improved after they pay the loan in full. That gives them a chance to get another loan elsewhere.

A mortgage is advantageous on that it enables the borrower to get home and the lender to make a profit. The disadvantage of a mortgage is that the borrower loses the home if they default in payment.

Warranty

A home warranty covers the home buyer when major systems and appliances break down. The warranty covers things that are not covered by the insurance policy of the typical homeowner. When a home is sold, the real estate comes with a warranty. The warranty is included in the property’s title by the seller, and the title may have a cloud on it sometimes (Steiger, 2009). Therefore, other parties, apart from the seller, can claim the property. For instance, a bank or a construction company. The seller offers a quitclaim deed if they think the title is clouded. This deed makes no promises regarding the title. The seller has not liability to the buyer if the lienholder claims the property. In some instances, the seller may warrant that the title is clear, and hence they give the buyer a general warranty need. Therefore, the seller cannot be liable to defects that may be in the title at the time when the property was being sold.

There are other types of warranties, and these include covenants of further assurances and special warranty deeds. Buyers and sellers can negotiate warranties about the title of the property (Steiger, 2009). Other warranties regarding the property are also negotiated. For instance, warranties on electricity. A home warranty is essential to the seller and home buyer.

Importance to buyers

1 Buyer has convenience in that they can access contractors, who are qualified by just calling their number,

2 The buyer enjoys long term protection since they can renew the warranty every year.

3 The buyer has peace of mind since they know that they are covered if anything happens.

Importance to the sellers

1 They are covered while on the market and do not pay for the policy until closing.

2 They stand out from other sellers who are not offering home warranties

3 The seller cannot have problems after closing. The buyer can only contact the warranty company.

The advantage of a warranty is that it enables the buyer to be covered in case of a risk. For the seller, it makes them not to experience problems after closing (Steiger, 2009). The disadvantage of a warrant is that it covers the buyer only when the item is new and when they need maintenance and repair mostly.

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