FAQs

What is the difference between pre-qualified and pre-approved?

Pre-qualified means that based on your answers, it looks as though you should qualify for the loan.

Pre-approved means that you have submitted the supporting documentation and the loan officer has verified it to say the lender is willing to offer you the loan under specified terms.

What is an appriasal?
An appraisal is an opinion of value of the home based on income, comperable sales, or cost approach. Often a contingency on an offer to purchase as most lenders will require one.
What is a contingency?
A condition which must be met in order to complete the terms of the contract. If this condition is not met, the party with this protective clause may choose to walk away from the contract without reprisal. A contingency may be removed by the protected party.
What is the purpose of earnest money and how much should I put down with the contract?
Earnest money is any item of consideration to show that your offer is made in good faith and that you will make an earnest effort to perform your part of the contract. Typically this is a cash payment to be held in an escrow account, However other items of value may be used, including a handshake. The amount of earnest money that you include is upto the buyer. The money is at risk, if you do not complete your portion of the contract, it may be forfeited to the seller. If you do complete the sale, the money will be moved from the escrow account and shown as a credit on the buyers settlement statement at closing. A larger earnest money means more risk to the seller and therefore shows a strong intent to complete the transaction.
What is a kick-out clause?

This is a clause typically used when the buyer has a home to sell in order to complete the transaction. The seller may continue to show the property and
solicit additional offers. If the seller gets another offer, they may give the current buyer under contract a pre-determined amount of time to decide if they are able/willing to remove the contingency. If they are not able or willing to do so, the seller may cancel the contract and accept the new offer.

What is a back-up contract?
In a multiple offer situation, a seller may accept a second offer as a “back-up offer” which would automatically take effect upon the cancellation of the previous offer. Your Realtor can help you understand the nuances of this.
What items typically stay in a home at the sale of the property?

Generally speaking, items which are affixed to the property would be considered part of the structure and should be left in place.

Examples of items that should stay in the property: light fixtures/ceiling fans that are hard wired to the home, TV wall mounts, Dishwashers, built in ovens, over-the-range microwave, garage door openers. All remotes associated with these items.

Items considered personal property and the seller would typically remove prior to closing include: freestanding lamps, TVs on the wall mount, freestanding stove/oven, refrigerators, freezers countertop microwave, washer/dryer.

Water softeners, propane tanks, fuel tanks/pumps – should always be clarified. As sometimes these items are leased and not owned. Also, one should verify the level of the propane or fuel tanks and access a valuation for those to be assessed to the buyer during closing.

Smart thermostats, electronic locks, electronic doorbells, security systems including cameras also should be clarified.

Glossary of Terms

Appraisal
An appraisal is a professional evaluation of a property’s market value conducted by a licensed appraiser. It provides an estimate of the property’s worth based on factors like location, size, condition, and comparable sales in the area. Lenders use appraisals to determine how much they are willing to lend for a property.
Pre-qualified vs. Pre-approved
Pre-qualified: Pre-qualification is an initial assessment of a borrower’s creditworthiness based on self-reported financial information. It provides an estimate of how much a borrower might be able to borrow. It’s not a formal commitment from a lender. Pre-approved: Pre-approval is a more comprehensive process where a lender evaluates a borrower’s financial information, including credit history, income, and debt. A pre-approval letter signifies a lender’s conditional commitment to provide a specific loan amount, pending verification of the information.
Mortgage
A mortgage is a loan used to finance the purchase of real estate. It involves the borrower (homebuyer) borrowing money from a lender (usually a bank or mortgage company) to purchase a property. The loan is secured by the property itself, and the borrower makes regular payments, including interest, over an agreed-upon term.
ROI (Return on Investment)
ROI is a financial metric used to evaluate the profitability of an investment. In real estate, it measures the percentage return on the initial investment or the equity in a property. It considers factors like rental income, property appreciation, and expenses to determine how well an investment is performing.
Cap Rate (Capitalization Rate)
The cap rate is a ratio used in real estate to assess the potential profitability and risk of an investment property. It is calculated by dividing the property’s net operating income (NOI) by its current market value or acquisition cost. A higher cap rate generally indicates a potentially better return, but it may also involve higher risk.
Equity
Equity represents the portion of a property’s value that the owner truly owns outright, excluding any outstanding mortgage or liens. It is calculated by subtracting the remaining mortgage balance from the property’s current market value. Equity can increase over time through mortgage payments or property appreciation.
Escrow Funds
Escrow funds are typically held by a neutral third party during a real estate transaction. These funds include earnest money deposits and, in some cases, property taxes and insurance payments. Escrow ensures that all parties fulfill their obligations before the transaction is finalized.
Earnest Money (and the difference between escrow and earnest money)
Earnest Money: Earnest money is a deposit made by a buyer to demonstrate their serious intent to purchase a property. It is usually held in an escrow account and is credited toward the down payment or closing costs at closing. Difference: The key difference is that earnest money is a specific type of funds placed in escrow during a real estate transaction. Escrow funds, on the other hand, can encompass various payments and deposits, including earnest money, property taxes, and insurance.
Down Payment
A down payment is a lump sum of money paid by a homebuyer upfront when purchasing a property. It is a percentage of the property’s purchase price and is not financed through the mortgage. A larger down payment reduces the amount borrowed and can impact loan terms and interest rates.
Seller Concessions

Seller concessions are negotiated terms in a real estate transaction where the seller agrees to contribute a portion of the buyer’s closing costs or other expenses. This can make the purchase more affordable for the buyer and is typically expressed as a percentage of the home’s price. Some loan types may restrict what fees buyers can pay, so be sure to check with your Realtor.

Closing Costs

Closing costs are the various fees and expenses associated with completing a real estate transaction. They include fees for services like title searches, appraisals, inspections, legal services, and lender charges. Buyers and sellers typically share these costs, and they can vary based on location and the specifics of the transaction. Closing costs are negotiated during the contract process.

Zoning

Zoning refers to the division of land into different zones or districts, each with specific regulations governing land use, building codes, occupation density, and property development. Zoning codes determine what types of structures can be built in specific areas, the allowable land uses (e.g., residential, commercial, industrial), and other land development regulations. Understanding zoning is crucial for property owners, developers, and municipalities as it shapes the physical character and land use of a community.

Net Operating Income
Net operating income is a valuation method used by real estate professionals to determine the precise value of their income-producing properties. To calculate NOI, the property’s operating expenses must be subtracted from the income a property produces.
PMI (Private Mortgage Insurance)

Private mortgage insurance (PMI) is a type of mortgage insurance you might be required to buy if you take out a conventional loan with a down payment of less than 20 percent of the purchase price. PMI protects the lender—not you—if you stop making payments on your loan.

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