Glossary

Annual Percentage Rate (APR) Mortgage APR includes the interest rate, point and fees charged by the lender. APR is higher than the interest rate because it encompasses all these loan costs. ​ APR Comparison ​ APR is a tool that lets you compare mortgage offers that have different combinations of interest rates, discount points and fees. Comparing APRs is most useful if you plan to keep the loan for more than six or seven years. But if you plan to keep the loan for less than six or seven years, APR comparisons could be misleading. That's because the APR calculation assumes that you'll keep the loan for its entire term. But not every borrower does that. Most people sell the home or refinance the loan before it's paid off. ​ As a hypothetical example, let's say you're comparing two offers on a $200,000 loan for 30 years: ​ Loan A : You could borrow $200,000 with an interest rate of 4.25%, paying a 1% origination fee, no discount points and $1,000 in other fees. The 1% origination fee costs $2,000, and other fees are $1,000. Total fees: $3,000 . Loan B : You could pay a discount point to reduce the interest rate. In this offer, you could borrow $200,000 with an interest rate of 4%, paying a 1% origination fee, 1 discount point and $1,000 in other fees. The 1% origination fee costs $2,000, the 1 discount point costs another $2,000, and other fees are $1,000. Total fees: $5,000 . ​ Conclusion : Loan A has a higher interest rate (4.25%) and lower fees ($3,000), while Loan B has a lower interest rate (4%) and higher fees ($5,000), because you could pay $2,000 to buy 1 discount point to cut the interest rate by 0.25%. As you see in the table below, Loan B has a lower APR, which means that you end up paying less over the 30-year life of the loan when you include principal, interest and upfront fees.

Showings Showings are scheduled between buyers and sellers so that a prospective buyer can tour the property. The coordination for the showings is generally coordinated between the respective Realtors, with the input of the buyer and seller of course. ​ For the Seller: The Realtor will usually provide a Lockbox where a key for the property will be placed. Either your Realtor or the Buyer’s Realtor will escort the Buyer through your home Make sure to prepare your property for a showing and to also secure your valuables. It is recommended that Sellers do not leave anything out. Although a Realtor will be present during the showing, it is always better to be safe and secure your items. When a Buyer and the Buyer’s Realtor has coordinated a showing with a Seller, the Realtor will receive a Lockbox code to open the Lockbox to receive the key and gain access to the property. ​ For the Buyer: Your Realtor can either coordinate an individual property showing or schedule multiple properties in one day. It is usually a lot more efficient to see multiple properties in a day. Only a Realtor is able to receive a Lockbox code from the Seller’s Lockbox per the Illinois regulations. ​ ​

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Real Estate Attorney What is a real estate attorney? A real estate attorney is someone who is licensed to practice real estate law, meaning they have the knowledge and experience to advise parties involved in a real estate transaction, such as a home sale.​ ​ What does a real estate attorney do? Real estate attorneys know how to and are legally authorized to prepare and review documents and contracts related to the sale and purchase of a home. They are responsible for conducting the attorney review . In a home purchase transaction, both the buyer and seller can hire an attorney to represent their interests during the process. Or, in the case where an attorney is overseeing a closing where the home is being purchased with a mortgage loan, the attorney may actually represent the mortgage lender. Contractual issues with the purchase: If your home purchase involves any out-of-the-ordinary elements that could complicate your purchase contract, a good real estate attorney can make sure that all your contracts take into account the complexity of your situation as well as help you out if contractual issues arise during the process. Peace of mind: If you just have a feeling that something could go wrong or you want to be sure all your bases are covered, having a lawyer on your side can help give you the confidence that even if the transaction does go awry, you have a legal professional who is looking out for your best interests and can help you work through a tricky situation. ​ How much does a real estate attorney cost? How much you’ll spend paying your real estate attorney (or attorneys) will depend on what services they’ve provided for you and who is responsible for that particular closing cost. If your mortgage lender requires an attorney to be present at closing, whether the buyer or seller covers the cost of the closing attorney will depend on how your contract was negotiated. How and how much a real estate attorney charges will vary, but here are some basic ranges to give you an idea of what you’ll spend: Fixed hourly rate: A real estate attorney who charges an hourly rate may charge $150 – $350 per hour, but this can vary a lot depending on how experienced the attorney is and what area you’re in. Fixed rates for specific services: They may also charge a flat fee for the particular services they provide. For example, a real estate attorney might charge $500 – $1,500 to conduct a home closing. Their fees may also depend on the sale price of the property in question. ​ How can I find a real estate attorney near me?​ Here are some places to start looking for a reputable real estate attorney: Ask for a recommendation from your Realtor, Friends or Family. Utilize your state’s Bar association directory: Your state Bar association’s website can help you locate lawyers in your area who practice real estate law. Use the American Bar Association’s directory to help you find your state’s website. Use an online legal review site: There are many online review websites that will give you information on attorneys in your area, including their specialties, fee structures and any reviews left by former clients. If you are a transacting in Illinois, these are some real estate attorneys to consider: Gary Mages Need 2 more ​ ​

Mortgage Professionals There are four main types of mortgage companies where you can apply and receive a mortgage loan, and the one that works best for you will depend on your situation: ​ Banks and Mortgage Bankers - This is a great option if you prefer to have all of your financial accounts in one place; however, it may take longer to close your loan. Additionally, they may not offer government-backed loans (for example, FHA, VA, or USDA home loans). Perhaps the most common of all financial institutions are banks. Banks get their money from investors and its own customers. In addition to offering checking and savings and investment options, banks will often offer different types of mortgage loans for qualified borrowers. For many people, their local bank is the first and possibly only financial institution they will ever do business with. ​ Credit Unions - Credit unions usually offer loans only to their members. They may have lower costs and interest rates, but like banks, they may take longer to close. Like banks, they may not offer government-backed loans. Credit unions are very similar to banks, except that they are owned by their account holders, known as members. These institutions usually require membership and get funds from their members. Similar to their bank counterparts, credit unions offer a range of services to their members such as depository accounts for checking, savings, and retirement. As with banks, credit union members will often utilize their institution as a one-stop shop, obtaining their mortgage loan, as well as all their other banking needs at the same place. ​ Mortgage Lenders - Unlike banks and credit unions, which offer a variety of financial services, mortgage lenders exist for the sole purpose of real estate loans. Unlike banks and credit unions, most mortgage lenders can take care of the entire process “in-house.” This can shorten the time frame involved with obtaining a mortgage. A mortgage lender is a financial institution, similar to a bank, that originates and funds loans in their own name. Unlike banks and credit unions, mortgage lenders exist for the sole purpose of making loans against real estate. Most mortgage lenders do not service, or “keep”, their loans. Instead, lenders sell their loans to banks or servicing companies. These servicers then take on the job of collecting payments on a monthly basis. Mortgage lenders get their money from banks, also known as investors. Unlike banks and credit unions, most lenders do all their own loan processing, underwriting and closing functions “in-house.” They can take care of the entire process with internal staff. In-house operations shorten the time frame involved with obtaining a mortgage loan. ​ Mortgage Brokers - Mortgage brokers do not lend money directly; rather they have access to many different lenders and loan programs. This can give you access to more options. But they do not have as much control over the speed of a loan approval as a bank or mortgage lender. A mortgage broker is essentially a “middleman” between the homeowner and bank. Mortgage brokers do not lend money directly. Brokers have access to many lenders, as well as many different loan programs. In some cases, especially when your credit isn’t perfect, a mortgage broker can shop around to find a home loan that isn’t offered by a bank, credit union, or even a lender. Home buyers with special income types, lower credit, or are looking at a unique property might inquire at a broker first. Or, if your home bank or credit union can’t approve you, your next step is to talk to mortgage companies and brokers.

Open House For the Seller Open Houses are a great way to allow the general public access to view your property. Your Realtor will be present to facilitate and host the guests as they arrive to view your home. Open Houses are a great way to allow more people into the home and see the property. Some might just be neighbors who are curious to see your home. But, it’s a great opportunity to have more eyes on the property because they might know someone who is interested! Open Houses are not just for those interested in buying but also those who might know someone who is buying. ​ For the Buyer Open Houses are great opportunities to see a home without prior coordination. Once an open house is scheduled by a Seller, buyers can visit the property anytime within that window. Unlike a scheduled showing, a Buyer will not be allocated an exclusive time slot to view the property. Instead, there may be multiple Buyers at the property simultaneously depending on the traffic coming through to visit the property. Open Houses are generally not a good time to negotiate with a Seller’s Agent because they may be attempting to assist and answer multiple Buyers’ questions during the Open House. It is usually better to contact the Seller’s Agent after the Open House is over to negotiate or submit an offer . ​ ​

Earnest Money ​ Earnest money is an amount paid in to escrow early in the home purchase process to essentially put a “hold” on the property for the buyer. The money is deposited once an offer has been accepted . It’s a way of showing serious intent that the buyer is going to stay true to their offer, and protects sellers from having to deal with buyers putting out multiple offers or going into negotiations on multiple properties. At closing, the earnest money payment is generally taken out of escrow and put toward the buyer’s down payment. ​ A REALTOR®, title company, or an attorney can usually hold this deposit. The amount varies from community to community, and it becomes part of your down payment. ​

Calculate Your Proceeds When an offer comes in, a seller can accept it exactly as it stands, refuse it (seldom a useful response), or make a counteroffer with the changes they want. ​ In evaluating a purchase offer, sellers estimate the amount of cash they'll walk away with when the transaction is complete. For example, when they're presented with two offers at once, they may discover they are better off accepting the one with the lower sale price if the other asks them to pay points to the buyer's lending institution. ​ Once a seller has a specific proposal, calculating net proceeds becomes simple. From the proposed purchase price, they subtract the following: Payoff amount on present mortgage Any other liens (equity loan, judgments) Broker's commission Legal costs of selling (attorney, escrow agent) Transfer taxes Unpaid property taxes and water bills If required by the contract: cost of survey, termite inspection, buyer's closing costs, repairs, etc. ​ The seller's mortgage lender may maintain an escrow account into which they deposit money to pay property tax bills and homeowner's insurance premiums. In that case, remember sellers will receive a refund of money left in that account, which will add to their proceeds.

Closing Costs After saving for a down payment, house hunting and applying for a mortgage, closing costs can come as an unpleasant surprise. ​ What are Closing Costs? Closing costs include the myriad fees for the services and expenses required to finalize a mortgage. You’ll have to pay closing costs whether you buy a home or refinance. Most of the closing costs fall on the buyer, but the seller typically has to pay a few, too, such as the real estate agent’s commission. (Buying a home for the first time? See our tips for first-time home buyers.) ​ How much are closing costs? Average closing costs for the buyer run between about 2% and 5% of the loan amount. That means, on a $300,000 home purchase, you would pay from $6,000 to $15,000 in closing costs. The most cost-effective way to cover your closing costs is to pay them out-of-pocket as a one-time expense. You may be able to finance them by folding them into the loan, if the lender allows, but then you’ll pay interest on those costs through the life of the mortgage. When buying a home, you can comparison shop and negotiate some of the fees to lower your closing costs. And some states, counties and cities offer low-interest loan programs or grants to help first-time home buyers with closing costs. Check with your local government to see what’s available. Your lender is required to outline your closing costs in the Loan Estimate you receive when you first apply for the loan and in the Closing Disclosure document you receive in the days before the settlement. Review them closely and ask questions about anything you don’t understand. ​ List of Closing Costs (may not be comprehensive depending on the situation)​ Property-related fees Appraisal fee: It’s important to a lender to know if the property is worth as much as the amount you want to borrow. This is for two reasons: The lender needs to verify the amount you need for a loan is justified and make sure it can recoup the value of the home if you default on your loan. The average cost of a home appraisal by a certified professional appraiser ranges between $300 and $400. Home inspection: Most lenders require a home inspection, especially if you’re getting a government-backed mortgage, such as an FHA loan insured by the Federal Housing Administration. Before lending you hundreds of thousands of dollars, a bank needs to make sure the home is structurally sound and in good enough shape to live in. If the inspection turns up troubling results, you may be able to negotiate a lower sale price. But depending on how severe the problems are, you have the option to back out of your contract if you and the seller can’t come to an agreement on how to fix the issues. Home inspection fees, on average, range from $300 to $500. Loan-related fees Application fee: This covers the cost of processing your request for a new loan and includes costs such as credit checks and administrative expenses. The application fee varies depending on the lender and the amount of work it takes to process your loan application. Assumption fee: If the seller has an assumable mortgage and you take over the remaining balance of the loan, you may be charged a variable fee based on the balance. Attorney’s fees: Some states require an attorney to be present at the closing of a real estate purchase. The fee will vary depending on the number of hours the attorney works for you. Prepaid interest: Most lenders require buyers to pay the interest that accrues on the mortgage between the date of settlement and the first monthly payment due date, so be prepared to pay that amount at closing; it will depend on your loan size. Loan origination fee: This is a big one. It’s also known as an underwriting fee, administrative fee or processing fee. The loan origination fee is a charge by the lender for evaluating and preparing your mortgage loan. This can cover document preparation, notary fees and the lender’s attorney fees. Expect to pay about 0.5% of the amount you’re borrowing. A $300,000 loan, for example, would result in a loan origination fee of $1,500. Discount points: By paying discount points, you reduce the interest rate you pay over the life of your loan, which results in more competitive mortgage rates. The cost of one point equals 1% of the loan amount. So for a loan of $250,000, a 1-point payment would be $2,500. Generally, paying points is worthwhile only if you plan to stay in the home for a long time. Otherwise, the upfront cost isn’t worth it. Mortgage broker fee: If you work with a mortgage broker to find a loan, the broker will usually charge a commission as a percentage of the loan amount. The commission averages from 0.5% to 2.75% of the home’s purchase price Mortgage Insurance Fees Mortgage insurance application fee: If you make a down payment of less than 20%, you may have to get private mortgage insurance. (PMI insures the lender in case you default; it doesn't insure the home.) The application fee varies by lender. Upfront mortgage insurance: Some lenders require borrowers to pay the first year’s mortgage insurance premium upfront, while others ask for a lump-sum payment that covers the life of the loan. Expect to pay from 0.55% to 2.25% of the purchase price for mortgage insurance, according to Genworth, Ginnie Mae and the Urban Institute. FHA, VA and USDA fees: If your loan is insured by the Federal Housing Administration, you’ll have to pay FHA mortgage insurance premiums; if it’s guaranteed by the Department of Veterans Affairs or the U.S. Department of Agriculture, you’ll pay guarantee fees. In addition to monthly premiums, the FHA requires an upfront premium payment of 1.75% of the loan amount. The USDA loan upfront guarantee fee is 1%. VA loan guarantee fees range from 1.25% to 3.3% of the loan amount, depending on the size of your down payment. Property taxes, annual fees and insurance Property taxes: Buyers typically pay two months’ worth of city and county property taxes at closing. Annual assessments: If your condo or homeowners association requires an annual fee, you might have to pay it upfront in one lump sum. Homeowners insurance premium: Usually, your lender requires that you purchase homeowner’s insurance before settlement, which covers the property in case of vandalism, damage and so on. Some condo associations include insurance in the monthly condo fee. The amount varies depending on where you live and your home’s value. Title Fees Title search fee: A title search is conducted to ensure that the person selling the house actually owns it and that there are no outstanding claims or liens against the property. This can be fairly labor-intensive, especially if the real estate records aren’t computerized. Title search fees are about $200, but can vary among title companies by region. The search fee may be included in the cost of title insurance. Lender’s title insurance: Most lenders require what’s called a loan policy; it protects them in case there’s an error in the title search and someone makes a claim of ownership on the property after it’s sold. Coverage lasts until the loan is paid off. Owner’s title insurance: You should also consider purchasing title insurance to protect yourself in case title problems or claims are made on your home after closing. The owner's coverage lasts as long as you or your heirs own the property. The cost of the owner’s policy is about 0.5% to 1% of the purchase price, according to the American Land Title Association. Whether the buyer or seller pays for title insurance varies by region. A discount is sometimes offered when both the lender’s and owner’s policies are purchased at the same time. Mortgage Closing Documents With so many closing costs to consider, it’s obvious you’ll face a lot of paperwork just prior to and during the loan signing. Two of the most important closing documents are the Loan Estimate and the Closing Disclosure. You’ll receive the Loan Estimate three days after applying with a lender. It will officially detail all fees, the interest rate and the other costs to close your loan. It’s legally binding, so you’ll want to read it carefully. Then, three days from loan settlement and prior to making the big commitment, you’ll receive the Closing Disclosure from your lender. It confirms — or makes minor adjustments to — what you saw on the Loan Estimate. Again, it’s worth a big cup of coffee and a thorough review. ​ Mortgage closing costs: summary Appraisal fee ($300-$400) Home inspection ($300-$500) Application fee (varies) Assumption fee (varies) Attorney’s fee (hourly or flat fee) Prepaid interest (based on loan amount) Origination fee (about 0.5% of loan amount) Discount points (1 point costs 1% of the loan amount) Mortgage broker fee (0.50% to 2.75%) Mortgage insurance application fee (varies) Upfront mortgage insurance (0.55% to 2.25%) FHA, VA and USDA fees (1% to 3.3%) Property taxes (two months’ worth) Upfront HOA fee (varies) Homeowners insurance (depends on home value and location) Title search fee (about $200) Lender’s title insurance (varies) Owner’s title insurance (0.5% to 1% of purchase price)

REALTOR (R) Buyer's Agent A REALTOR (R) is real estate professional that is both a licensed real estate agent or broker AND a member of the National Realtor's Association. They are experts in the residential real estate process and help represent Sellers and Buyers during their real estate transaction. ​ On this page, we will discuss the role, duties, and responsibilities of the Buyer's Agent: ​ Role Showings: Buyer's Agents will contact seller properties to schedule time and access for property showings. Negotiations: Buyer's Agents will assist the Buyer in the Offer Negotiation process when a Buyer decides to purchase a property. Management: Buyer's Agents will assist the Buyer in managing the entire buying process by organizing all of the requisite documents and ensuring all parties involved in the transaction are active in ensuring the buying process is being executed. ​ Benefits - You do not need a real estate agent to buy a home; in fact, some home buyers leave the Buyer's Agent out of the equation. However, you might benefit from hiring one. ​ To save time. Agents can often help you find homes in your price range, and they may have access to more properties than what you’ll see online. To get information and help with negotiations. Good agents should have wealth of information to help you make a decision. And, they’ll handle a lot of complex paperwork on your behalf. Offer Contract Contingency Negotiations Home Inspection Reports Appraisal Reports Earnest Money Escrow Extension Requests Another plus is that your agent will handle a ton of paperwork on your behalf. Unless you love filling out forms – and have experience in real estate transactions – this is a chore best left to the professionals, who should ensure that everything is done by the book. You could easily make a mistake with these documents. Mistakes can cause deals to fall apart or (worse) make you liable for an inadvertent breach of contract. (Licensed agent will have errors and omissions insurance to limit this risk.) An experienced agent will make sure that everything that needs to take place — counter-offers, extensions, appraisal, inspection, walk-through, loan approval — happens when it’s supposed to and how it’s supposed to.​ Market expertise: Conducting a home search by yourself can be a full-time job. Though the Internet makes it easy to find homes in your price range, a good agent usually has access to more properties. That includes For Sale By Owner (FSBO) properties and homes that aren’t yet listed. In addition, some sellers of desirable homes do not wish to “go public.” Only agents (and their colleagues) working with those sellers even know about those so-called “pocket listings.” The exception: There is ONE instance in which you must use an agent to purchase property. That applies if you bid on FHA foreclosure properties. The Department of Housing and Urban Development (HUD) requires all bidders to use licensed agents. ​ ​​