Glossary

Title In property law, a title is a bundle of rights in a piece of property in which a party may own either a legal interest or equitable interest. The rights in the bundle may be separated and held by different parties. This bundle of rights is represented by a formal document, such as a deed of title , that serves as evidence of ownership. Conveyance of the document may be required in order to transfer ownership in the property to another person. ​ Title is distinct from possession, a right that often accompanies ownership but is not necessarily sufficient to prove it. In many cases, possession and title may each be transferred independently of the other. For real property, land registration and recording provide public notice of ownership information.

What Is Escrow? Escrow is when a neutral third party holds on to funds during a transaction. In real estate, it’s used as a way to protect both the buyer and seller during the home purchasing process. After a property is purchased, the new homeowner continues to put money into escrow as a means of paying mortgage and insurance payments. ​ For example, 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. 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. ​ The purpose of escrow is two-fold. It guarantees the seller that the buyer has the funds needed for the purchase and that the money will be handed over once the title is transferred, and it guarantees the buyer that they won’t be scammed by a fraudulent seller who actually holds no claim to a title. Ultimately, escrow helps ensure trust in a high-stakes transaction where neither party may be familiar with each other and where both have a lot to lose. ​ Escrow vs Escrow Account ​ Here’s a set of terms that are closely related but not to be confused with each other. Many people have trouble understanding real estate escrow because they mistake it for an escrow account, so it’s important to know the difference. ​ An escrow account is a separate account managed by a lender to collect advance insurance payments and tax payments from a homeowner. Usually, a lender will add up the total amount due for these payments in a year, divide it by 12, and tack on that extra amount to each mortgage payment. When those payments are due to either a homeowners insurance agency or the IRS, the lender pays them for the homeowner out of the escrow account. Many states, but not all, require lenders to pay interest to homeowners on their escrow account. ​ The simplest way to think of the difference is Escrow happens during the process of buying/selling the home. After the house is sold or purchased, Escrow Accounts are where your mortgage payments are partially paid to in order to pay for your PMI payments and property taxes . ​ ​

Types of Mortgages There are four main types of mortgage loans. They are the Conventional Loan , FHA Loan , VA Loan, and the USDA Loan . The one that works best for you will depend on your situation: ​ Conventional Loan - When most people think of a mortgage, they’re thinking of a conventional loan. Conventional loans are the closest you can get to a ‘standard’ mortgage. There are no special eligibility requirements, pretty much all lenders offer them, and you can qualify with just 3% down and a 620 credit score. Conventional loan requirements vary by lender. However, all conventional loans have to meet certain guidelines set by Fannie Mae and Freddie Mac. These include a 620 credit score, a debt-to-income ratio lower than 43%, and at least a 3% down payment. The mortgage also has to be within conventional loan limits: up to $510,400 in most areas. If you apply for a conventional loan with better credentials — like a credit score of 740+ and 20% down payment — you’ll get access to lower rates and a lower monthly payment. On the flip side, maybe you’re just on the edge of qualifying for a conventional loan. If you have a credit score right around 620, and higher levels of debt, you’ll want to be extra sure to shop around. Thanks to their wide availability and low rates, conventional loans are the most popular mortgage in the U.S. In fact, almost 3 in 5 buyers use a conventional loan when they buy a house or refinance. Minimum down payment for a conventional loan It’s a common myth that you need a 20 percent down payment for a conventional loan; you can actually get one with as little as 3 percent down. All told, there are six major options for conventional loan down payments, ranging from 3-20 percent. Conventional 97 loan — 3% down Fannie Mae HomeReady loan — 3% down Freddie Mac Home Possible loan — 3% down Conventional loan with PMI — 5% down Piggyback loan (no PMI) — 10% down Conventional loan without PMI — 20% down For more information about HomeReadyTM and Conventional 97, and piggyback loans, contact your mortgage professional. If you’re in Illinois and would like assistance in learning more about mortgages, ask us and we can point you to a few mortgage professional options. ​ FHA - An FHA loan is a mortgage insured by the Federal Housing Administration. FHA insurance protects mortgage lenders, allowing them to offer loans with below-average interest rates, easier credit requirements, and low down payments (starting at just 3.5%). FHA loans are especially popular with first time, lower-income, and/or lower-credit home buyers, thanks to their flexibility and low rates. But FHA financing isn’t limited to a certain type of buyer — anyone can apply. To qualify for an FHA home loan, you’ll need to meet these requirements: A 3.5 percent down payment if your credit score is 580 or higher A 10 percent down payment if your credit score is 500-579 A debt-to-income ratio of 50% or less Documented, steady employment and income You’ll live in the home as your primary residence You have not had a foreclosure in the last three years ​FHA loans usually have below-market interest rates. That means they’re lower, on average, than comparable conventional loans. Note, the APR on an FHA loan is often higher than the APR on a conventional loan. That’s because FHA rate estimates include mortgage insurance, while conventional rate estimates assume 20% down and no mortgage insurance. ​ USDA Loans - USDA loans are mortgages backed by the U.S. Department of Agriculture as part of its USDA Rural Development Guaranteed Housing Loan program. USDA loans are available to home buyers with low-to-average income for their area, offer 100% financing with reduced mortgage insurance premiums, and feature below-market mortgage rates. USDA home loans are putting people in homes who never thought they could do anything but rent. USDA loans are special mortgages meant for low- to moderate-income home buyers. These loans are guaranteed by the US Department of Agriculture. That guarantee acts as a form of insurance protecting USDA mortgage lenders, so they’re able to offer below-market interest rates and zero-down home loans. USDA runs this program to encourage homeownership and economic development in rural areas. Insurance - USDA “guarantees” its loan program — meaning it offers protection to mortgage lenders in case USDA borrowers default. But the program is partially self-funded. So, to keep it running, the USDA uses homeowner-paid mortgage insurance premiums. ​As of 2016, this is the current mortgage insurance rates ​For purchases, 1.00% upfront fee paid at closing, based on the loan size As a real-life example: A homebuyer with a $100,000 loan size in Blacksburg, Virginia, would be required to make a $1,000 upfront mortgage insurance premium payment at closing, plus a monthly $29.17 payment for mortgage insurance. USDA upfront mortgage insurance is not paid as cash. It’s added to your loan balance for you. ​Eligibility - USDA eligibility is based on the buyer and the property. First, the home must be in a qualified “rural” area, which USDA typically defines as a population of less than 20,000. Second, the buyer must meet USDA income caps. To be eligible, you can’t make more than 15% above the local median salary. You also have to use the home as your primary residence (no vacation homes or investment properties allowed). Borrowers also have to meet USDA's "ability to repay" standards including: ​Steady job and income, proven by tax returns FICO credit score of at least 640 (though this can vary by lender) Debt-to-income ratio of 41% or less in most cases See if a property is eligible for the USDA Loans: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=mfhc ​ VA Loan - VA loans are mortgages backed by the U.S. Department of Veteran Affairs for veterans who have served in the United States armed forces. VA Loan Eligibility for Veterans ​Most veterans must complete a minimum term of qualifying active-duty service to be eligible for a VA loan, though this requirement does have a few exceptions. The minimum term of service varies depending on the dates of that service. Veterans serving from August 2, 1990 through The Present Day ​Veterans who served from August 2, 1990 through the present day must have completed 24 months of continuous service or a full period of at least 90 days during which they were called or ordered to active duty. Veterans serving from September 8, 1980 through August 1, 1990​ Veterans who served from September 8, 1980, through August 1, 1990, must have completed 24 months of continuous service or a full period of at least 181 days of active duty. The beginning date that applies to officers for this requirement is October 17, 1981.​ Veterans serving from May 8, 1975 through September 7, 1980 Veterans who served from May 8, 1975, through September 7, 1980, must have completed 181 continuous days of active duty. The ending date that applies to officers for this requirement is October 16, 1981.​ Veterans serving from August 5, 1964 through May 7, 1975 Veterans who served from August 5, 1964, through May 7, 1975, must have completed 90 days of active duty. The beginning date that applies to veterans who served in the Republic of Vietnam for this requirement is February 28, 1961.​ Veterans serving from February 1, 1955 through August 4, 1964 Veterans who served from February 1, 1955 through August 4, 1964 must have completed 181 continuous days of active duty.​ Veterans serving from June 27, 1950 through January 31, 1955 Veterans who served from June 27, 1950 through January 31, 1955 must have completed 90 days of active duty.​ Veterans serving from July 26, 1947 through June 26, 1950 Veterans who served from July 26, 1947 through June 26, 1950 must have completed 181 continuous days of active duty.​ Veterans serving from September 16, 1940 through July 25, 1947 Veterans who served from September 16, 1940 through July 25, 1947 must have completed 90 days of active duty.​ Additional eligibility requirements for veterans ​Veterans who were discharged due to hardship, government convenience, reduction-in-force, certain medical conditions or a disability connected to military service can be eligible for a VA loan even if they don’t meet the minimum term of service requirement. Veterans who were dishonorably discharged are not eligible for the VA home loan program. VA Loan Eligibility for Non-Veterans​ - The VA home loan program is available to non-veterans, too. This eligibility class includes certain active military borrowers, their families, and others.​ Service members on active duty Active-duty service members can be eligible for a VA loan after they have served 90 days of continuous active duty. Army, Navy, Air Force and Marines are eligible.​ Military spouses Some military spouses can be eligible for a VA loan, too.​ If the service member to whom the spouse is married is alive, the spouse can be eligible if the service member has been officially declared missing in action (MIA) or a prisoner of war (POW) for at least 90 days. This eligibility is limited to one-time use. If the service member to whom the spouse was married has died, the surviving spouse can be eligible if he or she hasn’t remarried and the service member died on active duty, was a totally disabled veteran or was a veteran who died as a result of a service-connected disability. Spouses who have remarried may be subject to more complicated rules. A consultation with a VA-approved lender may be required. A spouse who obtained a VA home loan with an active-duty service member or veteran who subsequently died can be eligible to refinance that VA loan with a new VA loan at a lower interest rate through the VA streamlined refinance program. The service member's or veteran’s death need not be related to his or her service in this case. Children of active-duty service members or veterans, whether alive or deceased, aren’t eligible for VA loans as a benefit of the parent’s service. Reservists and National Guard members Members of the National Guard and Reserves can be eligible for VA loans if they have completed six years of service in the Selected Reserve or National Guard and they continue to serve in the Selected Reserve or were honorably discharged, placed on the retired list or transferred after honorable service to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve.​ Other people eligible for VA loans Individuals who have completed service with certain federal government organizations also can be eligible for VA loans. Examples include cadets at the U.S. Military, Air Force or Coast Guard Academy, midshipmen at the U.S. Naval Academy, World War II merchant seamen, U.S. Public Health Service officers and National Oceanic & Atmospheric Administration officers.

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.

Attorney Review Although Illinois does not require buyers to use a lawyer to prepare the purchase agreement, Illinois is considered an attorney-review state. This means that it is customary for both parties to have a real estate lawyer look over the purchase agreement before it is finalized. The purchase agreement will have terms regarding how many days each party has for the attorney review (typically five days) and what happens if the attorneys fail to reach an agreement during this time. Ordinarily, both parties can walk away from the purchase agreement with no penalty during this review period. The attorneys will review the entire agreement and can propose modifications to any part of the agreement except the purchase price and the broker's fees. The attorneys are likely to propose modifications after the house has been inspected, so the attorney review period and the house inspection tend to happen during the same time frame. When there is an attorney review period clause in a real estate contract, the initial contract that you sign will only be conditional. In most cases, you are only signing to confirm the agreed upon price and that there will be an attorney review period. The typical attorney review period is 5 business days after signing the initial contract. During the 5-day period, your attorney will need to decide whether to: Approve the contract; Reject the contract; or Entering into negotiations to modify the contract. The attorney review period allows either the buyer or the seller to modify the contract to meet their particular needs. Your attorney will review the contract and suggest modifications to the contract that would be in your best interest. If the contract is not expressly rejecting or approved, your attorney will make an initial request for modification of the original contract terms within the 5-days allowed for attorney review. Maybe you want to add real estate tax provisions to the contract. You might also want to make the contract contingent on certain terms as well. The attorney review period is the time to make sure all of these terms are added to the contract. The other party has the right to accept or reject the proposed changes. The other party may also want to counter the proposed changes and make additional proposals. During these negotiations, either party may walk away from the transaction without penalty if there is a failure to agree upon mutually acceptable terms. If the 5-day attorney review period passes without anyone making proposed changes, then no changes will be made to the initial contract terms. Both parties will be bound by the terms of the initial contract. ​ ​

Pre-Qualified Mortgage pre-qualification differs from a pre-approval in that pre-qualification assesses whether your debt-to-income ratio fits a lending institution' guidelines for home loans. It also provides an estimate of how much you may be able to borrow - a good first step in your house-hunting journey. ​ While this number is informative, keep in mind how much you may qualify to borrow is often more than how much you can afford to spend on your new home and still have money left over for the other important things in your life; like furniture for your new home. ​ Getting pre-qualified doesn’t require a commitment from you or the bank. It isn't a true application and your credit history doesn't factor into your pre-qualification. Even so, you should be aware that when you apply for a mortgage, your credit score will affect your ability to qualify. If you have concerns about your credit history, talk to your mortgage loan officer now to find out what loan options might be available to you. ​ When you get pre-qualified, you can request a letter stating how much you may be able to borrow, based on the information you provided to the lender. You can give this letter to your real estate agent to show you’re a serious homebuyer. ​ ​​

Prepare Home For Sale Of course, every home buyer is different. So, it’s impossible to prepare a home that is acceptable to every buyer. But, in order to improve the chances of selling your property, it is necessary to understand the buyers in your market. Each market is different so this page will only attempt to speak to the macro national trends in the market. ​ Although you may love your property the way it is, new buyers will be looking for a fresh face. Spend time preparing your home for sale by conducting a deep cleaning, and refresh its appearance by providing a fresh coat of paint. Your agent can also help provide guidelines, such as decluttering, removing overly personalized effects and getting rid of pet odors. ​ Millennial Home Buying Statistics It’s no secret millennials continue to make up the majority of today’s home buyer demographics. Millennials make up 66% of first-time home buyers, and 34% of the home buying market overall, so if you plan to sell a property, it is in your best interest to familiarize yourself with some millennial home buying statistics. According to Inc.com, only 11% of millennial home buyers consider their first home as permanent, yet they have specific wishlists. Because down payments are so hard to save up for, today’s young home buyers tend to prefer turn-key properties. Some home buying trends stay the same regardless of the generation. Over half of Millennials prefer to purchase homes in the suburbs, with only 25% opting for urban areas. Current Home Buying TrendsWhether you position yourself as a real estate agent for millennials or as an investor looking to target millennial housing trends, it is still important to keep in touch with current home buying trends overall. Although millennial real estate trends are dominating the industry landscape, it is important to keep in mind that other generations still make up a significant proportion of potential buyers. Here are some key highlights on current home buying trends from the National Association of Realtors’ 2018 Generational Trends report: Previously owned homes prevail: In 2017, 85% of home buyers purchased previously owned homes, while the rest purchased new homes. The most common type of home purchased was the single-family home. However, interestingly, the majority of home buyers under the age of 37 who purchased a new home did so in order to avoid renovations and having to pay to remedy problems. Online presence is key: A vast majority of today’s home buyers first find their property online. Nine out of ten buyers stated that real estate photos were the most important feature on online listings. In addition, buyers between the ages of 53 and 71 felt that virtual tours were the most important, as this generation tends to move the longest distances. Financing remains a necessity: Although 88% of home buyers finance their home purchase, the statistic increased to 98% when it comes to buyers under the age of 37. Although most consumers use their savings for a down payment, the proportion increases for millennials, while older generations to use proceeds from a previous sale. Most buyers across all generations still view buying a home as a good investment. Agents are more needed than ever: 87% of all home buyers worked with an agent, but the share increased to 90% for buyers aged 37 and younger. Buyers who worked with an agent cited that they wanted help finding the right home, negotiating the purchase price and terms of sale, as well as help in understanding the purchase process. ​ ​ ​ Selling To The Millennial Home Buyer: What Do Millennials Want In A Home? ​ When devising a strategy on selling to millennial home buyers, it is important to ask yourself, “what do millenials want in a home?” Selling real estate to millennials is no easy feat, as they have a unique set of preferences and demands that set them apart from buyers of other generations. Check out the following list of “must-have” features for today’s youthful buyers: Updated kitchen and bathroom: Brand new fixtures in kitchens and bathrooms are important for budget-conscious millennials. Because of their limited budgets, most millennials’ savings will go towards a down payment and furniture, and not updates. Open floor concept: Although formal dining rooms used to be popular, today’s buyers prefer an open concept where the kitchen, dining and living areas all flow together. All rooms are used as hangout spaces. Home office space: The number of Americans who work remotely continues to grow each year, making a home office an important factor for home buyers. Having a dedicated space will help them focus on the task at hand. Proximity: It could be attributed to high gas prices and traffic, or to eco-consciousness, but young buyers tend to emphasize the property’s location. Proximity to work or public transportation, as well as walkability, are all important considerations. Low maintenance features: Today’s “weekend warriors” tend to not want to spend their weekends carrying out chores and honey-do lists. Instead, millennials are showing a preference for low-maintenance, low-upkeep features. Home technology: Technology has taken center stage in real estate for millennials, as these digital natives have saturated the home buying landscape. Prepare to talk to potential buyers about wireless service providers, carrier signal strength, and smart home features. Energy efficient: Energy efficiency features such as solar panels help millennial buyers kill two birds with one stone. Increased efficiency allows them to protect their budgets while satisfying their environmental consciousness. Online photography: Mentioned earlier, the vast majority of home buyers find their property online. Setting up a real estate website for millennials is essential, which should include photographs and virtual tours of the property after it has been professionally staged.

Listing Agreement (Illinois)

REALTOR (R) Seller'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: Sellers's Agents will coordinate with you and the prospective buyers to schedule time and access for property showings. Negotiations: Seller's Agents will assist the Seller in the Offer Negotiation process when the Seller receives offers to purchase their home. These include individual offers, multiple bids, and other offer situations. Management: Seller's Agents will assist the Seller 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 selling process is being executed properly and in a timely fashion. ​ Benefits - You do not need a real estate agent to sell a home; in fact, some home sellers leave the Seller's Agent out of the equation. However, you might benefit from hiring one. ​ To save time. Agents are professionals who are active in the market and will have a pulse on the general market conditions in your area. Pricing a home properly on the market is important so that Sellers can receive the highest payment for their property and to sell quickly. Mispriced homes can end up staying on the market longer than desired by Sellers and may impair the Sellers ability to purchase another home and/or move on time. 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.​ ​ ​​

Closing Documents These are the documents finalized at closing:​​​ ​ The deed – This is filed with the Recorded of Deeds office. It transfers title from the buyer to the seller. The Affidavit of Title – A statement by the seller about any known legal issues with the property or encumbrances on the seller’s title. Bill of Sale – A receipt-like document that shows the seller received all payments for the sale of the property. ALTA Settlement Statement – An itemized list of all the money and credits during the exchange. Transfer Tax Forms – Tax forms that show the amount of consideration paid for by buyer for the purposes of evaluating the transfer tax costs. ​ At least three business days before your closing, the lender should give you Closing Disclosure statement, which outlines closing fees. Compare this to your Loan Estimate and ask the lender to explain what each line item on your closing costs is and why it is needed. There are limitations on the amount a number of fees can increase from the Loan Estimate to the Closing Disclosure so there really shouldn’t be any surprises on closing day. But if there are, you can still walk away at closing.

Mortgage Pre-Approval / Approval Mortgage Pre-Approval is a letter provided by a mortgage professional which shows you what you can afford to spend and what your monthly payment will look like. A pre-approval differs from a pre-qualification because a pre-approval means you have a conditional commitment by a lender for a specific loan amount. ​ A mortgage Pre-Approval letter from a lender assures you, sellers and real estate agents that you have the ability to a complete the purchase of any home that meets the lender’s guidelines. ​ You give your lender information and provide supporting documents as evidence. They will run a credit check and confirm the information you supply to provide an estimate of your borrowing limit. ​ Application - Required Documents - To secure a mortgage pre-approval, you must complete a mortgage application and submit all required documents. These can include (but are not limited to):​​ Social security number Proof of employment Last pay stub(s) W-2, 1099, or other income tax forms Pay stubs and W-2s (typically two years) Tax returns (typically two years if self-employed or you earn commissions or bonuses) Bank, retirement and investment account statements (two to 12 months, depending on loan) Financial statements (if self-employed) Letters of explanation for credit blemishes Divorce decrees, if you pay or receive spousal or child support ​ 3 Factors Influencing Loan Approval - Once you provide a mortgage professional the documents, you might be wondering what they're looking for to approval a loan. These are the 3 Factors they're evaluating from the documents you've submitted: Willingness to pay back the loan Refers to your credit history or a measure of your ability to pay your consumer debt Each individual is given a credit score ranging from 400 to 850 from one of the credit reporting agencies based on this history An individual’s credit score is a key determinant in influencing loan approval Ability to pay back the loan Front Ratio = monthly housing payments/gross monthly income (should be <30%) Back Ratio = total monthly debt obligations/grow monthly income (should be <40%) Appraisal or Appraised value of the property - This part is not part of the pre-approval evaluation. This is the third factor that a mortgage company will evaluate to determine whether they will approve a long for the property you've decided to purchase. An independent appraiser is hired to complete a full appraisal and submit it to the lender for review Appraiser uses a comparable analysis to arrive at the value of the property The appraiser’s evaluation of the property being financed must report a value greater than or equal to the purchase price ​ ​​