Clearing Up Home Buying Confusion
I was reading an article in an industry magazine, which described some things related to purchasing a home that many buyers were confused about. So much jargon is used in the real estate industry, it isn’t surprising this confusion exists. I thought I would do my small part to clear up some of these questions.
Clearing Up Home Buying Confusion
41% of buyers surveyed think it is required to purchase Private Mortgage Insurance (PMI) regardless of the amount of the down payment.
Answer: PMI is typically only required if the purchaser puts less than 20% down. Basically the lender believes borrowers with less skin (money) in the game are a higher risk of default. PMI is a type of insurance that protects the lender from this kind of loss.
56% of buyers surveyed believe the appraisal determines if the home is in good condition.
Answer: It is the purpose of the inspections to determine what condition a home is in, which may include a Contractor’s Inspection, Pest Inspection, Sewer Inspection etc. The appraisal is paid for by the borrower but is information for the lender to determine if the purchase price is reasonable. The appraisal does not determine whether the property is an specific condition. It is also important to remember the appraiser typically works a very large area, think San Francisco, Sonoma, Palo Alto, San Jose, and therefore is not an expert in any given neighborhood as the realtor may very well be.
37% of home buyers thought Homeowner’s Insurance is optional.
Answer: If the home buyer plans on borrowing money, the lender will require Property Insurance to be in place before they fund the loan and allow escrow to close. The lender wants assurance the collateral won’t be lost in a fire for example.
47% of buyers surveyed believed they owned the home after the purchase contract was signed.
Answer: Ratifying the purchase contract merely begins the process. The ratified contract along with the buyer’s Earnest Deposit allows escrow to be opened. Having a ratified purchase contract allows a buyer to have the time they need to do inspections and secure financing without the potential of the home being sold to another person. Escrow is opened with the escrow company so that a third person (escrow company) can hold onto the buyer’s money and the Seller’s Deed. Once all the details stipulated in the contract are completed the Deed with the buyer’s name is recorded at the Recorder’s Office and the buyer’s monies are transferred to the seller. Once this is completed escrow closes and the deal is done.
