THE HOME BUYING PROCESS

Contract For Purchase And Sale of Real Estate

Written document submitted by a buyer or seller to reach an agreement on the purchase/sale of a piece of property-providing the basis for all that follows until title is transferred and possession taken by the buyer.

Earnest Money Deposit

At the time a written offer is initiated, the earnest money deposit is given as a guarantee that the Buyer will perform under the purchase agreement.  The amount is deposited into a third party trust account upon acceptance of  the contract and remains in that account until the time of closing.  At closing, the money is applied toward the purchase price of the property.  If the contract is not accepted or you do not qualify for a loan, your earnest money will be returned to you (providing the sellers are given notice regarding the lender's disapproval and a release is signed by all parties to the purchase agreement).

Mortgage Loan Application

Once buyers and sellers have agreed on the price and terms of the purchase, the next step is a loan application.  An application form is completed with a mortgage loan orginator, expediting all necessary paperwork, including ordering a credit report and appraisal for the property.  Anyone who will be on the title as new owners should be present.  You will be required to pay in advance for your credit report, appraisal and possibly a mortgage survey.  The apraisal is required by the lender to determine that the amount of the loan is justified based on the appraised value of the property.  The mortgage survey is used to determine that all improvements are within the property lines, but not used to construct fences, etc.  (You may order a stake survey at an additional charge.)  At this time, you will receive the lender's "good faith" estimate of all costs, so there are not surprises at the time of closing.

Discount Points

A loan discount is a one-time charge used to adjust the yield on the loan to what market conditions demand.  Discount points are used to make the mortgages attractive as an investment at times when the current interest rates do not give a desirable yield.

Discount points are charged as a cost in addition to the established interest rate to enable a lender to make loans no matter what the condition of the money market at that particular moment.  It is important to know that FHA and VA loans the government does not actually make the loan, but only insures (FHA) or guarantees (VA) its repayment to the lender.  Through the use of discount points, lenders are able to increase the "yield" to ivestors above the fixed interest rate.  "Yield" merely means total earnings on a loan (interest plus points).  A "point" is equal to 1% of the new loan amount.  Discount points are fugured on the amount of the loan, not the sales price.

Points fluctuate because the mortgage market is much like the stock market, with prices rising and falling based on supply and demand.  The mortgage market is an intregal part of the national money market - serving all kinds of capital and credit needs.  If rates (yields) on martgage loans are lower than other investments, such as stocks or bonds, the funds will be drawn away from the mortgage market.  When there is a heavy demand upon the money market because of business needs, military requirements or other government borrowing, the result is that money for home mortgages becomes scarce and more expensive.


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