Frequently asked questions

Generally, real property appreciates in value so it is considered a good investment. The unfortunate bubble and bust in the period of 2006-2009 was caused by a residential market that was driven by speculation rather than treating real estate as housing.  Houses did not depreciate – the bottom of the market fell out – just like the stock market has done at times.  However, real estate does age and depreciate, but at a very low rate.  In addition, if a house is not taken care of, unaddressed maintenance and repairs can substantially reduce value.  Changes in the surrounding area can also reduce value.  Make sure you carefully consider location and community when choosing a home, it can greatly affect a home’s future value.

This is a matter of preference, but both newer and older homes offer distinct advantages, depending upon your unique taste and lifestyle.

Older homes can cost less than new homes, however, in some cases, some new homes cost less.  New homes will have little or no landscaping.  Older homes typically have mature landscaping that may have cost thousands of dollars over the years.  People may be charmed by the elegance of an older home but shy away because they are concerned about potential maintenance costs and older appliances.  Home warranties can be used to cover costs on appliances and some systems.  Consider also that a lot of old homes have survived for a hundred or more years because they were “better-built” than a lot of the new ones.  Some updating in electrical, plumbing and insulation will aid in making them more efficient, but it is hard to argue with the overall durability.

With a new house, you can pick flooring, kitchen cabinets, appliances, custom wiring for computers, phones and speakers, etc.  Modern features like media rooms, extra-large closets and extra-large bathrooms and tubs are also more attainable in ground-up construction.  Older homes rely largely on the previous resident’s tastes and technological limitations, but price differentials may allow for remodeling and rewiring.

New building materials and designs can lower future energy costs and many states now have minimum energy-efficiency requirements for new construction.  Older homes, unless they have undergone an energy retrofit, usually cost much more per square foot to heat and cool.  Again, price differentials may allow for adequate updates.

As you can see there are advantages and disadvantages to each, and it really comes down to what fits you and what you are looking for in a home.

In a new house, you can pick your own color schemes, flooring, kitchen cabinets, appliances, custom wiring for TV”s, electrical, computers, phones and speakers, etc., as well as have more upgrade options. Modern features like media rooms, extra-large closets and extra-large bathrooms and tubs are also more attainable in ground-up construction. In a used home, you rely largely on the previous resident”s tastes and technological whims, unless you plan to farm thousands into a remodeling and rewiring.

New-home designers can use new building materials such as glazed Energy Star windows, thicker insulation and other technology that will lower future energy costs for the owner. Most states now have minimum energy-efficiency requirements for new construction. Kitchens and laundry areas in new homes are designed to house more efficient energy-saving appliances. Older homes, unless they have undergone an energy retrofit, usually cost much more per square foot to air-condition and heat.

Builders have to follow very strict guidelines in new-homes and additions, especially in the West and Northwest, where earthquake safety standards must be observed. In general, new homes are usually more fire-safe and better accommodating of new security and garage-door systems.

Older homes can be better judged for their quality and timeless beauty. New homes that now possess a smooth veneer might reveal the use of substandard building materials or shoddy workmanship over time.

As you can see there are advantages and dis-advantages to each, but it really comes down to what fits you and what you are looking for in a home.

There are people who say an agent only costs them money so they try to do a “For sale by Owner” (FSBO) or go it alone to purchase a property.  It can work, but the reality is most sellers end up using an agent after they have eaten up a lot of time and effort.  Buyers agents are usually paid through the cooperative arrangement in a listing agreement, so the buyer does not pay a fee.

Buyers looking at a FSBO are looking for a bargain – they are not looking to pay what the market can bear.  Agents can assess the market and set prices that are in the best interest of the seller.  And the number of eyes looking at properties is multiplied by thousands of times.

And remember, you have a job and other priorities on a daily basis.  To an agent, selling real estate is his or her job.  Coordinating the process once a contract is accepted is, again, what an agent is there to do.   Most people do not have the knowledge or training to walk through the process alone.

Self-surgery is probably not the best idea.

A real estate appraisal is the process of developing an opinion of the value for real property – usually market value –  the likely sales price it would bring if offered in an open and competitive real estate market.  The appraised value is important in the borrowing process.  It is the number that the lender uses to arrive at a potential loan amount – starting at 80% of the appraisal.

As to the process, real estate appraisers compare data of the subject property against other properties that they consider to be comparable – like sizes of land, building size, construction, age, location, and features.  “Slight” differences or lack of these qualities will be given adjustments to arrive at a conclusion as to the appraiser’s opinion of the subject’s value.  Older and historic properties can present some challenges to an appraiser where comparable properties may relatively limited.

Noting that appraisals are opinions, the process is heavily regulated by procedures to be followed and by licensing Boards that require reasonably extensive education and experience requirements.  (Virginia requires 150 hours of education AND 2,000 internship hours within 12 months!)

Real estate agents may disagree with some results – mostly when the value is lower than they would like – but the fact is:  Appraisers have way more training and experience than real estate agents!

Sellers would be advised to seek out appraisals to help set pricing on their property as a part of the listing process.  For the price of a residential appraisal (less than 2/10ths of 1% of the value of a property) a lot of wasted time and effort could be saved for sellers and their agents.

Most mortgages originated today calculate interest in arrears, unlike consumer loans which calculate interest to the date of payment receipt. As an example, when borrowers pay their February mortgage payments, they are paying the January interest. This method of calculating interest is based on a 360 day year in which each month has 30 days.

For a fixed payment loan, based upon the number of years of the loan, an amortization schedule is prepared that states (by mathematical formula) the amount applied to interest and the amount applied to the loan balance.  The amount to interest goes down and the amount applied to the balance goes up as payments are made.

Typically, the minimum loan process takes about 30 days.  Data checking of the information presented by the borrower, appraisals, title searches, etc. take time.  If there are any problems with the data or data is not available – more time.

Borrowers are cautioned to not commit to large purchases requiring borrowing during the approval period – some people do not listen and the qualifying process has to be reassessed.  Most delays are self-inflicted!!

“Prequalified” means that you POTENTIALLY could get a loan for the amount stated to you, assuming that all of the information you provide to the bank is complete, accurate and true.

“Preapproved” means you have undergone an extensive financial background check, which includes looking at your credit history, previous tax returns, verifying your employment – and the lender is willing to give you a loan, basically meaning you are approved!

You will usually be provided an accurate figure which shows the maximum amount for which you are approved.  Most sales contracts require the buyer to become “preapproved” within a limited timeframe.

You will usually be provided an accurate figure which shows the maximum amount that you are approved for.  Most sellers prefer buyers that have been preapproved because they know that there will not be any problems with the purchase of their home.

The easiest way to avoid private mortgage insurance (PMI) is by making a 20% (or more) down payment on a property purchase.

PMI can also be avoided by using a combination of a first and second mortgage commonly referred to as 80/10/10 or 80/15/5.  These two methods combine a first mortgage lien for 80% of the home price with a second mortgage lien for either 10% or 15% of the home price leaving the remaining 5% or 10% as the down payment. Because the first lien is at the magical 80% loan-to-value, there is no PMI required, even though a second mortgage is being “piggybacked” onto the financing.

While second lien terms are not as attractive as first lien rates, the second mortgage is still home mortgage interest that is currently deductible for income tax purposes –  PMI insurance is not.

mortgage is being |piggybacked| onto the financing thus allowing for the lessor down payment.

While the second lien terms are not as attractive as first lien rates, the second mortgage is still home mortgage interest and thus deductible as such on your federal tax return where PMI is insurance and offers no deduction.

Title insurance is used to compensate the lender and buyer if disputes arise over the title of a property.  Mistakes can happen.  Prior transactions can be faulty, undisclosed or discovered liens may exist.  Insurance to cover the cost of dealing and/or correcting such things should be considered.  If you are a borrower, your lender will require at least some insurance to cover them.  You as a buyer can opt out, but if there are problems with the title and you did not take out a loan to buy the property, you will have to bear the costs of fixing it or be responsible for liens, etc.

When a loan is originated, the mortgage documents specify the escrow conditions. This has become a standard practice for all mortgages, including FHA, VA and conventional mortgages.  Occasionally on conventional loans, FRFCU waives the collection of escrow requirement at closing if the borrower has a minimum 20% equity position in the property.

Most mortgages originated today calculate interest in arrears, unlike consumer loans which calculate interest to the date of payment receipt. As an example, when borrowers pay their February mortgage payments, they are paying the January interest. This method of calculating interest is based on a 360 day year in which each month has 30 days.

For a fixed payment loan, based upon the number of years of the loan, an amortization schedule is prepared that states (by mathematical formula) the amount applied to interest and the amount applied to the loan balance.  The amount to interest goes down and the amount applied to the balance goes up as payments are made.