Straight Talk About Real Estate

To avoid getting something other than what you were told, you must have all the terms in writing. Read the documents and make sure it is what you were told verbally. Do not assume anything.

A friend recently refinanced the mortgage on his home. He asked his loan agent if it was a 3-year fixed. The agent said it was, and the rate will adjust after three years. Two months after the refinance, my friend received a payment statement that showed an increase in his payment. I reviewed his loan documents, and sure enough, it does say the interest rate is adjusted annually. Unfortunately, he did not ask me for advise before he closed the loan, and he did not read the paperwork carefully before he signed.

Most people do not read the inch-thick loan documents that you sign when you close escrow. I admit, most of it is boiler-plate verbage detailing fine points that will probably not affect you. But I always advise my clients to read the parts that are filled in. The parts left blank are filled with the terms that are particular to your loan.

I have seen mistakes in loan documents such that they have to be redrawn before my clients will sign them. Here are some important points to check to look for:

Make sure your name and property address are correct. Yes, I have seen wrong names on the right address on loan docs.

Is the loan amount correct?

Check the term of the loan - 15 years, 30 years, etc. Make sure the last payment date shown is calculated correctly. For example, if it is a 15-year loan, and you close in May, 2006, your last payment date should be May, 2021. I caught that mistake on my refinance.

Does the prepayment penalty apply? What are the terms of the penalty? Is that what you were told?

What is the interest rate shown? Is it what you were told?

Is there an Adjustable Rate Rider? If there is, that means your loan has an adjustable rate feature.

Are impounds included? Is that what you wanted?

What should you do to prepare to move into your new house?
There is a lot you can do before escrow closes.

- Call all the utilities and tell them when to start service. You would want to have services at the new house when you move in. The seller may have already turned off the utilities and you will be left in the dark.
- Fill out the paperwork at the post office to let them know where to forward your mail.
- Reserve the rental truck, or the moving company that you will be using. Don’t wait till the last minute or they may not be available.
- Pack up all the small items in boxes to be moved. There are many things that you do not use daily that can be packed up, thus saving you from last minute rush.
- Be prepared to have the locks changed the day you move in. While the seller may be honest people, they may have given copies of the house key to repair people, termite inspectors, etc.
- Send out notices of new address to friends and relatives.
- Change delivery address for subscriptions and merchants.
- Notify children’s schools of change of address.

This list probably prompted you to remember other things you need to do before moving. Taking care of details before you move will leave you with fewer hassles later.

It is important for the buyer to understand that when the lender says he is approved for a loan, there are always conditions. An example of a condition is verbal verification of employment before closing. This is to ensure that the borrower did not lose his job or changes jobs midway. Another condition may be appraisal of the property. You can also expect some other detail that the lender decides to check on prior to closing. Do not be frustrated when the lender asks you for more documentation even after the loan is approved. Sometimes you just have to go through the hoops.

What is a preliminary title report, or prelim?

As a buyer you will be given a copy of the prelim to approve. The report is from the title company that will be providing insurance on the title on the property. The prelim shows the rightful owner of the property and lists any claims against the property for unpaid debts, such as property taxes and mortgage liens. The title company will require all liens be paid off prior to closing. Problems arise when there are liens on the prelim that the seller was not aware of or not suppose to be there. It may take some time to have it cleared. There may also be a cloud on the title. An example of that is if title was transferred but was not done properly.

Problems with title could cause delays in the escrow. If the buyer chooses not to approve the prelim, that needs to be communicated before the contingency period is up, in order to cancel escrow without the buyer losing their deposit.

If you are purchasing a condominium, can the seller provide a termite clearance?

Since condo units are attached, the seller obviously cannot include the outside in the termite clearance. That would affect the attached neighboring structures. Also, the outside maintenance is the responsibility of the homeowners association.

So in the case of a condominium, the seller can provide termite clearance for the interior only. If the termite inspector finds evidence of termite inside the unit, they will do local treatment. Chemicals can be injected into the walls. In the case of any wood damage they find on the inside, the affected pieces of wood can be replaced. I have seen wood subflooring replaced due to dryrot damage, and wood around the window frames replaced.

If there is evidence of termite damage outside, notify the homeowners association for further evaluation.

Do you need a lower monthly payment, but do not want an adjustable rate? You can have the security of a fixed rate with lower payments too. Consider a 40-year loan or an interest-only payment option. Your monthly payments will not be as high. Most interest-only option will allow you to make principle payments without penalty. So when your cash flow eases up, you can start paying down your principle.