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Seattle Real Estate Blog

Local real estate news in the Greater Seattle market: Home prices and trends in Seattle, on the Eastside, and across the Puget Sound region. Written by , Managing Broker with Coldwell Banker Danforth and State Director for Washington REALTORS.

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June 5, 2015

Seattle Seller Squeeze: Inventory Drops To Another Low, Sale Prices 102% of List

The Seattle real estate market pushed into an even stronger seller's market in May.  Home prices rose, inventory dropped, and sale-to-list price ratios jumped.

If there was ever a time to sell in Seattle, this is it.

Seattle Real Estate - King Co Months of Inventory and Sale-to-List Price Ratio

Seattle real estate sellers market

Inventory in King County for residential real estate dropped to just 1.2 months of available homes for sale.  A balanced market should have closer to 5 months of available homes. That tight inventory makes buyer competition fierce in a region where the job market is strong, and new employees are relocating from all over the world.  The demand for homes is growing, and the supply of homes is not keeping up.

This drives the increase in sale price to list price ratios that we're seeing.  The average home sale last month was 102 percent of the list price. When you take into account older, stale listings that had long marketing times, it's clear that most new listings that sell in the first week or two are selling for significantly more than their list prices.

Of course, overpricing still has its drawbacks. Bidding wars drive a home to its market potential. Overpriced homes sit for a while on the market and buyers wonder, "What's wrong with this house?" when it doesn't sell in such a fast-paced environment.

The combined effect of rising Seattle home prices, new residents moving to the area, low interest rates, and miniscule real estate inventory are making this an ideal time to be a home seller in Seattle. If you're thinking about moving up, downsizing, or relocating any time in the next few years, now is probably the time.

Whether or not it's ideal for your long-term schedule, it's probably ideal for your pocket book.  Interest rates won't be this low in a few years. At that point, buyers for your home will be able to afford less home, and so will you. Make the move while you can lock in long-term financing at low rates instead of waiting to hear that the market has turned.

Give us a call. Let's get your home sold at a premium price, and have a managed plan to get you into that next home right away.

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Seattle Homes Group

© Seattle Homes Group
Sam DeBord, Managing Broker, REALTOR®, Coldwell Banker Danforth

Director, Seattle King County REALTORS® - State Director, WA REALTORS®
Twitter | Facebook | LinkedIn | Google + | Sam (at) SeattleHome.com

Statistical source if not otherwise noted is NWMLS. The Northwest Multiple Listing Service did not compile or publish this information.

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May 5, 2015

Real Estate: What is Ginnie Mae?

ginnie mae

What is Ginnie Mae?

Real Estate Terms and Definitions:
Ginnie Mae

Quick Definition: The Government National Mortgage Association, or "Ginnie Mae," is a government agency supervised by HUD. A primary function of GNMA is to promote investment by guaranteeing the payment of principal and interest on FHA and VA mortgages. It carries out this function through its mortgage-backed securities program.

In-Depth Explanation of Ginnie Mae

For real estate consumer purposes, Ginnie Mae is simply an insurer of government-backed loans.  It's a way for FHA and VA loans to be originated for many borrowers, and for those loans to be turned into securities for investors that have insurance protection built in.

Ginnie Mae is just a small facet of the government-backed lending sphere, and one that most buyers and sellers won't be concerned with.  Fannie Mae and Freddie Mac or more closely tied to the actual borrower in home lending, but Ginnie Mae does provide the support for HUD that allows specialized loans like VA and FHA to remain viable.

How Ginnie Mae could affect your real estate transaction:

Contrary to most of our other real estate terms, Ginnie Mae is probably one you won't be hearing during your real estate transaction.  If you are financing a home with an FHA or VA loan, there's some inherent support of Ginnie Mae in the process, but you won't see it.  

You could say that Ginnie Mae has a hand in allowing you to buy a home if you're making a small down payment.  Its original role was to expand home ownership opportunities, and it has done that in the sense that it allows many more lenders to make loans at more attractive rates.

Want to know more about ginnie mae?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your ginnie mae questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

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May 4, 2015

Real Estate: What is a Fixture?

fixture

What is a Fixture?

Real Estate Terms and Definitions:
Fixture

Quick Definition: A fixture is something that is permanently attached to a property and belongs with the property when it is sold, such as a light fixture, ceiling fan, etc.

In-Depth Explanation of Fixtures

Fixtures are items which are attached to a piece of property in real estate.  They are "afffixed".  Fixtures commonly transfer from seller to buyer in the purchase of real estate, but since contracts can differ, it's best to be specific when writing a sales contract.

Real estate agents may say "If it's nailed, glued, or screwed to the property, it's a fixture."  This is generally true.  Large objects like refrigerators and ovens may seem like obvious components to stay in a home, but it they're just plugged in and not affixed, they'll often be taken by the sellers at closing.

Buyers and sellers should never rely solely on a generic rule, but as a starting point, they should assume that anything affixed to the property with a fastener or adhesive is a fixture and will convey from seller to buyer.

How fixtures could affect your real estate transaction:

Confusion over fixtures can, and does, create many problems in real estate transactions.  It is always best for home sellers to take inventory of the home with their agents before listing it for sale, and make notes of all the items that will convey to the buyer, and those that the seller will keep.

Fixtures can be kept by the seller, if the seller states it clearly in the sales contract.  It's best if the seller labels these items upfront as staying with the seller, and then reminds the buyers at the time of accepting an offer.  When a buyer moves into a new home and finds some of the components missing that were expected to be present, unnecessary legal disputes occur.

Some of the most common items that create disputes between buyers and sellers are window treatments and components, wall hangings, mirrors, shelves, light fixtures, and appliances.  The curtain rods might be attached to wall, but the curtains themselves might be taken by the sellers.  The shelves on the wall might seem decorative, so the seller may take them before the sale.  

The buyer may expect that laundry appliances, microwaves, or bathroom mirrors will remain in the home.  If they're affixed in some way to the home, they should, in most cases, be left by the seller.  There's no need to guess and hope at the close of the sale, though.  If seller and buyer do an inventory of items before signing the purchase contract around, the agents and the clients will all know which items are rightfully conveying from seller to buyer, and which aren't.

Want to know more about fixtures?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your fixture questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

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April 30, 2015

Real Estate: What is Freddie Mac?

freddie mac

What is Freddie Mac?

Real Estate Terms and Definitions:
Freddie Mac

Quick Definition: The Federal Home Loan Mortgage Corporation, or "Freddie Mac," is a government agency that performs a function similar to that of FNMA ("Fannie Mae"). FHLMC issues its own mortgage-backed securities, which are backed by the conventional mortgages it purchases.

In-Depth Explanation of Freddie Mac

There are lots of technical breakdowns of what Freddie Mac is, how it is governed, and how it works.  For the real estate consumer, though, the definition can be much more streamlined.  Freddie Mac allows banks to make loans to consumers, under strict rules and guidelines, and then sell the loans to Freddie Mac to free up bank funds and make more loans.

Freddie Mac, like Fannie Mae, is the grease that makes home lending work smoothly on a large scale.  Individual banks have a certain amount of money on hand to lend to borrowers.  If they can only lend that amount of money to borrowers, and then wait 30 years for the mortgage to fully mature and get the funds back, they will make very few loans.

By originating loans at the bank, and then selling the loans to Freddie Mac, the bank returns funds to its coffers and can make another loan.  The borrowers can continue buying homes.  Investors purchase the loans from Freddie Mac as securities.  They are investing in the repayment of mortgage loans and interest over time.

Freddie Mac and Fannie Mae are government-sponsored enterprises.  They were created to bring stability and predictability to the home lending market, because home ownership has been seen to be a benefit to the country as a whole.  Schools get better, crime rates drop, and communities improve when residents own their homes.  Real estate lending must have strong requirements that verify a borrower's ability to pay for a home long-term before making a loan.  We also need a system that includes a secondary market, supported by enterprises like FHLMC and FNMA to encourage responsible home ownership, as it is an overall benefit to our country.

How Freddie Mac could affect your real estate transaction:

If a buyer is financing a home purchase, the seller will often want to know what kind of financing the buyer is obtaining. There may be a financing contingency in the purchase contract that states this information.  Often it will show the amount of the buyer's down payment as well as the type of loan--conventional, FHA, VA, etc.

Conventional loans don't have to be Freddie Mac or Fannie Mae loans.  Many lenders originate conventional loans and sell them to FHLMC and FNMA, but others they keep on their books and "portfolio" the loans, or sell them elsewhere.  For a seller, though, a buyer with a conventional loan can be thought of as someone who is likely to be getting a loan underwritten with Freddie Mac or Fannie Mae standards.  That same conventional buyer could be getting their loan from a local lender or other entity that keeps the loans on its own books.

Want to know more about freddie mac?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your freddie mac questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

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April 29, 2015

Real Estate: What is Escrow?

escrow

What is Escrow?

Real Estate Terms and Definitions:
Escrow

Quick Definition: Escrow is a third party, acting as the agent for the buyer and seller, who carries out instructions of both and assumes the responsibilities of handling all paperwork and disbursement of funds.

In-Depth Explanation of Escrow

In states where escrow is used for the closing of a real estate transaction (as opposed to attorneys in other states), escrow is the go-between for the parties.  Buyers, sellers, and their real estate agents are working two separate sides of a transaction.  Escrow is the intermediary where mutually accepted documents are sent to be held.  The lender financing the transaction will send its loan documents to escrow.  The escrow company is the unbiased transaction handler.

It is the escrow company's job to:

  • Receive contract paperwork
  • Take a deposit of earnest money from the buyer (in many cases)
  • Schedule closing appointments
  • Verify that the parties to the contract are in agreement that all contractual responsibilities have been achieved
  • Prepare closing and recording documents
  • Prepare lender-generated loan documents
  • Organize the signing of documents for buyers and sellers
  • Receive down payment funds from buyers
  • Return mortgage documents to lender
  • Receive mortgage financing funds from lender
  • Transfer sale funds to seller's obligations including lenders and liens
  • Transfer sale proceeds to seller
  • Record the transaction with the local municipality (often the county)
  • Prepare and deliver records of closing documents to all parties 

How Escrow could affect your real estate transaction:

Escrow is an important part of your transaction because it is the gate keeper to your closing.  Responding to your escrow company promptly, with all of the information requested, is important to keeping your transaction moving smoothly toward an on-time closing.

Delivering your earnest money deposit to escrow within the contract timeline is necessary to avoid having your contract cancelled due to lack of performance.  Buyers should always get a receipt for their earnest money deposit and agents on both sides of the transaction should receive a copy.

In the event a transaction fails, the contract will stipulate how the earnest money should be disbursed to the buyer and/or seller from the escrow company.  

In Washington, buyers and sellers will usually sign their closing documents a few days before closing at the escrow company's office.  Escrow companies are often aligned with title companies, but need not be.  Signings can also be done remotely, with a buyer or seller choosing the location and a mobile notary organizing the signing.

Escrow will be responsible at the end of your transaction for either delivering your sale proceeds, as the seller, or notifying you that the sale has recorded and closed in your name, as the buyer.

Want to know more about escrow?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your escrow questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

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April 22, 2015

836 2nd Ave #104, Kirkland, WA 98033 - For Sale Kirkland Condo

Price: $570,000             Ref: 775180
Address: 836  2nd  Ave  #104,  Kirkland,  WA  98033

 

Kirkland Area with...
2 Bedroom and 2.00 Bathroom
View: Territorial
Unit Features: Alarm System,Balcony/Deck/Patio,End Unit,Ground Floor,Insulated Windows,Master Bath,Walk-in Closet
Dishwasher,Garbage Disposal,Microwave,Range/Oven,Refrigerator
Ceramic Tile,Hardwood
Appliance Hookup: Cooking-Electric,Cooking-Gas,Washer
1 Fireplace
Common Features: Cable TV,Elevator,High Speed Int Avail,Lobby Entrance
No. of Park Spaces: 2
Homeowners Dues: $363.00
Dues Include: Garbage,Water/Sewer,,
Fabulous Kirkland Condo, 1516 sqft, 2bed + den. Spacious master suite with walk in closet. Double sided fireplace, new manufactured hardwood floors with radiant heat throughout. Newly renovated kitchen with SS appliances. Two private patios for relaxing and grilling or entertaining. Secure entrance with wheel chair access, storage area and garage with two parking spaces. Charming complex offering downtown Kirkland lifestyle!
For more information about this listing, make note of the Reference Number (775180)
and contact the following Agent or Office.

 

Email: 
Sam DeBord 
Web Page: http://SeattleHome.com
      Coldwell Banker Danforth

      Address: 155 NE 100th Street #120 - Seattle, WA 98125

      Phone: (206) 971-8800

    Fax: (206) 420-4367
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April 9, 2015

Real Estate: What is a Due On Sale Clause?

due on sale clause

What is a Due On Sale Clause?

Real Estate Terms and Definitions:
Due On Sale Clause

Quick Definition: A “due on sale” clause in a mortgage provides that if the mortgagee sells, transfers, or in any way encumbers the property, the mortgagor has the right to implement the acceleration clause, making the balance of the obligation due.

In-Depth Explanation of Due On Sale Clause

Due On Sale clauses allow lenders to ensure that the property they finance will only be financed by borrowers whom they have approved.  They let lenders loan money to borrowers who are purchasing or refinancing real estate, but allow the lender to end the financing term if the borrower sells or transfers the ownership of that property.

Due on sale is a type of acceleration clause.  Acceleration clauses in financing are clauses that allow the lender to ask for full payment of the loan immediately.  If a certain condition occurs, that has been specified in the acceleration clause, the lender immediately has the right to ask for the borrower to pay the loan balance off in full.  The lender doesn't have to enforce the acceleration clause.  If lenders feel that the financing is still worthwhile, they may allow borrowers to keep making payments, but as soon as the acceleration clause has been triggered, the lender can, at any time, ask for the loan payoff.

A clause that's specifically written as a due on sale clause will allow the lender to accelerate the loan if the property is sold or the title is transferred to another person.  These clauses are used in almost all real estate lending today.  In the past, there were assumable mortgages that could be carried over through a sale.  A borrower could sell a home to a buyer, and the buyer would take on the seller's existing mortgage, continuing to make payments on it.  This reduced transaction and lending costs in some scenarios.  Assumable mortgages are rare today, unfortunately.

A mortgage with a due on sale clause usually has some exceptions.  Often, borrowers can transfer the property to their spouses in a divorce situation, or borrowers can transfer the property into their personal trust.  These should be verified in every lending situation before attempting the transfer, but they are common.  In most cases, though, transferring any ownership of your property to a person or entity which was not an owner at the time that financing was granted, will result in the due on sale clause being available to the lender.

How Due On Sale Clause could affect your real estate transaction:

Acceleration clauses and due on sale clauses will be present in any real estate financing.  A thorough conversation with a mortgage lender will educate the home buyer on the terms of the financing, including the due on sale clause.  This is a good time to review how the title to a home is transferred, how it is recorded, and how a recorded lien like a mortgage is also recorded against the property.  Borrowers will understand more clearly how a lender is notified that ownership has been sold or transferred, triggering a due on sale clause, when they understand the recording of documents.

While the acceleration clause won't have much relevance during the purchase of a home, it could have an effect on the time frame in which a borrower sells a home.  Carelessly transferring partial ownership of a property to family members or friends can put a borrower at risk of triggering an acceleration clause and having to sell the property to pay off the mortgage.  Real estate owners should never transfer real estate without proper guidance.  A real estate broker and real estate attorney are your best advisors when considering transferring or selling real property.

Want to know more about due on sale clause?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your due on sale clause questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

Share This Post
April 8, 2015

Real Estate: What is a Down Payment?

down payment

What is a Down Payment?

Real Estate Terms and Definitions:
Down Payment

Quick Definition: The Down Payment is the amount of the purchase price that a buyer pays to the seller and that is not borrowed from a financial institution. It’s the portion of the sale price that is not included in the mortgage.

In-Depth Explanation of Down Payment

The down payment on a home purchase is a fairly straightforward concept. A home buyer will often get a loan, called a mortgage, to buy a home. The mortgage will usually only pay for part of the purchase price. Buyers have to come up with the rest of the purchase price with their own money. That portion of the purchase that comes from the buyers' money, not the bank's loan, is called the down payment.

Down payments come in many sizes. The down payment most often referred to is a 20 percent down payment. To get the best financing interest rates from a lender, many home buyers will put 20 percent of the purchase price down from their own funds, and borrow 80 percent of the purchase price in the form of a mortgage. There are also more attractive rates when the buyer can afford an even larger down payment, but the biggest benefits usually start at the 20 percent mark.

There are still great options for smaller down payments. Some borrowers may qualify for VA loans. That may allow them to finance 100 percent of the property, effectively having no down payment necessary. FHA loans, in some cases, will allow buyers to put just 3.5 percent down. There are also conventional loans that allow 5 percent, 10 percent, and 15 percent down payments. These kinds of programs open up home ownership to a much larger portion of the public.

Mortgages for borrowers who have down payments of less than 20 percent also often have some sort of private mortgage insurance (PMI). PMI is used to insure the lender against losses if the borrowers default on their payments. In the case that the home buyer stops making payments on the mortgage, and the down payment on the purchase was fairly small, the lender needs to know that it won't take a loss on the property if it has to foreclose on the property and resell it. PMI safeguards the lender in these situations. It may be an extra monthly fee added to the mortgage payment, or in the case of some government-backed loans, PMI can be an upfront fee at the point of financing.

There are other costs to consider besides just a down payment when calculating how much money a buyer needs to have available for buying a home. Buyers should plan on having their down payment funds, plus closing costs for the loan, property taxes, and homeowners' insurance all available for the purchase. Talking to a lender is the best way to be prepared for the overall costs of buying a home making sure your assets are enough to cover things like closing costs and PMI if they apply to your situation.

Down payment funds don't always have to come from the buyer directly. It's up to the lender, but some allow for down payments to come as a gift from a family member. The funds could also come from a local grant or government assistance program. Most funds need to be seasoned and sourced. That means they need to have been in a verifiable account for a significant amount of time so that the lender can see who the funds belong to, and where they came from.

How Down Payment could affect your real estate transaction:

Down payment is a consideration when looking at the price of home that buyers can purchase. The larger the down payment, the smaller the mortgage payment. For buyers who have limited monthly income, the total monthly payments they qualify for will be limited as well. Having a larger down payment will allow them to stretch the price of the property they can purchase.

While many buyers would like to put 20 percent down on a home, many with limited funds will put down less so that they can move up in price. The neighborhood, style, or size of home they need might give them reason to put a smaller amount down on a higher-priced home.

Home sellers will often look at the size of a down payment as an indicator of a home buyer's financial strength. If they receive multiple offers on their home, the strength of the buyers' financial status will be one of the factors considered in which offer to accept. An all-cash buyer, or a buyer with a very large down payment, may be viewed as a superior buyer who is more likely to close the transaction. For some sellers, that could be the deciding factor in choosing an offer. 

Securing your down payment funds and documenting their ownership and source over time is very important to keep your transaction running smoothly. A lender will often ask for multiple months' worth of bank or savings institution statements to document the ownership of the funds. Delaying this documentation, or transferring funds between different sources during the transaction, can cause delays in closing and even termination of sales contracts.

Working with a lender early in the buying process, and continuing to update the lender and quickly respond with documentation, is essential to a home buyer working efficiently through a transaction. Get the down payment, and any other closing costs, in a safe account which can be verified throughout the sale and quickly converted to a wire or cashier's check for the closing of the transaction.

Want to know more about down payment?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions. Give us a call or send us an email and we can put you in touch with someone who can answer your down payment questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

Share This Post
April 6, 2015

Real Estate: What are Discount Points?

discount points

What are Discount Points?

Real Estate Terms and Definitions:
Discount Points

Quick Definition: Discount points are fees paid to buy down the interest rate when obtaining a loan. Each point is one percent of the total loan amount.

In-Depth Explanation of Discount Points

Discount points are money paid to a lender upfront by a borrower of a mortgage or other kind of loan to make the interest rate on the loan lower.  The borrower pays a point for a slightly lower interest rate, two points for an even lower rate, etc.

Discount points are calculated like other kinds of points on a loan (origination points, etc.).  A point is one percent of the total loan amount.  If a borrower is purchasing a home and needs a $100,000 loan, one point would be $1,000.

The borrower might be offered an interest rate of 5.0 percent on a 30 year mortgage.  There will be fees that are paid on top of that loan, including transaction fees and potentially origination points and/or discount points.  

The lender might offer the borrower a lower rate of 4.8 percent if the borrower pays 1 discount point ($1,000).  The borrower could pay two discount points ($2,000) and the lender would lower the rate to 4.6 percent.  Those discount points become part of the closing costs of the loan.

Discount points can be useful to a home buyer or borrower refinancing a mortgage.  You need to do a calculation based on the amount of time you intend to keep the loan to find out if discount points are right for you.  Since you're paying the points upfront, it will take some time for the lower mortgage payments, based upon a lower interest rate, to effectively "pay off" the points.  Most people need to stay in a home and carry a loan for a significant number of years for it to make financial sense to pay discount points.

How Discount Points could affect your real estate transaction:

Discount points could affect your ability to buy a home at a certain price point.  Since the interest rate on your loan will affect the monthly mortgage payment, your ability to afford a certain monthly payment can be dependent upon the interest rate.  

Depending on the borrower's situation, it may make sense to pay discount points, or do just the opposite.  The mortgage lender will look at the borrower's monthly expenses vs the monthly income.  The lender will calculate a debt-to-income ratio, and if the ratio is too high, the lender can't approve the loan.

By buying down the interest rate with discount points, and lowering the monthly mortgage payment, the debt-to-income ratio might actually go down to a level that satisfies the lender's needs.  A buyer who has plenty of cash on hand, but whose income isn't particularly high, might benefit from using discount points to qualify for a loan in this way.

On the other hand, borrowers with little cash on hand might have the opposite need.  They might have plenty of monthly income to support a high mortgage payment, but not enough cash on hand to pay for discount points or large closing cost fees.  In a home purchase, these borrowers might want to skip the discount points, or even ask their lender for "negative discount" options, which would effectively raise the interest rate slightly in return for reducing the borrower's overall closing costs.  The lender might be able to waive the origination fees/points on the loan if the borrower accepts a slightly higher interest rate on the loan.

Home buyers can also, in some cases, ask the home seller to pay for their closing costs, which can include discount points.  In the right situation, the buyer will negotiate a monetary credit from the seller.  When those funds are applied to the buyer's closing costs, it allows for the cash-poor buyer to finance more easily.  It can also allow a buyer to finance discount points and lower the mortgage payments in some situations.

Want to know more about discount points?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your discount points questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

Share This Post
April 3, 2015

Real Estate: What is a Disclosure Statement?

disclosure statement

What is a Disclosure Statement?

Real Estate Terms and Definitions:
Disclosure Statement

Quick Definition: Disclosure Statements, in the case of mortgage lending, are detailed explanations of the specific loan for which you are applying. There are also seller disclosure statements, which allow the seller to inform the buyer of material facts about a home.

In-Depth Explanation of Disclosure Statement

Disclosure statements come in different forms.  In general, they are intended to disclose important information about a transaction to the parties involved:  buyers, sellers, and the service providers working as a part of the transaction.

Mortgage disclosure statements will tell the home buyer about the details of the financing they are applying for or being approved for.  Disclosures for financing often have required timelines.  The lender must let the borrower know at a certain time during the lending process what the terms of the loan will be.  The borrower then has time to review the lending disclosure statements and make sure that all terms are agreeable.  This keeps home buyers from having to make snap decisions at the closing table when their financing terms and payments don't seem to match up to what they were originally promised.

Disclosure statements can also come from sellers of real estate.  A homeowner may have disclosures about the history of the property, its condition, past material issues, or other items affecting its value or its ability to be transferred. 

Seller disclosures offer the buyer a way to understand the history of the property a bit better before purchasing a home.  They are not a replacement for an inspection, however.  Sellers are only required to disclose material facts which they should have reasonably been aware of, in most cases.  That means it's incumbent upon a buyer to inspect the property with a licensed inspector.

Sellers should err toward disclosing as much as possible.  While there might be a desire to hold back information that might not be necessary to tell buyers, if a known fact about a home might be deemed material to the condition of the home, sellers will usually reduce their liability by telling the potential buyers upfront about the issue.

How Disclosure Statement could affect your real estate transaction:

As discussed before, timelines regarding mortgage disclosures can affect your real estate closing.  Home buyers need to make sure their lender has all of their documentation upfront, at the beginning of the transaction.  Any further requested material should be delivered to the lender immediately.  This will allow the lender to get a final underwriting approval for the buyer's mortgage earlier in the process, and avoid potential delays due to disclosure timeline requirements.

As for seller disclosures, they should be prepared by the sellers before the home is listed on the market.  The real estate agent will usually have access to a standard disclosure form that the sellers can fill out.  With this information readily available to potential buyers upfront, the process of disclosure will be much smoother for all parties.

Disclosing material facts about the property upfront will also allow the seller to potentially divert inspection issues and repair requests further down the road.  If there is a particular portion of the property that may need work or have issues, the seller and buyer can discuss that disclosure upfront, and work it into the original purchase contract.  This way, it's not a surprise adjustment halfway through the purchase transaction.

There are legal ramifications to disclosing appropriately, so any and all questions about liability should be directed to a real estate attorney if there is doubt about the necessity of disclosure.

Want to know more about disclosure statement?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your disclosure statement questions or any other questions about home buying, selling, and the real estate world.

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Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

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