There are many steps in the home buying process, but the first thing you want to do is get pre-approved with a mortgage lender. This is important for three reasons:
- You will get a better idea of how much house you can afford.
- The lender will give your realtor an approval letter that makes any contract offer stronger.
- You learn about the various loan programs you’re eligible for.
Many home buyers aren’t aware that there are many different types of mortgage loan programs available. Today, we’re discussing one of the lesser known loan programs.
The Rural Development (RD)
The Rural Development (RD) loan is offered to rural property owners by the United States Department of Agriculture. The most popular feature of USDA Loans is that it offers 100% financing to qualified buyers; that’s right, no money down.
No money down loans might seem too good to be true, but this may be the loan for you if you don’t have a ton of cash saved up and want to live in a rural area. Rural Development means just that, this loan is only available in rural areas.
What is considered a rural area?
To determine what qualifies as a rural area, your mortgage lender will enter a potential property address into the USDA RD eligibility website to find out if the RD loan is a option. Keep in mind, in Middle Tennessee, there are some areas in the outskirts of Murfreesboro and Mt. Juliet that are currently eligible for the RD loan, so it’s not like you have to live in an extremely rural town. In fact, 97% of the country is in an eligible area.
There are also guidelines you must meet to qualify, including income limits. Typically, in the Middle Tennessee area, the maximum income amount is in the $78,000-80,000 range; it depends on the county and number of people living in the household. Minimum credit scores are also required. Typically, a 640 credit score is necessary. Most often, your debt-to-income ratio (monthly debts divided by gross monthly income) can’t exceed 41%.
If you are eligible for the RD loan, there are multiple ways it’s a tremendous value:
1. Cheaper mortgage insurance There are mortgage insurance fees, both upfront and monthly, but it’s cheaper than another popular government loan, the FHA. The upfront fee (“guarantee fee”) can be financed, so you won’t be paying that out of pocket, and it is currently 1.0% of the loan amount, compared to 1.75% for the FHA.
The monthly fee is 0.35% of your loan balance divided by 12. For a $150,000 balance, your monthly mortgage insurance payment works out to be $43.75, which is a substantial savings compared to the FHA loan, which is typically 0.85% of your current balance ($106.25/month in the same scenario).
2. Low interest rates RD rates are extremely competitive. Local mortgage loan originator with F&M Mortgage in Brentwood, Andrew Chelton, says, “Our interest rates on the RD loan are typically the lowest possible rates we can currently get on any loan program.”
3. The aforementioned no money down It doesn’t get much better than that – no money down means you get to keep more money in your pocket for house updates, repairs, or emergency funds.
Andrew adds, “The combination of no money down, cheaper monthly mortgage insurance, and fantastic rates currently makes this loan the best bang for your buck.”
For more information on the USDA RD loan or to find out if you’re eligible, contact Andrew Chelton with F&M Mortgage at email@example.com or 615-400-2086.
When your client is ready to buy or sell a home, picking the right title company will determine whether your house-hunting process rolls over smoothly or not. Your title company should be reliable, trusted, and communicative throughout the entire closing process! However, to ensure the closing process goes as smoothly as possible, here are some simple steps to take on the front end to help title processors exceed your expectations.
Provide Your Commission and Broker Fees with the Contract
The process can be busy; however, it is imperative that you provide the title company with your commission or broker fee. In some cases, unfortunately, this issue isn’t caught until you are sitting with your clients at the closing table, which can make for an awkward conversation about why there is an extra $150.00 broker fee that the buyer owes. If we can get all the commission and broker fee information up front and then the agent double checks their fees when we send out the first ALTA, we can prevent this awkward conversation!
To ensure that this problem doesn’t continue, please provide the commission percentage and broker fee immediately when sending the contract to your title company.
Provide HOA Information
To help ensure that the Home Owners Association is ordered in a timely manner, please provide the HOA information in the appropriate section on page 10 of the contract. Providing this information when the contract is sent to the title company will help save time and money for you, your title company, and your client. HOAs have started charging rush fees on orders that are needed “quickly”. Quickly can sometimes mean two to three weeks and those fees have been as high as $350.00! If we get the HOA information on the front end, we can order the statement of accounts quickly and avoid the extra fees. However, if there is not an HOA for the property, please state so in the contract as well.
Correct Spelling/Vesting of Names
Correct spelling of the buyer’s/seller’s name is crucial for a smooth closing. It is common for a nickname to be on the contract because it’s the everyday name the client is known by, however the full name of the client needs to be displayed on the contract for legal purposes. The vesting will need to be spelled correctly for the conveyance, and sometimes the contract does not have everything right. If the information is not taken down properly, any misspellings could lead to problems later down the road and unfortunately, down the road usually ends at the closing table. Having to go back to a lender and let them know that names are spelled wrong, is one, never fun and two not a fast process. And nobody wants to sit and stare at their clients waiting on the new documents to arrive.
Lender Information / POA
Adding the lender’s information when sending the contract over is a tremendous time saver for the title processors. Once we receive a contract, we determine if there will be a lender involved and will reach out at the appropriate time for a title request. Unfortunately, we are unable to order a title work without a request from the buyer’s lender. By sending the lender’s contact information it will save time for the respective parties.
Will there need be a Power of Attorney? Agents, ask your clients this question as soon as possible. If the answer is “yes” then contact your title company with the information. Knowing beforehand streamlines helps the process for all parties involved and eliminates issues later throughout the closing/title process. Finding out two days before closing that there needs to be a POA and the person signing the POA is in a middle eastern country is a little stressful for everyone involved. (Not that we are speaking from experience). Getting POAs signed early and the original in the file ready to go to the register of deeds office, helps those closings run very smooth.
Review / Approve the ALTA
One of the final steps of the closing process, a title processor will send an ALTA document to the agent for review. It is imperative for you, the agent, to thoroughly look over the document for any mistakes or changes that need to be made. Title processors try their best to make the form as correct as possible, however mistakes can happen. Thus, it is important for you to identify any miscalculations before your client sits at the closing table to sign.
Looking for a title company in the Middle TN area? We can help you with that. Contact us today to get started!
- Title insurance protects your buyers against a loss arising from problems concerning the title of your property.
- Title searches are completed on the property that provide a full history of the land. It will assist the attorney, or closing agent, to determine if there are fraudulent conveyances, unpaid taxes, unreleased liens against the property or problems with the legal description being conveyed. Title insurance covers the insured party for any claims and legal fees that arise from such problems.
- There are two different types of title policies: lender policy and owner policy. If your buyer takes out a mortgage, most likely, the lender will require such protection for an amount equal to the loan. As with all mortgage insurance, it protects the lender but the borrower will pay the premium, which is a one time single payment made upfront, at the time of the purchase or refinance. The coverage will continue for the life of the loan but once the loan is paid in full and released, the coverage under the policy will stop. Although, sometimes the owner may indirectly benefit from the lender coverage, this required insurance protects the lender up to the amount of the mortgage, but it does not protect the owner’s equity in the property. For that protection, your buyers will need an owner’s policy for the full value of the home.
- In Middle Tennessee, sellers have been paying for title policies as part of their obligation to deliver good title to the buyer. Be careful to make sure your contract requires the Seller to pay for the lender and the owner policy. It is advisable to get both policies at the same time because the additional cost above the cost of the lender policy is relatively small. However, there is no requirement to obtain owner policy as there is on the lender policy.
- Owners often believe that since they have paid for the lender coverage that it protects them as well as the lender and there is no necessity for the additional owner policy. This is simply not the case. Title policies are indemnity policies that protect against loss and a lender policy would only cover the lender’s loss.
- Unlike most insurance policies, title insurance, with a few exceptions, only protect against losses from claims that arose prior to the date of the policy. Coverage ends on the day the policy is issued and extends backward in time for an indefinite period. This is in marked contrast to property or life insurance, which protect against losses resulting from events that occur after the policy is issued, for a specified period into the future. However, these type policies also have ongoing premiums to insure the policy remains in place instead of the one time premium that is paid for title insurance.
- Sometimes title problems occur that could not be found in the public records or are inadvertently missed in the title search process. To help protect the owner, in these events, it is recommended that the owner obtain an Owner’s Policy of Title Insurance to insure the owner against these unforeseen problems.
- Owner’s Title Insurance is usually issued in the amount of the real estate purchased. It is purchased for a one-time fee at closing and lasts for as long as you or your heirs have an interest in the property.
- Buyers also have the option of purchasing a policy with expanded coverage. It’s called the Homeowner’s Policy or Enhanced Policy and it covers more things than the Standard Alta Owner’s Policy. Enhanced policies are only issued on one-to-four family residential properties, improved land and in cases where the insureds are individuals rather than an entity such as a corporation or partnership. The Enhanced or Homeowner’s Policy, provides the highest protection to homeowners. The premium is about a 20% increase over the standard policy but that premium provides a much broader coverage. If you are representing a buyer in a transaction, add in the contract that the seller will provide an enhanced policy instead of a standard policy to better protect your clients. Below is a comparison of standard versus enhanced policies: