Relocating to Las Vegas | Financing and Mortgage

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Financing and Mortgage

Your Guide To Financing a Home - Let the Local Experts Help You Navigate the Process
As a newcomer to the Las Vegas area, you may already be familiar with the home-buying process. However, due to specific conditions, including the decline in once-high property values, it’s even more important to rely on experienced experts who know the market. These include Realtors, mortgage specialists, banks, appraisers and inspectors. Learn more in this section about making an offer on a potential dream home, the steps involved, what to expect at closing and the purpose of title insurance. See the section on Working with a Realtor on page 62 for more on how to select a real estate agent.

Las Vegas finance and mortgage expert Jack Norton, with Evofi Platinum Lending, says that buyers considering the purchase of real estate in the Las Vegas/Henderson area frequently fail to take into account the effect their choice of property will have on the financing available to them. “While in the past, many types of financing were available for nearly every borrower and situation, the recent financial turmoil has basically reduced the choice of loan programs to three, which include FHA, VA and conforming conventional (more commonly known as Fannie Mae/Freddie Mac),” Norton says.

He explains that each of these types of programs have specific requirements that apply to not only the borrower, but to the property as well. “I am often confronted with a situation in which a buyer has not been provided with sound advice from a mortgage professional prior to writing an offer. The buyer finds he now cannot qualify for the specific program that would best suit his needs were he to purchase a qualifying property.”

To help potential buyers, Norton addresses a few of the more common problems that buyers encounter in the Las Vegas/Henderson market.

Condo and townhouse projects that are not HUD approved: With FHA loans accounting for approximately 78 percent of all purchase transactions in the Las Vegas area, it is essential to be aware of the rather severe restrictions the U.S. Dept. of Housing and Urban Development (HUD) has placed on the type of project they will insure.

The most common problem is that of a project that is involved in litigation. If a particular condo project has taken a builder to court over an alleged construction defect claim, the entire project is typically ineligible for FHA financing. In addition, if the percentage of units in the project that are owned by investors exceeds certain percentage thresholds, the project is also excluded from the program. A responsible realtor will work closely with a mortgage professional to determine, prior to showing you the property, whether or not a particular project appears on HUD’s list of eligible properties.

Condition of the property: Each of the loan programs available has different requirements regarding the state of repair of the subject property. For example, in order to obtain FHA financing, a pool must be filled with water, and the appraiser must provide photos proving this is done. While for a conventional loan, an appraiser’s statement that the pool is functional will suffice. The programs also have varying requirements concerning the appliances that must be present and in working order. As a general rule, conventional financing is less restrictive regarding condition, but not in every case.

According to long time local Realtor Richard Lasica of Realty Executives, “With bank-owned properties dominating the Las Vegas/Henderson market, I am seeing increased cases of condition affecting the availability of financing. Many times the prior owners do not leave the property in terrific condition, and it is incumbent upon the realtor, working in concert with the loan officer, to determine which properties to show the client based upon the type of mortgage desired.”

Both Norton and Lasica emphasize the importance for buyers of working with a knowledgeable, trusted team prior to beginning their search. “Those that treat financing as a process that begins after an offer is accepted, are likely to find themselves with a mortgage that is not optimal to their situation,” Norton says.

Property Taxes
While there are fewer taxes in Nevada than other states, all property is assessed at 35 percent of it current appraised value. This amount still represents one of the lowest property tax burdens in the U.S. It’s the job of the Clark County Tax Assessor to value all property in the county to be taxed, and he is required by Nevada law to discover, list and value all property within the county. The Assessor collects personal property tax only as the ex-officio treasurer of the county.

To calculate the tax on a new home that does not qualify for the tax abatement, assume a home located in the city of Las Vegas has a taxable value of $200,000 with a tax rate of $3.50 per hundred of assessed value (.035). To determine the assessed value, multiply the taxable value of the home ($200,000) by the assessment ratio (35%): $200,000 X .35 = $70,000 assessed value. To calculate the tax, multiply the assessed value ($70,000) by the tax rate (.035): $70,000 x .035 = $2,450.

The tax monies collected pay for schools, police and fire protection and roads, along with the other services that a taxpayer demands and desires from his local government. These tax rates vary depending on the type of services provided to an area. You can learn more by visiting the Clark County website at www.accessclarkcounty.com, on the left-hand side click on Services A-D and select Assessor tab.

— Property Tax Exemptions
The Nevada legislature provides for property tax exemptions to individuals meeting certain requirements. Some of these include veterans, disabled veterans, surviving spouses, blind persons and church/fraternal organizations. Additionally, the state of Nevada has a Senior Citizens’ Property Tax Rebate/Rental Assistance Program.

An exemption may be applied to real property tax and personal property tax, which includes business personal property and manufactured housing. The tax dollar amount of the exemption varies with the taxing district in which you live. These programs are administered by the Assessor’s office. More information is available by calling (702) 455-3882. Questions regarding a tax amount for a specific property should be directed to the Treasurer’s office at (702) 455-4323.

Home Financing Options
— Fixed-Rate
A fixed-rated mortgage comes with an interest rate that remains the same for the life of the loan. The life or term of a mortgage is 30 years by industry standards, but 15, 20 and 40-year term loans are also available.

Shorter term loans come with cheaper interest rates. A 15-year mortgage’s interest rate is typically one-quarter to one-half percent lower than a 30-year mortgage. Both the cheaper rate and the shorter term mean you’ll also pay less over the life of the loan than you would if you borrowed the same amount of money with a long term loan.

Monthly payments of a shorter term loan, however, are generally higher than the same loan for a long term because the larger payments of the short term loan are necessary to repay the debt sooner.

A long-term loan with smaller monthly payments can be easier to budget, but if you have a stable salary that allows you to afford the larger monthly outlay, the shorter term loan could be to your advantage. Norton adds, “In times of economic uncertainty, however, it often makes sense to take the longer term loan and make extra payments to principle. In this way, your loan can still be paid off within 15 years, but you retain the flexibility to make the smaller payments should there be a change in your income.”

Whatever term you choose, fixed rate mortgages protect you from the risk of rising interest rates. Of course, since you are locked in to a given rate, you could end up with a rate higher than the going rate, should rates fall.

— Adjustable-Rate Mortgages
Adjustable-rate mortgages or ARMs come with interest rates that adjust up or down, depending upon current economic trends. An ARM’s rate is based on a money market index. The one-year U.S. Treasury bill is commonly used because its yield is similar to the 30-year U.S. Treasury bill used to set rates on 30-year fixed mortgages. ARMs might also be tied to other indexes, including certificates of deposit (CDs) or the London Inter-Bank Offer Rate (LIBOR) rates, among other regularly published indexes.

To come up with the ARM rate, the lender will add a “margin,” usually two to four percentage points, to the index. Initially, the ARM rate is lower than the fixed rate, from about a quarter point to two points or more, depending upon the economy. The date when the first adjustment occurs (from six months to many years) and how often the rate adjusts, depends upon the terms of the loan. After the first adjustment occurs, subsequent adjustments can occur every six months, once a year, or during larger periods. The adjustment period is disclosed in the loan.

ARMs generally have limits or “caps” on how high it can adjust during each adjustment period as well as over the life of the loan. The caps protect you from drastic market changes, but ARMs don’t offer the stability of a fixed rate loan. ARMs’ lower initial rate, however, can help you qualify for a larger loan or start you off with smaller payments than you’d have to pay for the same mortgage with a higher fixed rate. And if index rates fall with an ARM, of course, so does your monthly mortgage.

ARMs could also be a good choice for someone who knows his or her income will rise and at least keep pace with the loan rate’s periodic adjustment cap. If you plan to move in a few years and are not concerned about the possibility of a higher rate, an ARM also could be a good choice.

“Borrowers should keep in mind, however, that if home values do not rise during the fixed period, or if loan criteria are tightened in the interim, it may be impossible to refinance out of the adjustable rate loan,” Norton adds. “It is also important to note that your lender now has to qualify you at the ‘fully indexed rate,’ which means that you must qualify using the assumption that you are paying the worst case payment after all adjustments have occurred.”

Most lenders are now requiring that you use an escrow account. The lender automatically will place a portion of the homeowner’s monthly note into an account specifically designated to pay for insurance and taxes, and the mortgage company is responsible for paying the annual bills from that account.

Types of loans can include:

— Conventional mortgages
Before there were other options, the only type of mortgage loan issued was conventional. The lender was typically a local bank, a savings and loan or a credit union. Today, different financial providers can offer a conventional loan for either a 15- or a 30-year term. Conforming loans are for amounts under $417,000, while jumbo loans are for amounts of more than $417,000 and usually carry a higher interest rate.

— FHA Loans
The Federal Housing Administration (FHA), which is part of the HUD, administers various mortgage loan programs. FHA loans have lower down payment requirements and are easier to qualify than conventional loans. FHA loans cannot exceed the statutory limit. Among the reasons cited by FHA for this option include:

Easier to qualify - Because FHA insures your mortgage, lenders are more willing to give loans with lower qualifying requirements so it’s easier for you to qualify.
Less than perfect credit - Even if you have had credit problems, such as bankruptcy, it’s easier for you to qualify for an FHA loan than a conventional loan.
Low down payment – FHA has a low 3.5 percent down payment, and that money can come from a family member, employer or charitable organization. Other loans don’t allow this.
Costs less - Many times, FHA loans have competitive interest rates because the loans are insured by the Federal Government. Always compare an FHA loan with other loan types.

Learn more at www.hud.gov/buying/index.cfm

— Veterans Administration (VA)
VA loans are partially guaranteed through the Veterans Administration. The VA recently expanded its qualifying criteria to include more veterans, so all vets should contact the VA for the most current information.

Navigating the Financing Process
The financing process can take anywhere from 15 to 45 days, but typically runs 30 days. Your agent should be involved throughout the process to help it run smoothly. The basic timeline for what will happen along the way is as follows:

You submit the completed 1003 application and any required supporting documentation to the lender.
The lender orders an appraisal of the property, a credit report and begins verifying your employment and assets.
The lender provides a good faith estimate of closing and related costs, plus initial Truth in Lending disclosures, which, by federal law, must be provided by your lender within three days of first pulling your credit report.
The lender evaluates the application and your supporting documents, approves the loan and issues a letter of commitment.
You sign the closing loan documents and the loan is funded.
The lender sends its funds to escrow.
All appropriate documents are recorded at the County Recorder’s Office, the seller is paid, and the title to the home is yours.

Negotiating Tips
You’re in a strong bargaining position and will look particularly welcome to a seller if:

You’re an all-cash buyer.
You’re already pre-approved for a mortgage.
You don’t have a present house that has to be sold before you can afford to buy.

In those circumstances, you may be able to negotiate some discount from the listed price. On the other hand, in a “hot” seller’s market, if the perfect house comes on the market, you may want to offer the list price (or more) to beat out other early offers.

It’s very helpful to find out why the house is being sold and whether the seller is under pressure. Keep these considerations in mind:

Every month a vacant house remains unsold represents considerable extra expense for the seller.
If the sellers are divorcing, they may just want out quickly.
Estate sales often yield a bargain in return for a prompt deal.

Making the Offer
You’ve found the home you love and now it’s time for the agent to make the offer. Oral promises are not legally enforceable when it comes to the sale of real estate. Therefore, you need to enter into a written contract, which starts with your written proposal. This proposal not only specifies price, but all the terms and conditions of the purchase. For example, if the sellers said they’d help with $2,000 toward your closing costs, be sure that’s included in your written offer and in the final completed contract, or you won’t have grounds for collecting it later.

Realtors® usually have a variety of standard forms (including Residential Purchase Agreements) that are kept up to date with the changing laws. When you use a Realtors® these forms will be available to you. In addition, Realtors® cover the questions that need to be answered during the process. In many states certain disclosure laws must be complied with by the seller, and the Realtors® will ensure that this takes place.

If you are not working with a Realtor®, keep in mind that you must draw up a purchase offer or contract that conforms to state and local laws and that incorporates all of the key items. State laws vary, and certain provisions may be required in your area.

After the offer is drawn up and signed, it will usually be presented to the seller by your Realtors®, by the seller’s Realtors® if that’s a different agent, or often by the two together. In a few areas, sales contracts can be drawn up by the parties’ lawyers.

What the Offer Contains
The purchase offer you submit, if accepted as it stands, will become a binding sales contract (known in some areas as a purchase agreement, earnest money agreement or deposit receipt). It’s important, therefore, that it contains all the items that will serve as a “blueprint for the final sale.” These purchase offer items include such things as:

Address and sometimes a legal description of the property.
Sale price.
Terms – for example, all cash or subject to your obtaining a mortgage for a given amount.
Seller’s promise to provide clear title (ownership).
Target date for closing (the actual sale).
Amount of earnest money deposit accompanying the offer, and whether it’s a check, cash or promissory note, and how it’s to be returned to you if the offer is rejected, or kept as damages if you later back out for no good reason.
Method by which real estate taxes, rents, fuel, water bills and utilities are to be adjusted (prorated) between buyer and seller.
Provisions about who will pay for title insurance, survey, termite inspections and the like.
Type of deed to be given.
Other requirements specific to your state, which might include a chance for attorney review of the contract, disclosure of specific environmental hazards or other state-specific clauses.
A provision that the buyer may make a last-minute walk-through inspection of the property just before the closing.
A time limit (preferably short) after which the offer will expire.
Contingencies, which are an extremely important matter and discussed in detail below.

Earnest Money
This is a deposit that you give when making an offer on a house. A seller is understandably suspicious of a written offer that is not accompanied by a cash deposit to show “good faith.” A Realtor® or an attorney usually holds the deposit, the amount of which varies from community to community. This will become part of your down payment.

Contingencies
If your offer says “this offer is contingent upon (or subject to) a certain event,” you’re saying that you will only go through with the purchase if that event occurs. The following are two common contingencies contained in a purchase order:
The buyer obtaining specific financing from a lending institution. If the loan can’t be found, the buyer won’t be bound by the contract.
A satisfactory report by a home inspector “within 10 days (for example) after acceptance of the offer.” The seller must wait 10 days to see if the inspector submits a report that satisfies you. If not, the contract would become void. Again, make sure that all the details are nailed down in the written contract.

Buyers: the seller’s response to your offer
You will have a binding contract if the seller, upon receiving your written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as you are notified of acceptance. If the offer is rejected, that’s that, and the sellers cannot later change their minds and hold you to it.

If the seller likes everything except the sale price, or the proposed closing date, or the basement pool table you want left with the property, you may receive a written counteroffer, with the changes the seller prefers. You are then free to accept or reject it or to even make your own counteroffer. For example, “We accept the counteroffer with the higher price, except that we still insist on having the pool table.”

Each time either party makes any change in the terms, the other side is free to accept or reject it, or counter again. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side’s proposal.

Closing
Settlement is a brief process where all of the necessary paperwork needed to complete the transaction is signed. Closing is typically held in an office setting, sometimes with both buyer and seller at the same table, sometimes with each party completing their papers separately.

Whatever the case, the result is that title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. From the amount credited to the seller, the closing agent subtracts money to pay off the existing mortgage and other transaction costs. Deeds, loan papers and other documents are prepared, signed and filed with local property record offices.

One of the best parts of settlement is that buyers and sellers need to do very little. Before closing, buyers typically have a final opportunity to walk through the property to assure that its condition has not materially changed since the sale agreement was signed. At closing itself, all papers have been prepared by closing agents, title companies, lenders and lawyers. This paperwork reflects the sale agreement and allows all parties to the transaction to verify their interests. For instance, buyers get the title to the property, lenders have their loans recorded in the public records and state governments collect their transfer taxes.

Withdrawing an Offer
Can you take back an offer? In most cases the answer is yes, right up until the moment it is accepted, or even in some cases, if you haven’t yet been notified of acceptance. If you do want to revoke your offer, be sure to do so only after consulting a lawyer who is experienced in real estate matters. You don’t want to lose your earnest money deposit, or find yourself being sued for damages the seller may have suffered by relying on your actions.

Inspectors
Before purchasing a home, you want to ensure it is in good condition. A home inspection is an evaluation of a home’s condition by a trained expert. During a home inspection, a qualified inspector takes an in-depth and impartial look at the property you plan to buy. The inspector will:

Evaluate the physical condition: the structure, construction and mechanical systems.
Identify items that should be repaired or replaced.
Estimate the remaining useful life of the major systems (such as electrical, plumbing, heating, air conditioning), equipment, structure and finishes.

After the inspection is complete, you will receive a written report of the findings from the home inspector, usually within five to seven days.

It’s important to note that an inspection is not an appraisal. A property appraisal is a document that provides an estimate of a property’s market value. Lenders require appraisals on properties prior to loan approval to ensure that the mortgage loan amount is not more than the value of the property. Appraisals are for lenders; home inspections are for buyers.

— Ten Important Questions to Ask Your Home Inspector
Question 1: What does your inspection cover?
Answer: The inspector should ensure that their inspection and inspection report will meet all applicable requirements in your state if applicable and will comply with a well-recognized standard of practice and code of ethics. You should be able to request and see a copy of these items ahead of time and ask any questions you may have. If there are any areas you want to make sure are inspected, be sure to identify them upfront.

Question 2: How long have you been practicing in the home inspection profession and how many inspections have you completed?
Answer: The inspector should be able to provide his or her history in the profession and perhaps even a few names as referrals. Newer inspectors can be very qualified, and many work with a partner or have access to more experienced inspectors to assist them in the inspection.

Question 3: Are you specifically experienced in residential inspection?
Answer: Related experience in construction or engineering is helpful, but is no substitute for training and experience in the unique discipline of home inspection. If the inspection is for a commercial property, then this should be asked about as well.

Question 4: Do you offer to do repairs or improvements based on the inspection?
Answer: Some inspector associations and state regulations allow the inspector to perform repair work on problems uncovered in the inspection. Other associations and regulations strictly forbid this as a conflict of interest.

Question 5: How long will the inspection take?
Answer: The average on-site inspection time for a single inspector is two to three hours for a typical single-family house; anything significantly less may not be enough time to perform a thorough inspection. Additional inspectors may be brought in for very large properties and buildings.

Question 6: How much will it cost?
Answer: Costs vary dramatically, depending on the region, size and age of the house, scope of services and other factors. A typical range might be $300 to $500 but consider the value of the home inspection in terms of the investment being made. Cost does not necessarily reflect quality. HUD Does not regulate home inspection fees.

Question 7: What type of inspection report do you provide and how long will it take to receive the report?
Answer: Ask to see samples and determine whether or not you can understand the inspector’s reporting style and if the time parameters fulfill your needs. Most inspectors provide their full report within 24 hours of the inspection.

Question 8: Will I be able to attend the inspection?
Answer: This is a valuable educational opportunity, and an inspector’s refusal to allow this should raise a red flag. Never pass up this opportunity to see your prospective home through the eyes of an expert.

Question 9: Do you maintain membership in a professional home inspector association?
Answer: There are many state and national associations for home inspectors. Request to see their membership ID, and perform whatever due diligence you deem appropriate.

Question 10: Do you participate in continuing education programs to keep your expertise up to date?
Answer: One can never know it all, and the inspector’s commitment to continuing education is a good measure of his or her professionalism and service to the consumer. This is especially important in cases where the home is much older or includes unique elements requiring additional or updated training.
Source: U.S. Department of Housing and Urban Development

Finding a Qualified Home Inspector
As the homebuyer, it is your responsibility to carefully select a qualified inspector and pay for the inspection. The following sources may help you find a qualified home inspector:

State regulatory authorities. Some states require licensing of home inspectors.
Professional organizations. Professional organizations may require home inspectors to pass tests and meet minimum qualifications before becoming a member.
Phone book yellow pages. Look under “Building Inspection Service” or “Home Inspection Service.”
The Internet. Search for “Building Inspection Service” or “Home Inspection Service.”
Your real estate agent. Most real estate professionals have a list of home inspectors they recommend.

Title Insurance
Title insurance is a contract in which the title insurance company, in exchange for a one-time premium at close of escrow, protects against future losses resulting from defects in the title to real property that exist at the time of purchase but are unknown or undisclosed. Title insurance is significantly different from homeowners insurance and other casualty insurance. Casualty insurance provides protection from losses due to unknown future events such as fire or theft for a specified period of time (e.g. a yearly premium coverage).

Title insurance provides protection for a onetime premium for an indefinite period of time from future losses because of events that have already occurred (e.g. claims of ownership). Because of this, title insurers eliminate risks and prevent losses in advance through extensive searches of public records and thorough examination of the title.

There are two types of title insurance policies – the owner’s policy and the lender’s policy. The owner will typically purchase the Standard Coverage Form in the amount of the purchase price of the property. It does not cover increases in value unless you purchase an endorsement. It covers the buyer’s interest in the property for as long as the buyer or his or her heirs have an interest in the property subject to certain limitations.

The lender will typically purchase the Extended Coverage Form in an amount equal to the mortgage loan. It covers the lender’s interest in the property for the life of the loan. It also provides additional coverage not found in a typical owner’s policy such as unrecorded easements and boundary discrepancies.

Owners may elect to purchase a Homeowner’s Policy of Title Insurance instead of the Standard Coverage Form. Introduced in the 1990s, this policy includes the standard coverages of a typical owner’s policy and additional coverages, such as forgery occurring after the policy effective date and also increases in the value of the property.

A title insurance policy protects you from financial loss due to covered claims against your title, pays your legal costs if the title insurance company is required to defend your title against covered claims and pays successful claims against your title.

Claims typically covered under an owner’s title insurance policy include:

Someone other than the insured who owns an interest in the property.
Forgery, fraud, undue influence, duress, incompetency, incapacity or impersonation.
Defective recording of a document.
Restrictive covenants.
Undisclosed liens due to a deed of trust, unpaid taxes, special assessments or homeowners association charges.
Unmarketability of title.
Lack of access to and from the land.

Ask your title insurance agent to explain what is and is not covered under your title insurance policy.

— Payment of Premiums
Title insurance premium is paid once at the time of closing usually through the title agency. It is based on the amount of insurance you purchase. Insurers are required to file their schedule of rates including any discounts or other modifications. Modifications include discounts for short-term policies or refinances, special rates for large commercial projects and charges for optional endorsements.

These rate schedules are public record and are available for inspection at the Division of Insurance. In Nevada, the seller usually pays the premium for the owner’s policy and the buyer usually pays the premium for the lender’s policy. This may, however, be negotiated between the buyer and seller.

— Purchasing Title Insurance
Although your real estate or mortgage broker will often recommend a particular title agency, Nevada law prohibits them from requiring that consumers use a particular agent or insurer. You may purchase title insurance from any title insurer authorized to do business in Nevada. You may verify that an insurer is authorized in Nevada at www.nvinsurancealert.com or by calling toll-free (888) 467-4195.

Title insurers may offer their policies directly to consumers, through affiliated agents or through independent agents. Different title agents (also known as title companies) may offer different services, and title insurance rates and escrow fees may vary between companies. Again, you may purchase title insurance through any Nevada licensed title company. To verify a title agent’s license, you may contact the Division of Insurance.

Some factors to consider when choosing a title agent or title insurer are the cost of the title insurance and escrow fees, speed and accuracy of closing services, quality and timeliness of claims resolution and frequency and resolution of consumer complaints filed with the Division of Insurance. Ask friends, relatives or business associates about their experience and satisfaction with a title agency.

Or, you can contact the Division of Insurance and inquire about the number of complaints received and the nature of those complaints.