All About: Deeds

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The purchase of a new home requires learning all about various aspects of homeownership (financial, legal, and practical) that can be overwhelming to a first-time homebuyer and homeowner. As part of our ongoing All About series, LGI Homes seeks to provide an easy-to-read and easy-to-understand resource that goes in-depth on a variety of subjects connected to buying a home. Today, we explore the world of deeds, and how these vital legal documents will play into your experience of buying a home.

What is a deed and who is mentioned in it?
A deed is a formal legal instrument that conveys, in the case of buying a home, an interest in the property in question. In essence, the deed transfers ownership of a property from one person (or group) to another. The grantor is the person or group selling the property, while the grantee is the person purchasing the property. The deed is typically “recorded” by local government (usually at the county level), and information regarding the sale is generally public record.

What kinds of deeds are there?
There are two main kinds of deeds: grant deeds and warranty deeds. Grant deeds (common in some states) outline the transfer of property from one owner to another, and are witnessed by notaries to affirm that the seller is the actual owner of the property in question. Grant deeds certify that the seller currently owns the property, and that there are no external claims on the property (or “title” to the property)—from, for instance, a lien or an outstanding mortgage—that have not been disclosed to the buyer.

Warranty deeds are essentially like grant deeds, with one major exception: with warranty deeds, the seller offers an additional “warranty” against any future claims to the property by a third party. The seller also promises to do everything necessary to convey proper title to the property to the buyer. Services like title searches (meant to root out possible problems or issues with clear title) and title insurance (insurance against financial loss due to third-party claims) are generally associated with warranty deeds.

A third type of deed, known as a “quitclaim” is not so much a true deed as it is a resignation of ownership from one party to another. Divorce and/or dissolution of partnerships are a common instance in which quitclaims are used to cede all ownership on behalf of one spouse or partner, to the other.

I’ve also heard about “trust deeds.” Are these the same as grant and warranty deeds?
Not exactly. Trust deeds are actually a form of “mortgage,” in that they are publicly-recorded legal documents that stipulate the ownership of a property that was purchased with a home loan. In the case of trust deeds, a neutral third-party (often a title company) holds a property “in trust” as collateral toward repayment of a lender’s loan. Once the borrower repays the loan in full, ownership is transferred from the trust company to the borrower, removing all impediments to clear title ownership (these impediments are known as “encumbrances”). Should the borrower fail to comply with the terms of the loan, the trust deed allows the trustee to sell the home in order to repay the lender their due amount.

Will I see any of these documents at the closing?
Typically, the seller will sign the property deed at the closing, and you, as the buyer, will receive a copy. Because it is such an important document, some buyers choose to have a title company store the deed for them, usually for a monthly or annual fee. Trust deeds will be read and signed by borrowers if they are using trust deeds instead of a mortgage.

High Rental Costs Got You Down? Think Homeownership!

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You don’t have to look far these days to find a news report or article talking about the skyrocketing costs of renting. Over the past few years, the numbers of renters have swelled thanks to the influx of prior homeowners and a huge generation of young adults (the “Echo Boomers”) moving out on their own. This, at a time when construction of new apartment and condominium buildings has been at an all-time low—meaning the supply of rentals is well below the growing demand of renters. As we all learned in school, this imbalance between supply and demand means just one thing: that monthly check to the landlord is starting to get bigger, and there’s no sign of rental prices coming down any time soon.

buy your own home to avoid skyrocketing costs of renting

High cost to rent has people turning to buying.

The good news is that as people flood into the rental market and drive up rents, some lucky renters are making one of the smartest financial decisions they can make: taking control of their housing costs, and avoiding skyrocketing rent prices, by buying their own home. They’re taking advantage of three factors that have converged to make this one of the most opportune times to buy a home:

Mortgage rates remain at historic lows, meaning that people who buy a home now have the ability to lock-in an extremely low interest rate on a 30-year mortgage. That’s thirty years of assurance that your housing payment will never go up. In the meantime, your hard-earned money will be going toward your own equity in your own home…rather than into your landlord’s bank account.

Home prices are some of the most affordable they have been in years, with buying a home more affordable than renting in nearly 80 percent of cities (according to online real estate site Trulia.com). The declines in home prices have finally stabilized, and in some areas, home prices are actually beginning to rise—meaning that the great deals aren’t likely to stick around.

Financing troubles have been in the news, and almost everyone knows someone or has heard about someone who had trouble securing a mortgage loan. The bad news is that legislation pending in Washington aimed at reforming the mortgage industry may well make securing a mortgage in the future even more difficult. For those with imperfect credit, or no downpayment, getting into the housing market before that legislation goes into effect may mean the difference between finally achieving the dream of homeownership and being stuck as a renter for another decade. Even for those with good credit, the rising cost of obtaining a mortgage may make homeownership an impossibility.

Of course, everyone’s financial situation is different, but one thing is clear: for renters, this is truly a gift-wrapped moment in which to buy a home. If you’d like to learn more about how low mortgage rates, low prices and easy financing can help you become a homeowner, just contact us or stop by one of our new home communities. We’ll be happy to show you around.

Online Tools and Resources for Homebuyers

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It used to be that the first step in buying a home was to make a phone call to a real estate agent, who held the key to closely-kept information about the homes for sale in a given location. Buyers were often at the mercy of the agent’s research and advice, and countless days were spent driving from one house to another, looking for the perfect home, ideally, no money down home. Once a home was found, a confusing and complicated journey through financing and mortgage procurement was begun, which many homebuyers found frustrating and difficult—and impossible to understand.

Homebuyer Guide and Resources

The way we go about buying a home has changed drastically in the past decade or so, be sure to know where to go and obtain the best tools and resources before making your next purchase.

Luckily for the modern homebuyer, the internet has changed all that, empowering first-time and repeat homebuyers with information, tools and resources designed to make purchasing a new home easier, more efficient, and more enjoyable. Here we’ve outlined some of the best; if you find some other great ones, be sure to let us know in the comments!

1.) Calculators, calculators, calculators. Online calculators are useful for those making the first steps toward homeownership. Mortgage calculators (such as those provided by online financial site Bankrate.com) can help you get a sense of the costs of homeownership, as well as how much home you are able to afford. Ginnie Mae also has a number of useful calculators online, including one that can help you determine whether it makes more sense for you to buy or rent. While these calculators can give you a ballpark figure, keep in mind that only a seasoned and professional mortgage broker or lender can give a proper assessment of your financial situation, and help you determine what you can comfortably borrow.

2.) Homebuyer Guides. There are a number homebuyer guides online—including this homebuyer guide from LGI Homes—most of which cover the basics of how purchasing a home works. Our own guide covers the steps involved in buying a home, clarifies common terms and acronyms encountered by homebuyers, and provides basic information on the process of applying, qualifying and signing for a mortgage. All helpful information for de-mystifying a very important (but complicated) process.

3.) Websites Galore. Nowhere has the internet proven of more use than for homebuyers interested in seeing what’s for sale in their target neighborhood, and at what price. Online new homes listing sites such as NewHomesSection.com and NewHomeSource.com give buyers an instant overview of the homes available in their neighborhood and at their price point, while also providing links to home and community photos, floor plans, and builder information. Many builders also maintain extensive websites with information about their communities, such as the listing website for LGI Homes, making it easy to learn about nearby communities.

With all of these resources available, it’s easy to start your journey toward homeownership off on a well-educated and informed foot. For any other questions you may need answered, our new homes associates are always ready and eager to help, so don’t hesitate to check in with us at any one of our new homes communities

A Short Guide to Home Buying Terminology

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Buying a home can be exciting, but it can be pretty confusing, too! To help you feel more confident as you embark on the journey toward homeownership, we present in this post a few of the most common terms and acronyms that you’re likely to encounter during your home purchase.

LGI Homes

While this list is hardly exhaustive, we think it offers you a great start toward getting comfortable with builder and real estate terminology, ensuring that you’re 100 percent clear on everything related to the momentous occasion of buying your first home.

Assessment: The value of a home, as determined by an assessor, who is professionally trained to consider all aspects of a home (location, construction, amenities, features) when determining a fair and accurate valuation. Home assessments are typically undertaken by banks to make sure a property is worth the money being lent to a buyer.

Closing Costs: A variety of one-time costs and pre-paid fees associated with the transfer of a home from seller to buyer. These include filing fees, insurance premiums, property taxes and mortgage fees. A number of mortgage programs can help pay a percentage or all of a buyer’s closing costs.

Deed restriction: A covenant of land usage prohibitions and terms attached to the deed for a property. These terms extend to the initial and all subsequent buyers of a home, and are usually in place to protect the sanctity and character of a neighborhood or community.

Downpayment: A cash payment made by a buyer towards the purchase of a home, usually expressed as a percentage of the total sales price of the home. Many people assume that they will require a 20 percent down payment to purchase a home, but programs exist that allow buyers to move into a new home for as little as 3.5 percent down. Some buyers even qualify for “no money down” programs which require absolutely no money out of pocket from the buyer.

Equity: The resale value of a home, minus any owed amount for which the home is collateral (generally a mortgage). Typically expressed as the dollar amount which a buyer would receive if they were to sell their home, as a percentage of the home’s total value. For example, if John Jones owns a home that is currently valued at $100,000, and he owes $80,000, then his equity stake in the home is $20,000 or 20%.

FHA: Federal Housing Administration. This federal agency insures mortgages made by private lenders, which translates into lower fees and costs for homebuyers, as well as lower or no down payments.

PMI: Primary Mortgage Insurance. This is a mandatory insurance, payable monthly, for all homeowners who have less than 20 percent equity in their home.

Spec home (also, “Move-in Ready Home” or “Inventory Home”): These homes have been completed by the builder without being specifically purchased by a buyer. While they are completed homes and generally not customizable, buyers have the benefit of being able to see the exact home they are purchasing, instead of a set of drawings and a model home.

USDA: United States Department of Agriculture. Through their Rural Development agency, the USDA provides a number of mortgage programs for homebuyers in rural districts. Many of these districts are within short distances of major metropolitan areas, and LGI Homes has many communities in which homebuyers can qualify for USDA help.