Greater Lakes Association of REALTORS®

Real Estate Q&A





Q. What is a loan “lock in?”

A. Mortgage rates go up and down daily – they “float” with the market. Many borrowers are concerned that during the period between when they apply for a mortgage and when they close on a house that mortgage rates will rise and that the house will less be affordable (or maybe not affordable). So, to assure that they get the rate available at the time of application, many borrowers “lock-in” the rate. Some lenders provide lock-ins without cost, others have a charge. The longer the lock-in, the greater the risk to the lender, and so the more likely a fee. The best lock-ins place a ceiling on both rates and points. A lock-in that only caps rates and says nothing about points exposes a borrower to very high fees should rates go up. Some lenders have lock-in programs that allow borrowers to “float down” their rate lock. This means that if rates fall prior to closing, the borrower can re-lock at the lower rate. Speak with lenders for specific programs and options.
1999 Peter G. Miller, All Rights Reserved.

Q. What is radon?

A. Radon is a naturally occurring radioactive element that exists as a gas dissolved in some groundwater. It can be released to the air when you run water inside your home. Well water usually contributes only a small fraction of the total amount of radon in indoor air. Radon is found in some homes that in sufficient concentrations can cause health problems. As a prospective buyer, you may want to have the home inspected if you suspect a health hazard.

Q. What is the value of a survey?

A. Surveys have great value because they show where the property is, where improvements are located, if there are any encroachments, if any improvement are on someone else’s property, how much space is available for possible expansions, etc. 1999 Peter G. Miller, All Rights Reserved.

Q. What is an “encroachment?”

A. When we look at a property, we often assume that the property is what we see – perhaps an area contained within a fence of backing up to a neighbor’s garage. But, what we see may not be correct. The fence and the garage may both be “encroachments,” protrusions onto our land from a neighbor. This may not sound like a big problem – except that we are buying a complete parcel of property and paying taxes on it each year. A survey is generally necessary to determine property boundaries and the existence of an encroachment.
1999 Peter G. Miller, All Rights Reserved.

Q. We made an offer on a home and paid for a structural inspection. The home did not pass. Shouldn’t the owner pay for the structural inspection?

A. No. Unless you have a provision in the sale agreement requiring the owner to make such a payment, the cost of an inspection is your obligation. The fact that the house did or did not “pass” is not the issue. A service was performed and that service helped you gain a better understanding of the property and its condition.
1999 Peter G. Miller, All Rights Reserved.

Q. What is a “CMA?”

A. When owners offer a home for sale they logically want the best possible price and terms for their property. A “comparative market analysis” or “CMA” is an estimate of value prepared by a real estate broker or salesperson that shows recent past sales for like properties and suggests a possible asking price for the owner’s property.
1999 Peter G. Miller, All Rights Reserved.

Q. What stays with a home and what goes?

A. In general terms, items that are physically attached to and intended to be part of a home are expected to stay. Example, if there is a built-in dishwasher it should stay – if the sellers take it there would be a large hole in the kitchen cabinets. Items that stay are called “fixtures” but it is sometimes difficult to determine what is or is not a fixture. Moreover, one can “create” a fixture in the purchase offer by saying that as a condition of the deal, the backyard swing set (or whatever) will stay. The best approach to fixtures is to list what stays in the purchase offer. For details, speak with a broker or attorney, as appropriate.
1999 Peter G. Miller, All Rights Reserved.

Q. How quickly must I apply for a loan?

A. Many sale agreements require buyers to apply for a mortgage within a specific time period, say 7 days after the contract is signed. This is a negotiable time, however, and can be any period agreeable to both parties. This is an important matter because if an application is not made, then a buyer may be in violation of the sale agreement. A violation of the sale agreement, in turn, could be grounds to forfeit the deposit. When you meet with a lender, be certain to obtain a letter stating that you met and showing when. Immediately provide this letter to the seller’s broker in the manner required by the sale agreement.
1999 Peter G. Miller, All Rights Reserved.

Q. What is title insurance?

A. Every property has a history of ownership outlined among local public records. When a property is sold, this history is reviewed to assure that the current seller has title and the right to sell the property. The catch is that property records may not record all possible title claims. For instance, a prior owner may have been a drunk, drug user, bigamist, or lacking the mental capacity to sell a property interest. A lien against the property may have been missed in the title search. Because of these and other problems, lenders require that buyers purchase title insurance (except in Iowa). 1999 Peter G. Miller, All Rights Reserved.

Q. We bought a home with 10% down using private mortgage insurance (PMI). Over the years we have paid down the mortgage and the value of our home has risen. Do we still need PMI?

A. IN the usual case, buyers who purchase with 20% down or more do not need PMI. For those who have PMI, there are often monthly costs for as long as the loan remains in place. New federal rules concerning PMI provide that when a loan balance is paid down 22% from the original amount, lenders must agree to cancel PMI. However, there are several caveats. First, the rule does not apply to “high risk” mortgages. With such loans PMI can be required for 15 years – more time than most loans are outstanding. Second, many lenders will allow you to cancel PMI when you have 20% equity in a home. Such policies can save years of PMI payments. 1999 Peter G. Miller, All Rights Reserved.

Q. What is revolving liability?

A. A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.

Q. What is meant by right of first refusal?

A. The right of first refusal is a provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Q. What is rent loss insurance?

A. Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

Q. What is rate-improvement mortgage?

A. A fixed-rate mortgage that includes a provision that gives the borrower a one-time option to reduce the interest rate (without refinancing) during the early years of the mortgage term.

Q. What is a REALTOR®?

A. A REALTOR® is a real estate broker or sales associate who holds an active membership in a local real estate board that is affiliated with the National Association of REALTORS®

Q. What is the benefit of working with a REALTOR®?

A. REALTORS® must abide by a specific Code of Ethics and are bound to fiduciary duties to clients. REALTORS® also have the option of participating in the local association’s multiple listing service (MLS).

Q. What is an MLS?

A. An MLS is a compilation of properties by competitive brokers who share listing information with one another to better serve their buyers and sellers.

Q. What is meant by the term “groundwater”?

A. As the name implies, groundwater is found beneath the land surface – in cracks and crevices in bedrock, or in pore spaces, which are the small spaces between soil or rock particles in sand and gravel deposits. Surface water becomes groundwater when it seeps downward to the saturated zone. The saturated zone begins at the point where the pore spaces and cracks in the soil, sediment, or rock become completely filled with water. The top of this zone is called the water table. From the Well Management Section of the MN Dept of Health

Q. Why worry about water quality?

A. The quality of Minnesota groundwater as it relates to human health is generally excellent. Bacteria, viruses, and many chemical contaminants are removed or filtered from the water as it moves downward through silt, sand, and gravel deposits. Observing minimum isolation distances (also known as setback or separation distances) from contamination sources and well construction standards required under MN Rules Chapter 4725 (the “Well Code”) – will help ensure that the quality of the well water remains high. From the Well Management Section of the MN Dept of Health

Q. Who may construct a well?

A. In Minnesota, contractors who construct, repair, or permanently seal (removing a well from service and completely filling it with grout) water wells must be licensed by the Minnesota Department of Health (MDH). In addition to full-service well contractor licenses, the MDH also issues limited licenses to persons who perform only certain types of work, such as installing pumps or sealing wells. From the Well Management Section of the MN Dept of Health

Q. Can I construct my own well?

A. You may construct your own well without a license if you own or lease the property where it will be constructed – and the well will be used 1) for farming or other agricultural purposes, or 2) to supply water for your personal residence. The well must be constructed in accordance with MN rules and the proper notification must be filed. From the Well Management Section of the MN Dept of Health

Q. What is the well disclosure statement?

A. The seller provides a written Well Disclosure Statement to the buyer before the purchase agreement is singed. This statement must include the legal description of the property, a map showing the location of each well on the property, and a listing of each well and its current status (in use, not in use, or sealed by licensed well contractor. From the Well Management Section of the MN Dept of Health

Q. When is a water test required?

A. When a new well is constructed, MN law requires that the water be tested for coliform bacteria and nitrate. The person who constructs the well is responsible for obtaining a sample and having it tested by a certified laboratory. From the Well Management Section of the MN Dept of Health

Q. How often should a well be tested?

A. A water test tells you only about the water quality at the time the sample was taken. Quality of the water may vary during the year, especially after heavy rainfall or melting snow. From the Well Management Section of the MN Dept of Health

Q. What is a compliant septic system?

A. In 1996, the State of Minnesota adopted “Chapter 7080”, the minimum technical standards for Individual Sewage Treatment Systems (ISTS). To residents of Crow Wing County, this means that an existing septic system shall require a compliance inspection when any on the of the following condition occur: 1.) Upon application for a Zoning Permit and the Certification of Compliance is more than 5 years old or the Compliance Inspection Form is more than 3 years old. 2.) Within 90 days of filing a Certificate of Real Estate Value or Warranty Deed or Trust on property that does not meet the requirements in 1) above. 3.) For necessary disclosures; or 4.) When the Planning and Zoning Office may deem appropriate. From the MN Dept of Health

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