Here are some common Frequently Asked Questions about Boise real estate.
This is a “living page” that will be updated from time to time.
Please e-mail me with your suggestions for additional topics.
Who pays real estate commissions?
The seller almost always pays real estate commissions for the sale of a property.
Exceptions include situations where a buyer is paying a portion of a commission, a buyer hires a buyer’s agent when purchasing an unlisted property, or other situations.
What is title insurance?
Title insurance insures various parties against the risk of loss for defects in a property’s title.
There are many different types of title insurance coverage, including confirmation of legal ownership, liens, property taxes, easements, and other facts.
There are different types of title insurance policies for buyers and lenders with varying types of coverage.
Title insurance premiums are paid as part of closing costs and are negotiable between buyer and seller.
What are closing costs?
Closing costs are one-time costs for items such as title insurance, recording fees, mortgage fees, and other costs required as part of the closing process.
Pre-paid items are often included in a general description of closing costs, but are not actual closing costs.
What are pre-paid items?
Pre-paid items are one-time costs for escrow account setup, property insurance, HOA setup fees, etc. that are required as part of the closing process.
What are prorations?
Prorations are used to calculate and allocate various costs, such as interest or property taxes, for a specific period of time that a buyer or seller owns a property.
For example, when escrow closes in the middle of the month, interest for the month would be prorated equally between buyer and seller.
What is the Idaho homeowner exemption?
The Idaho homeowner exemption is a property tax reduction granted to homeowners who occupy their home as their primary residence.
The exemption reduces the taxable value of the home by $100,000.
What is a buyer’s agent?
A buyer’s agent is a licensed real estate agent who represents only the buyer in a transaction.
This arrangement is usually created by the buyers and their agent entering into a written buyer representation agreement.
What is earnest money?
Earnest money is included with most offers to purchase real estate and is intended to demonstrate that the buyer is serious (earnest) about purchasing the property.
Earnest money is credited toward the funds required from the buyer for closing.
What is “closing”?
Closing occurs when the deed is recorded with the appropriate governmental office (usually the County Recorder).
Buyers, sellers, and agents often incorrectly believe that signing final closing documents is closing.
What is “escrow”?
Escrow is the process of coordinating all aspects of a real estate transaction and facilitating closing.
The various tasks of the escrow process are completed by an escrow officer who is an employee of an escrow company.
What is an escrow officer?
Escrow officers work for escrow companies and are responsible for administering the processes that occur when a property is “in escrow” following an accepted offer.
Escrow officers do not provide legal or tax advice and are neutral intermediaries.
What is an appraisal?
An appraisal is an “opinion of value” that’s provided by a licensed appraiser.
The purpose of an appraisal is to determine if the value of the property is adequate for the intended financing.
Lenders order appraisals from an Appraisal Management Company (aka “AMC”).
Appraisers are assigned from a “blind pool” and lenders are not allowed to influence the selection of an appraiser or the results of the appraisal.
What is a mortgage pre-approval?
Some lenders provide pre-approvals of buyers for mortgage financing.
Pre-approval means that the lender has taken a buyer’s application, reviewed their credit, verified employment, verified income and debt, and issued a loan commitment.
A pre-approval is more thorough and more reliable than a “pre-qualification”.
What is a mortgage pre-qualification?
Most lenders provide pre-qualifications for buyers.
Pre-qualifications are less thorough and less reliable than pre-approvals because they lack the thoroughness and depth of a pre-approval.
Pre-qualifications usually do not include verification of funds to close, verification of employment, and other important facts.
They also include a list of conditions that must be met in order to obtain loan approval.
Real estate agents often refer to pre-qualification letters as “Swiss Cheese Letters” because they have so many “holes” (required conditions) in them.
What is a FSBO?
FSBO stands for “For Sale By Owner” and is a term that is applied to sellers of real estate who choose to not be represented by a real estate agent.
What is a listing agent?
A listing agent is a real estate agent who has listed a property for sale and represents the seller.
What is PMI?
PMI stands for Private Mortgage Insurance.
PMI insures the lender for the risk of foreclosure on loans that exceed 80% loan-to-value of the property.
The borrower pays for the cost of PMI as part of the loan payments.
How can I avoid PMI?
Borrowers can avoid the cost of PMI by putting at least 20% down, or by financing their purchase with a 1st loan of 80% loan-to-value and a 2nd loan for a portion of the purchase price.
Other options for avoiding PMI include FHA financing, VA financing, some forms of credit union financing, and portfolio financing.
What is a portfolio loan?
A portfolio loan is a loan that will be held by the lender in their own “portfolio” and not sold in the secondary market (FNMA, FMAC, etc.)
Portfolio loans are useful for borrowers with unusual situations that can be documented.
Examples include newly-minted physicians, dentists, and other professionals who are likely to be good credit risks, but who are not yet proven.
Portfolio financing is usually somewhat more expensive, but a viable alternative for certain borrowers.
Portfolio loans are often made by credit unions and community banks that can offer more flexible terms and more creative options for borrowers.
What is a HOA?
HOA is an acronym for Home Owner Association.
HOAs are common in newer subdivisions in the Boise Area and are created to manage and maintain common areas and subdivision facilities.
One example of this is pressurized irrigation systems that are commonly-found in newer subdivisions.
Other examples include community pools, walking paths, community parks, clubhouses, and common areas.
How long does it take to close escrow?
The time required to close escrow depends upon the nature of the transaction.
All cash transactions can close more quickly than transactions with new financing, and/or contingencies that must be satisfied.
Closing times will also vary depending upon the type of financing, the lender’s processing time, time of year, time of month, and many other factors.
In the Boise area, most transactions with new conventional financing often close in 30-35 days while FHA and VA loans may close in about 45 days.
What is a FICO score?
FICO is an acronym for Fair Isaac & Company, the company that developed the credit scoring system that’s commonly used to determine credit ratings.
FICO scores range from 500 to 850 (higher is better).
What is PITI?
PITI is an acronym for principal, interest, taxes, and insurance.
All mortgage loans include the repayment of the amount borrowed (principal) and interest.
Some (most?) mortgage loans also collect funds for the payment of property taxes and homeowner’s insurance.
What is an ARM loan?
ARM is an acronym for “adjustable rate mortgage”, also known as a variable-rate mortgage.
ARMs include provisions to adjust the interest rate, based upon criteria that’s described in the fine print of the loan.
What does “30-year fixed rate” mean?
A 30-year fixed rate loan is a loan with an interest rate that will remain the same for the entire duration of the loan.
What is amortization?
Amortization is the gradual repayment of the original loan amount with monthly payments.
A portion of each monthly payment is applied toward the principal amount owed.
What is a subject property?
A subject property is a property that is being compared to other properties.
It is usually a property that is being listed for sale or has been sold.
What are “comps”?
The term “comp” is used to describe sales of properties that are comparable to a subject property.
What is a counteroffer?
A counteroffer is a response to an offer that has been made.
Counteroffers can be made by sellers or buyers as part of negotiations for the sale of a property.
What is underwriting?
Underwriting is a lending term for the process of documenting, reviewing, and approving both the subject property and the borrower in a real estate transaction that includes a new loan.
What is an escrow account?
An escrow account is commonly required with a mortgage loan for the purpose of collecting funds as part of each loan payment for the purpose of paying property taxes and property insurance premiums when they come due.
Lenders typically collect 1/12th of the annual property taxes and property insurance premiums with each monthly mortgage payment.
Lenders are prohibited, by law, from holding excess funds in their escrow accounts.
Escrow accounts are also often called “Impound Accounts”.
What is a contingency?
A contingency is something that must occur in order for a transaction to proceed to closing.
One common contingency occurs when an offer to purchase is “contingent” upon the buyer’s current property selling and closing.
Financing contingencies are also common in transactions that include the buyer obtaining a new loan.
What is MLS?
MLS is an acronym for Multiple Listing Service.
A MLS publishes listings of properties offered for sale for the use of MLS members.
What is a short sale?
The term “short sale” refers to a property that will have negative equity when it is sold.
In other words, the net proceeds from a sale will be “short” of the amount required to pay off the loan(s) after payment of sales costs.
What is a REO?
REO is an accounting term for “Real Estate Owned”.
REO properties are foreclosed properties that are owned by lenders following foreclosure.