CHCP Real Estate Transactions & Documentation — Questions and Answers
Question 1: What is a purchase agreement?
- A loan document
- Contract between buyer and seller (Correct answer)
- Title insurance policy
- Mortgage note
Correct answer: Contract between buyer and seller
A purchase agreement is a legally binding contract between a buyer and a seller that outlines the terms and conditions for the sale of a property. It details essential elements such as the purchase price, property description, contingencies, closing date, and other specific conditions agreed upon by both parties. This document is fundamental to the home closing process, formalizing the transaction.
Question 2: What is title insurance?
- Homeowner’s insurance
- Insurance against title defects (Correct answer)
- Life insurance
- Car insurance
Correct answer: Insurance against title defects
Title insurance is a type of insurance that protects both the homebuyer and the lender against financial loss from defects in a property's title. These defects can include undisclosed liens, errors in public records, forged documents, or claims by unknown heirs. It provides peace of mind by ensuring that the buyer has clear ownership of the property and is protected from future claims against the title.
Question 3: What document transfers ownership of property?
- Mortgage
- Deed (Correct answer)
- Title report
- Loan application
Correct answer: Deed
A deed is the legal document that officially transfers ownership of real property from one party (the grantor) to another (the grantee). It contains a description of the property and is recorded in public records to provide notice of the new ownership. Without a properly executed and delivered deed, legal title to the property does not pass.
Question 4: What is escrow in real estate transactions?
- Buyer’s lawyer
- Neutral third party holding funds (Correct answer)
- Seller’s agent
- Mortgage lender
Correct answer: Neutral third party holding funds
In real estate, escrow refers to a neutral third party that holds funds and documents related to a transaction until all conditions of the sale are met. This ensures that both the buyer and seller fulfill their obligations before the property and money change hands. The escrow agent acts as a safeguard, providing security and impartiality to the closing process.
Question 5: What is a closing disclosure?
- Pre-approval letter
- Final loan and cost summary (Correct answer)
- Title report
- Purchase agreement
Correct answer: Final loan and cost summary
The Closing Disclosure (CD) is a five-page form that provides final details about the mortgage loan you have selected. It outlines all the costs associated with the transaction, including the loan terms, projected monthly payments, and the fees and costs the buyer and seller will pay at closing. This document allows consumers to compare the final terms and costs with the Loan Estimate they received earlier.
Question 6: What is the purpose of a home inspection?
- Determine loan eligibility
- Assess property condition (Correct answer)
- Appraise property value
- Prepare title insurance
Correct answer: Assess property condition
A home inspection is a thorough, non-invasive examination of a property's physical structure and systems, conducted by a qualified inspector. Its primary purpose is to identify any significant defects, safety concerns, or necessary repairs that might not be apparent during a casual viewing. This assessment helps buyers make an informed decision and can be a contingency for the purchase agreement.
Question 7: What is an appraisal?
- Property inspection
- Market value estimation (Correct answer)
- Title search
- Loan application
Correct answer: Market value estimation
An appraisal is a professional, unbiased estimate of a property's fair market value, typically conducted by a licensed appraiser. Lenders require appraisals to ensure that the property's value supports the loan amount, protecting their investment. The appraisal considers factors like recent comparable sales, property condition, and location to determine an accurate valuation.
Question 8: What document details loan terms for the borrower?
- Deed
- Mortgage note (Correct answer)
- Title insurance
- Escrow agreement
Correct answer: Mortgage note
The mortgage note, also known as a promissory note, is a legally binding document signed by the borrower that outlines the terms of the loan. It specifies the loan amount, interest rate, repayment schedule, and other conditions of the debt. This note represents the borrower's promise to repay the loan to the lender.
Question 9: What is the role of a title search?
- Transfer ownership
- Verify ownership and liens (Correct answer)
- Approve loan
- Inspect property condition
Correct answer: Verify ownership and liens
A title search is a comprehensive examination of public records to determine the legal ownership of a property and identify any claims, liens, or encumbrances against it. This process ensures that the seller has the right to transfer ownership and reveals any potential issues that could affect the buyer's clear title. It's a crucial step to protect the buyer from future legal disputes.
CHCP Real Estate Transactions & Documentation
What is a purchase agreement?