Resources

What to Expect in the Loan Process
What is a Credit Bureau Score, and how is it calculated?
What the Title Company Does
Title Insurance Guide
Understanding Title Insurance
Common Ways to Hold Title to Your Property
Functions of an Escrow
Important Property Tax Dates
Supplemental Taxes
What to Expect in the Loan Process

The Application (can be taken via phone)
The key to the loan process going smoothly is the initial application interview. At this time, your Loan Officer obtains all pertinent documentation, orders the initial credit report and inputs everything into their laptop computer so unnecessary problems and delays may be avoided.

2.) Ordering Documentation
Within 24 hours of application, the Loan Officer requests verifications of employment and funds to close, mortgage or landlord ratings, and any other necessary supporting documentation. The Loan Officer also sends the application and all pertinent information to the Loan Processor electronically. Once in contract, the LO collects the purchase contract, preliminary title report , and orders the property appraisal.

Good Faith Estimate and Truth-in-Lending Disclosures
Princeton Capital is required by the government to supply you with a Good Faith Estimate and Truth-in-Lending Disclosures within 3 days of application.

Loan Submission
Once all the necessary documentation is in, the Loan Processor puts the loan package together and submits it to the underwriter for approval.

Awaiting Documentation
Within a week, Princeton Capital begins to receive the supporting documentation. As it comes in, the lender checks for any problems that might arise and requests any additional items needed.

Loan Approval
Loan approval generally takes anywhere from 24 hours to 15 days depending on the complexity of the loan application. All parties are notified of the approval and any loan conditions that must be received before the loan can close.

Documents are Drawn
Within 1 to 3 days after the loan approval, the loan documents (including the note and deed of trust) are completed and sent to the title company. The escrow officer calls the borrowers to come in when the papers are ready for final signature. At this time, the borrowers are provided with final figures regarding how much money they will need to bring in to close the loan.

Funding
Once all parties have signed the loan documents, they are returned to the lender who will review the package. If all the forms have been properly executed, the funds are transferred by wire.

Recordation
When the Title Company receives the funding check from the lender, they make the lender's security for the loan a matter of public record. They do this by recording the deed of trust at the county recorder's office. All proceeds are distributed to the involved parties, and escrow is officially closed. You get the keys to your home!

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What is a Credit Bureau Score, and how is it calculated?
Credit bureau scoring is a statistical means of assessing how likely a borrower is to pay back a loan. A Credit Bureau Score is based on the data available in the borrower's credit report. The score measures the relative degree of risk a potential borrower represents to the lender or investor. It is not a measure of a borrower's income, assets, or bank account, although those and other factors are still considered by lenders and investors, independent of the score. A Credit Bureau Score does not include any of the following in the score calculation as this would be discrimination by FCRA guidelines: gender, race, age, or Zip Code.

Fair, Isaac Credit Bureau Scores range from approximately 300 to 850 points, and are available through the three national credit data repositories:

Equifax (800) 685-1111
Trans Union (800) 888-4213
Experian (800) 397-3742

Each bureau calculates its own score, based solely on data within its individual credit file.

A Fair, Isaac Credit Bureau Score, sometimes referred to as a FICOSM score, is calculated by a system of scorecards. In developing these scorecards, Fair, Isaac uses actual credit data on millions of consumers, and applies complex mathematical methods to perform extensive research into credit patterns that forecast credit performance. Each pattern corresponds to a likelihood that a consumer will make his or her loan payments as agreed in the future. The score is based on all the credit-related data in the credit bureau report – not just negative data such as missed mortgage payments or bankruptcies.

The types of credit information used in the credit bureau scorecards are typically the same items an underwriter would use to make a credit decision. The final score is based on the following factors:

Payment History (35%)
- Public record and collection items
- Frequency: indicator of 90 day later
- Severity: accounts over 30 and 60 days past due
  0-6 months: Major effect
  7-12 months: significant effect
  13-24 months: lesser effect
Outstanding debt (30%)
- Number of balances recently reported
- Average balance across all trade lines
- Current Balance versus Credit Line Limit:
  Over 75%: Major effect
  Over 75%: significant effect
  Note: Accounts with small balances score better than zero balances.
Credit History (15%)
- Age of oldest trade line
- Number of new trade lines
Pursuit of New Credit (10%)
- Number of inquiries and new account openings in the last year
- Amount of time since most recent inquiry
- Multiple inquiries for mortgages and auto loans within 30 days are lumped as one single inquiry.
Type of Credit (10%)
The credit engine looks for a good mix of the following types:
- Bankcard
- Gas, travel and entertainment cards
- Department store cards
- Installment Loans
- Finance Companies: these often are given a negative score, since they are commonly provided to people with substandard credit.
Fair, Isaac observes a very large number of credit report histories of mortgage borrowers to determine which credit report items or combination of items are the most predictive of future risk: this data indicates the amount of each item contributes to an accurate assessment of credit risk.

Fair, Isaac does not use race, color, religion, national origin, sex, marital status, or age as predictive characteristics. Occupation and length of time in present residence are also not used in the Credit Bureau Score. Also, any information that is not present in a repository credit file is not used in creating a Credit Bureau Score.

Understanding the Fair Isaac Credit Bureau Score
What does a score mean?

A Fair, Isaac Credit Bureau Score is a means of rank-ordering potential borrowers based on the likelihood that they will pay their credit obligations as agreed. A higher score indicates better credit quality. If all other things are equal, borrowers with a score of 680, for example, are less likely to default on a loan than borrowers with a score of 640.

The Fair, Isaac Credit Bureau Score models at each repository are of similar design and the scores are scaled to indicate a similar level of risk across all three bureaus. In other words, a score of 680 at one bureau will represent the same relative risk as a score of 680 from another bureau. This risk is defined in terms of the number of accounts that remain in good standing compared to those that default. However, because the three bureaus do not collect the exact some information, it is common for a borrower to have three different scores. For this reason, most lenders will use the middle score in its evaluation.

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What the Title Company Does
As part of the process of buying a home, the Title Company will run a title search on the property, and you will need to obtain title insurance.

Title Search
Lenders require a title search to prevent fraudulent sales. They want to be sure that the seller is indeed the owner of the property. The title search also attempts to uncover any "encumbrances" on the title. This includes liens (legal claims against a property) filed by creditors in an attempt to collect unpaid bills, as well as liens filed by the IRS for nonpayment of taxes. Any such claims against the property must be paid before (or often at) closing. In Santa Clara County, the seller generally pays for this search.

Title Insurance
As further insurance that the seller is giving the buyer a "marketable title," the lender will require that title insurance be bought. There are two types of policies, and you will be required to purchase both at closing:
The lender's policy protects the lender in the event a flaw is detected in the title after the property has been bought. The owner's policy protects you. The buyer pays for the lender's policy: the owner's policy payment will vary from county to county.

The escrow officer is the neutral third party in the transaction. They cannot do anything without written instructions. They receive instructions from the seller or seller's agent, from the buyer or buyer's agent, from the lender and from any other parties requesting funds (i.e. from termite companies, home inspectors and insurance agents). If there are any conflicting instructions, they cannot proceed until the conflict is resolved.

After your loan has been approved, the lender will prepare the documents that you will need to sign, and then will have them sent to the Title Company. The escrow officer, upon receipt of the documents, will prepare them for you to sign. He or she will call you to schedule an appointment and let you know exactly how much money is needed to close escrow.

After you have signed the papers, the escrow officer will return them to the lender for review. The lender will then "fund" the loan (give the money to the title company), who will in turn record all of the documents and disburse the funds to the appropriate parties.

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Title Insurance Guide
California Land Title Association Owner's Policy:

A. The Benefits to the Buyer
The purchaser of real property inevitably runs the risk of serious financial loss in connection with the title to the property purchased. Not only is there a risk that the seller lacks title to the property because of a problem in the chain of title, but because of the myriad of rights, claims, interests and encumbrances that our law recognizes in real property, there is always the risk that the seller does not own all of the interest in the property he is purporting to convey. Because of these risks, it is essential for the buyer to have a title search and examination performed before the purchase is consummated in order to identify precisely the nature of the title the seller can legally convey and the rights and interests of all parties in the particular piece of property.

Owner's title insurance eliminates all of these risks. For a single, onetime premium that is of a modest amount in relationship to the value of the property, a buyer can receive the protection of a title insurance policy – a policy that is backed by the reserves and solvency of a company with unlimited life. A title insurance policy will cover both claims arising out of title problems that could have been discovered in the public records and other defects that may not be discovered in the record even with the most complete search, for example:
A. The Benefits to the Seller
An owner of real property whose interest is insured by an owner's title insurance policy has the assurance that his title will be marketable and that if any question ever arises as to the title conveyed to the buyer, the title insurance policy will protect the owner from financial damage up to the face amount of the policy. In the absence of such protection a seller would be personally liable to the buyer if the seller's title was not as warranted in the deed of conveyance.

Moreover, by facilitating the availability of mortgage money and identifying title problems before the transaction is consummated so that they can be cleared up or dealt with in an appropriate manner, title insurance services facilitate real estate transactions and enable the seller to receive his money quickly.

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Understanding Title Insurance

What is title insurance? Newspapers refer to it in the weekly real estate sections and you hear about it in conversations with real estate brokers. If you've purchased a home you may be familiar with the benefits of title insurance. However, if this is your first home, you may wonder, "Why do I need yet another insurance policy?" While a number of issues can be raised by that question, we will start with a general answer. The purchase of a home is one of the most expensive and important purchases you will ever make. You and your mortgage lender will want to make sure the property is indeed yours and that no one else has any lien, claim or encumbrance on your property. The California Land Title Association, in the following pages, answers some questions frequently asked about an often misunderstood line of insurance--title insurance.

Q. What is the difference between title insurance and casualty insurance?
A. Title insurers work to identify and eliminate risk before issuing a title insurance policy. Casualty insurers assume risks. Casualty insurance companies realize that a certain number of losses will occur each year in a given category (auto, fire, etc.). The insurers collect premiums monthly or annually from the policy holders to establish reserve funds in order to pay for expected losses.

Title companies work in a very different manner. Title insurance will indemnify you against loss under the terms of your policy, but title companies work in advance of issuing your policy to identify and eliminate potential risks and therefore prevent losses caused by title defects that may have been created in the past.

Title insurance also differs from casualty insurance in that the greatest part of the title insurance premium dollar goes towards risk elimination. Title companies maintain "title plants" which contain information regarding property transfers and liens reaching back many years. Maintaining these title plants, along with the searching and examining of title, is where most of your premium dollar goes.

Q. Who needs title insurance?
A. Buyers and lenders in real estate transactions need title insurance. Both want to know that the property they are involved with is insured against certain title defects. Title companies provide this needed insurance coverage subject to the terms of the policy. The seller, buyer and lender all benefit from the insurance provided by title companies.

Q. What does title insurance insure?
A. Title insurance offers protection against claims resulting from various defects (as set out in the policy) which may exist in the title to a specific parcel of real property, effective on the issue date of the policy. For example, a person might claim to have a deed or lease giving them ownership or the right to possess your property. Another person could claim to hold an easement giving them a right of access across your land. Yet another person may claim that they have a lien on your property securing the repayment of a debt. That property may be an empty lot or it may hold a 50-story office tower. Title companies work with all types of real property.

Q. What types of policies are available?
A. Title companies routinely issue two types of policies: An "owner's" policy which insures you, the homebuyer, for as long as you and your heirs own the home; and a "lender's" policy which insures the priority of the lender's security interest over the claims that others may have in the property.

Q. What protection am I obtaining with my title policy?
A. A title insurance policy contains provisions for the payment of the legal fees in defense of a claim against your property which is covered under your policy. It also contains provisions for indemnification against losses which result from a covered claim. A premium is paid at the close of a transaction. There are no continuing premiums due as there are with other types of insurance.

Q. What are my chances of ever using my title policy?
A. In essence, by acquiring your policy, you derive the important knowledge that recorded matters have been searched and examined so that title insurance covering your property can be issued. Because we are risk eliminators, the probability of exercising your right to make a claim is very low. However, claims against your property may not be valid, making the continuous protection of the policy all the more important. When a title company provides a legal defense against claims covered by your title insurance policy the savings to you for that legal defense alone will greatly exceed the one-time premium.

Q. What if I am buying property from someone I know?
A. You may not know the owner as well as you think you do. People undergo changes in their personal lives that may affect title to their property. People get divorced, change their wills, engage in transactions that limit the use of the property and have liens and judgments placed against them personally for various reasons.

There may also be matters affecting the property that are not obvious or known, even by the existing owner, which a title search and examination seeks to uncover as part of the process leading up to the issuance of the title insurance policy.

Just as you wouldn't make an investment based on a phone call you shouldn't buy real property without assurances as to your title. Title insurance provides these assurances.

The process of risk identification and elimination performed by the title companies, prior to the issuance of a title policy, benefits all parties in the property transaction. It minimizes the chances that adverse claims might be raised, and by doing so reduces the number of claims that need to be defended or satisfied. This process keeps costs and expenses down for the title company and maintains the traditional low cost of title insurance.

The Title Consumer is published by the California Land Title Association. Member companies of the California Land Title Association are dedicated to facilitating the transfer of real property throughout California and increasing the public's awareness of the value and purpose of title insurance.

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Common Ways to Hold Title to Your Property

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Functions of an Escrow
Buying or selling a home (or other piece of real property) usually involves the transfer of large sums of money. It is imperative that the transfer of these funds and related documents from one party to another be handled in a neutral, secure and knowledgeable manner. For the protection of buyer, seller and lender, the escrow process was developed.

As a buyer or seller, you want to be certain all conditions of sale have been met before property and money change hands. The technical definition of an escrow is a transaction where one party engaged in the sale, transfer or lease of real or personal property with another person delivers a written instrument, money or other items of value to a neutral third person, called an escrow agent or escrow holder. This third person holds the money or items for disbursement upon the happening of a specified event or the performance of a specified condition.

Simply stated, the escrow holder impartially carries out the written instructions given by the principals. This includes receiving funds and documents necessary to comply with those instructions, completing or obtaining required forms and handling final delivery of all items to the proper parties upon the successful completion of the escrow.

The escrow must be provided with the necessary information to close the transaction. This may include loan documents, tax statements, fire and other insurance policies, title insurance policies, terms of sale and any seller-assisted financing, and requests for payment for various services to be paid out of escrow funds.

If the transaction is dependent on arranging new financing, it is the buyer's or the buyer's agent's responsibility to make the necessary arrangements. Documentation of the new loan agreement must be in the hands of the escrow holder before the transfer of property can take place. A real estate agent can help identify appropriate lending institutions.

When all the instructions in the escrow have been carried out, the closing can take place. At this time, all outstanding funds are collected and fees-such as title insurance premiums, real estate commissions, termite inspection charges-are paid. Title to the property is then transferred under the terms of the escrow instructions and appropriate title insurance is issued.

Escrow Will:
- Order preliminary report from the Title Department.
- Receive and review preliminary report.
- If needed, order Statement of Identity on buyer and seller and clear "General Ledger" items.
- Order demands or beneficiary statements at client's request.
- Receive and review demands and beneficiary statements. Notify Client.
- Bills from Termite Company, Roofers, Appliance Inspection Company, Home Warranty Company, Home Inspection Company, etc. are being forwarded to the escrow at the direction of the Client.
- Loan documents received from the lender.
- Call Broker or Client for terms of sale.
- Prepare buyer's and seller's escrow instructions and documents executed and returned with funds to escrow.
- Review file to determine that all conditions have been met and all documents properly executed, notarized and good funds received ( for buyer and seller).
- Request loan funds from the loan company.
- Prepare title policy write-up and forward documents to ORTC recording desk.
- Loan funds received and deposited.
- Close file, prepare closing statements and disburse funds.
- Deliver check to our customer.
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Important Property Tax Dates

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Supplemental Taxes
They have been with us since July of 1983, but you and your neighbors still may not know what they are, what they do, and how they affect you and your property. To help you better understand this confusing subject, the California Land Title Association has answered some of the questions most commonly asked about supplemental real property taxes.

Q. When did this tax come into effect?
A. The Supplemental Real Property Tax Law was signed by the Governor in July of 1983 and is part of an ambitious drive to aid California’s schools. This property tax revision is expected to produce over $300 million per year in revenue for schools.

Q. How will Supplemental Property Taxes affect me?
A. If you don't plan on buying new property or undertaking new construction, this new tax will not affect you at all. However, if you do wish to do either of the two, you will be required to pay a supplemental property tax, which will become a lien against your property as of the date of ownership change or the date of completion of new construction.

Q. When and how will I be billed?
A. "When" is not easy to predict. You could be billed in as few as three weeks, or it could take over six months. "When" will depend on the individual county and the workload of the County Assessor, the County Controller/Auditor and the County Tax Collector.

The assessor will appraise your property and advise you of the new supplemental assessment amount. At that time you will have the opportunity to discuss your valuation, apply for a homeowner's Exemption and be informed of your right to file an Assessment Appeal. The County will then calculate the amount of the supplemental tax and the tax collector will mail you a supplemental tax bill.

The supplemental tax bill will identity, among other thins, the following information: the amount of the supplemental tax and the date on which the taxes will become delinquent.

Q. Can I pay my Supplemental Tax Bill in installments?
A. All supplemental taxes on the secured roll are payable in two equal installments. The taxes are due on the date the bill is mailed and are delinquent on specified dates depending on the month the bill is mailed as follows:
Q. How will the amount of my bill be determined?
A. There is a formula used to determine your tax bill. The total supplemental assessment will be prorated based on the number of months remaining until the end of the tax year, June 30.

Q. Can you give me an idea of how the proration factor works?
A. The supplemental tax becomes effective on the first day of the month following the month in which the change of ownership or completion of new construction actually occurred. If the effective date is July 1, then there will be no supplemental assessment on the current tax roll and the entire supplemental assessment will be made to the tax roll being prepared which will then reflect the full cash value. In the event the effective date is not on July 1, then the table of factors represented on the following panel is used to compute the supplemental assessment on the current tax roll.

EXAMPLE:
The County Auditor finds that the supplemental property taxes on your new home would be $1,000 for a full year. The change of ownership took place on September 15 with the effective date being October 1: the supplemental property taxes would, therefore, be subject to a proration factor of .75 and your supplemental tax would be $750.

Q. Will my taxes be prorated in escrow?
A. No, unlike your ordinary annual taxes the supplemental tax is a one time tax which dates from the date you take ownership of your property or complete the construction of the tax year on June 30. The obligation for this tax is entirely that of the property owner.

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Chad Hawker
Princeton Capital
Phone: 831-622-4630 | Fax: 866-374-1426
chadhawker@princetoncap.com