FAQ
General FAQ
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It is the initial good faith deposit that accompanies an offer and or purchase agreement. There is no specific deposit requirement but typically most buyers put down 1% to 5% of the purchase price in order to secure the contract. Since there is no set amount, earnest money deposits vary from markets in the USA. In sellers’ market when inventory is limited, many buyers put down larger earnest money to be competitive. And the same is true in a Buyers’ market when a buyer may put down higher deposit to entice seller to accept their low offer but the local market conditions determine how much one should consider putting down.
If a deal is struck, the earnest money is applied towards the down payment (the portion of the home's sales price that is paid upfront and not financed as part of the mortgage) and closing costs. The deposit is put in an escrow account (or Trust) for safekeeping, not the seller directly. The higher initial amount suggests a serious buyer. It is to help demonstrate good faith to the seller. If offer is accepted, the seller takes the home off the market and reserves it for you until contingencies, if any are resolved. If the deal falls through, the earnest money is returned to the buyer and the home is put back on the market.
Please note, if both the parties agree to the deal terms, and then if the buyer backs out, the earnest money does not have to be returned to the buyer.
Property taxes are based on the assessed value of your property, which is determined by local assessors. The tax amount is calculated by multiplying the assessed value by the local tax rate.
Properties are reassessed every five years, with interim adjustments made annually to reflect market conditions. These assessments must meet state standards and are reviewed by the Department of Revenue
Find Your Tax Rate:
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A property that has gone through the foreclosure process and is now owned by the mortgage lender, like a bank. The lender typically tries to sell REO properties quickly to recoup its losses.
Typically these properties have gone through foreclosure but did not sell at an auction. As a result, ownership reverts to the lender — typically a bank or financial institution.
Thus, once a property reverts back to the lender, the lender may now clear any existing liens not named in the foreclosure. They may make basic repairs and list the home for lower sale price - basically priced to sell quickly.
An REO property is a home that a bank or a lender owns after a foreclosure - has taken possession of the property after the original owner defaulted on the mortgage and it didn't sell at auction. This means that the property still has previous residents or tenants living in it - hence "Occupied" - The status of which indicates that the property is not vacant. Thus some challenges like limited access, potential property damage, and the need to handle the occupants' eviction process is on the new buyer. There is a potential to get the property at a lower purchase price.
A rental property that is managed and leased directly by the owner, rather than through a property manager or agent.
A property being sold directly by the owner, without the use of a real estate agent.
Foreclosure:
It is the initial stage where the homeowner defaults; the bank doesn't own the property yet.
REO:
It is when the property is officially owned by the bank AFTER the foreclosure process.
It is a deal between two independent and unrelated parties where both are acting in their own self-interest to come to an agreement on fair market terms, plus free from undue influence or a prior relationship. The goal is to ensure transparency and fairness, and prevent bias or inflated prices which may often be found in dealings between family or affiliated businesses.
Context of key references:
Independent Parties: The buyer and seller are not related, not friends, and not affiliated corporations.
Fair Market Value: Prices reflect the true market value, not a "friendly" discount or inflated price.
Equal Bargaining Power: Neither party has undue influence or control over the other.
Common Usage: Predominantly used in real estate (selling a home to a stranger) and international business (transfer pricing) to ensure tax compliance.
Examples & Importance:
Real Estate: A stranger buying a house from another person represents a standard arm's length sale, preferred by lenders because it reduces fraud risks.
Business/Tax: A parent company selling to a subsidiary must use arm's length pricing to comply with tax regulations and avoid improper profit shifting.
Non-Arm's Length: Selling a home to a family member for half price, or a company buying services from an owner's spouse, are not arm's length, as the relationship influences the price.
Transactions that are not at arm's length often require scrutiny by tax authorities or mortgage lenders to determine the true value of the asset.
An appraisal is an unbiased, professional opinion of a property's fair market value, typically conducted by a licensed appraiser for real estate transactions. It involves an inspection of the property and a review of comparable sales to ensure the home's value justifies the mortgage loan amount.
The key purpose of an appraisal is that the Lenders require appraisals to verify that the property serves as sufficient collateral for a loan. The lender orders for a professional appraiser to come inspect the property's condition, size, and features, and compares it to similar nearby homes recently sold resulting in an appraisal report detailing the estimated market value. Interesting is that many times the buyer/borrower pays for it even thouh the lender orders it. This report is crucial for finalizing home purchases (or refinancig).
Key Impact of the result is: If the appraisal is lower than the sale price, it may cause issues with loan approval or require renegotiation.
Note: Sometmes appraisals are also used in other contexts, like for evaluating items for insurance coverage, tax assessment, or calculating "appraisal costs" in business (the cost of checking product quality).
Buyer FAQ
An Adjustable-Rate Mortgage (ARM) is a type of home loan where the interest rate changes periodically based on market conditions. Unlike a fixed-rate mortgage, which has a constant interest rate for the life of the loan, an ARM starts with a fixed rate for an initial period and then adjusts at regular intervals.
- What does 10/1, 7/1, 5/1, 5/6, 3/1, etc. mean?
The numbers in ARM terms (like 10/1, 7/1, 5/1, 5/6, 3/1) indicate:
The first number represents the number of years the interest rate remains fixed.
The second number shows how often the rate adjusts after the fixed period.
For example:
10/1 ARM: Fixed rate for 10 years, then adjusts once per year.
7/1 ARM: Fixed rate for 7 years, then adjusts once per year.
5/1 ARM: Fixed rate for 5 years, then adjusts once per year.
5/6 ARM: Fixed rate for 5 years, then adjusts every 6 months.
3/1 ARM: Fixed rate for 3 years, then adjusts once per year.
Thus, 5/1 ARM is a very common type of 30 year adjustable-rate mortgage. This means that the rate will adjust periodically - the first part before the slash (5/x) refers to the fixed period of the mortgage and the second part (x/1) is the time period which states how often the interest rate will adjust after that, 1 is annually. Thus, for 5/1 ARM = if you were to close your loan on 12/1/2022 the first-rate adjustment will occur 5 years later on 12/1/2027. So now, when the next adjustment will happen, the lender will recalculate the interest on your loan on however that rate changed (up or down) from the initial rate. Thus, one year later, annually, the loan will adjust again, and the process will repeat to the end of the 30-year period. The point when the initial fixed interest rate changes to an adjustable rate, that "point of time" is referred to as the reset date. Note: If it said 5/6 ARM instead of 5/1, then the second part means that the interest rate will adjust every 6 months after the initial period. not annually.
ARMs can be beneficial if you plan to sell or refinance before the adjustable period begins, as they often start with lower interest rates compared to fixed-rate mortgages. However, they come with risk, since the rate can increase significantly after the fixed period. ARMs vs fixed rate scares folks in that there is some risk exposure associated to higher rates when the fixed period portion of the ARM is up. When Interest rates for ARMs is lower vs a 30-year fixed loan by a full percentage point or higher, ARMS can be seen as desirable since monthly payments upfront are more affordable. This entices some folks to get a larger house or better location because the lower payment feels like one can take on a bigger mortgage; not to mention if interest rates fall then the monthly payment may decline when the initial period is up or during any future reset(s).
The index is a major factor in determining the rate you pay for ARMs and is called SOFR (the Secured Overnight Financing Rate.) Thus, the mortgage rate for the ARM = the rate of the index + a stated margin. For example, if SOFR was 1.05% and if the margin = 2 percentage points, the loan rate = sum of these two = 1.05+2 = 3.05%.
For the 10/1 ARM the initial rate is fixed for the first 10 years(decade) vs five years. Because it is a longer period, generally the interest rate will be a little higher than the shorter-term initial period, since the initial rate is locked in for a longer period.
For 7/1 ARM same is true except the initial rate will adjust after the first seven years vs first five years. Again, the rates on the 7/1 ARM will be higher than the 3/1 and/or 5/1 because it reflects the longer fixed period. If folks know that they want to move or refinance within seven years, then choose 7/1 option.
Please note 2 things: the rate resets every year after the initial fixed period based on the index and margin, and ARMs have a cap on how much the interest rate can rise over the life of the mortgage or during the annual reset. There is definitely more complexity associated with so many more moving parts in an adjustable mortgage vs fixed, such as rate caps, indexes, resets. Choosing "interest payments only" and NOT principal in the initial period PLUS in this scenario if the home values drop, that would be very risky.
Mortgage pre-approvals typically involve a soft credit pull. This is because lenders take a quick look at your credit profile but without affecting your credit score. It helps the lenders estimate how much you might qualify for towards the purchase of your property but without making a formal commitment.
However, once you move forward with an actual mortgage application, then a hard credit pull is required. This can possibly slightly lower your credit score, but it's a necessary step for the lenders to take in order to assess your full financial picture.
A stronger preapproval is one that gives you a more solid commitment from the lender, and therefore typically involves a hard credit pull. This is because the lender needs to thoroughly assess your financial situation before offering a more reliable preapproval amount.
Thus, a soft credit pull is often used for initial prequalification, where lenders get a general idea of your creditworthiness without affecting your credit score. But if you want a stronger preapproval, you can expect a hard inquiry with your credit pull, which may slightly impact your credit score.
Rental yield is a key metric for real estate investors that measures the annual return on a property relative to its purchase price. Typically expressed as a percentage.
Formula
Example
- Annual Rent: $30,000
- Property Price: $600,000
Why Does It Matter?
- Higher yield = better cash flow for investors.
- Helps compare income potential across neighborhoods.
- Often used alongside capital appreciation for total ROI.
Yes, both you and your buyer agent can attend a home appraisal appointment in Massachusetts. But, it is NOT a common practice and NOT recommended. The appraiser is hired by the lender, not the buyer, to provide an objective, independent valuation, so the presence of the buyer can sometimes be seen as a distraction or an attempt to influence the value.
Many appraisers prefer to conduct the inspection independently to avoid pressure, as they must follow USPAP (Uniform Standards of Professional Appraisal Practice) regulations and remain unbiased.
If Buyer attends, the appraiser most likely cannot discuss the home's value or the results of their inspection at that time anyways. It is more effective for the listing agent or homeowner to provide the appraiser with a list of recent upgrades, improvements, and comparable sales (comps) rather than for the buyer to be present. Lastly, there is the onfidentiality aspect - In that the appraiser is not authorized to share their findings with the buyer directly; they report only to the lender.
Important Distinction note: An appraisal is not a home inspection. A home inspection is for the buyer to assess the condition of the home, whereas an appraisal is for the lender to determine the loan-to-value ratio.
The closing attorney typically represents the buyer and the buyer's mortgage lender. They are responsible to ensure that the buyer receives a clean and marketable title.They handlie the final transfer of funds and documents and are responsible to facilitate the entire closing process. they do NOT represent the seller's interests.
What do they do?
They conduct title searches, gather documentation, and manage the final transaction details, primarily protecting the buyer's rights. In state of Massachusetts, the buyer's attorney represents the lender but may also represent the buyer. Since the closing attorney handles the closing, sellers often hire their own separate attorney to represent their specific interests, conduct negotiation, and prepare documents such as the deed. The lender may provide a list of attorney's they use for closing attorney, if applicable, the lender provides the list to the buyer who can then choose the closing attorney. They may choose to have only one closing attrney represent them and the lender, or retain a separate attorney to represent them.
Area Median Income (AMI) is the midpoint of all household incomes in a specific geographic area.
Half of households earn more than the AMI, and half earn less.
HUD* defines AMI each year for all housing market regions in Massachusetts.
AMI is used to determine eligibility for programs such as:
Section 8 Housing Choice Vouchers
Public housing
MA Rental Voucher Program (MRVP)
Low-Income Housing Tax Credit (LIHTC) units
How AMI Is Calculated...
HUD* calculates AMI using these steps:
1. Define the Housing Market Area: HUD divides Massachusetts into 19 unique metro or county-based areas—each with its own income profile.
2. Determine Median Income for a 4‑Person Household: This serves as the base AMI for each area.
HUD publishes these values annually.
3. Adjust for Household Size: HUD uses a formula to adjust the 4‑person AMI for 1‑person, 2‑person, 3‑person, etc., households. Lower household sizes get lower limits; larger households get higher limits.
4. Set Program Thresholds: Programs use specific percentages of AMI:
30% AMI → Extremely Low Income
50% AMI → Very Low Income (main Section 8 threshold)
80% AMI → Low Income
*U.S. Department of Housing and Urban Development, a federal agency managing public housing, community development, and fair housing laws.
Seller FAQ
Increasing demand for homes drive up prices. Thus, when there is more demand for homes than homes available on the market, it is a Seller's market. Examples causing that are: low home inventory, increased demand when influx of people moving into an area where not enough homes are available, Interest rates trending downwards which increases home affordability, etc.
The opposite is true for a Buyer's market - this environment typically results in fierce completion amongst the buyers due to such limited property inventory to choose from. Buyers have to move quickly and make fast decisions and be prepared to pay more than asking.
In Massachusetts a 6D certificate (Massachusetts General Laws Chapter 183A, Section 6(d)) is a notarized document that is mandatory for selling a condominium, certifying that the seller is current on all common expenses, special assessments, and fees. It ensures the buyer inherits no financial liens or, hidden debt, and is required by lenders to close.
Who:
The original 6D certificate is typically given to the closing attorney, who is responsible for recording it at the Registry of Deeds along with the deed and other closing documents. It serves as legal proof that all association fees are paid, preventing liens from transferring to the buyer.
It serves a s a Proof of financial standing where it confirms that the seller has paid all monthly maintenance fees and special assessments up to the date of sale. Thus also provides a lien protection proving that there are no outstanding liens against the unit for unpaid fees. It is a legal requirement required for the recording of the deed at the registry of deeds, and making it essential for transferring title. Lenders will not approve financing for the purchase of a condo without this certificate.
What it physically includes is
- A statement of any outstanding fees or arrears.
- Details on special assessments or pending litigation.
- Information on the condominium's master insurance policy.
Process:
1) The seller is responsible for obtaining this document from their condominium association or management company/trustees.
2) It must be signed by the trustees in the presence of a notary.
3) It is generally recommended to obtain this certificate at least 5 business days before the closing. 4) It is then usually delivered to the seller's attorney.
5) The closing attorney ensures the original, notarized document is available to clear the title, often recording it simultaneously with the sale.
6) The document is filed in the public records at the Registry of Deeds to protect the buyer and lender.
7) It must be a recent, "clean" certificate, often valid only for a short window (15-30 days) before the closing date.
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