When buying your first home, you have found the house of your dreams and know how much your want to offer. The next step in buying your first home is for your real estate agent to draft up the contract to send to the listing agent. This is the last post in my series going over the parts of the One to Four Residential Contract. Please keep in mind that these contracts are drafted by a team of lawyers and I have no legal expertise at all. All I can do is give your options and advise you on courses of actions on certain parts of the contract. If you see something that you don’t understand, I recommend consulting an attorney.
What kind of costs can I have the seller cover for me? You most likely will face financial challenges when buying your first home. Most people do not have the luxury of savings and what you can save up most likely needs to go towards the mortgage down payment. You can request the seller to help pay for some of the costs of purchasing the property. We have already covered title insurance and the survey, which will generally fall to the seller to purchase for the buyer. You can also request the seller pay for a residential service agreement for you. As a reminder, the residential service agreement is a home warranty for your property during the first year you live in it. Most service agreements will cover all the major systems in your house like electrical and plumbing. In case any of these major systems break down during the coverage year, you will have to pay a small deductible to have the system fixed or replaced. It is a nice peace of mind to have when buying a pre-owned home. You can also request that the seller cover some of the closing costs that you will incur on purchasing the home. If you are taking out a mortgage, these costs can be quite high(usually in the thousands of dollars). Some closing cost examples include taxes, insurance, recording fees, origination fees, title search fees appraisal fees and attorney costs. Costs vary according to the property, lender and title company. You request a flat fee towards settlement costs which will be debited at closing.
What is closing and when does it
happen? Closing, also known as settlement or completion) is the
last step in executing your real estate contract and when the
property transfers over to you (after all the funding is dispersed).
You set this date when you make your offer and will most likely be
asked by the seller to change it. Sellers want to get their homes
sold as soon as possible. Most finance offers will require at least
thirty days before closing on a property. With some lenders, this
can take as long as 45 days. Cash offers usually happen very quickly
in one or two weeks. It is important to keep in mind the closing
date when drafting the contract offer. If you and your real estate
professional estimate incorrectly, this could cause a delay in the
closing date which would mean asking the seller for an extension.
Some sellers are good with one or two delays, but anything more than
this will cause apprehension,which can result in the deal not being
finalized at all. Why does it take so long? You will need at
least a week for an option period to check out the property. The
lender will need time to ensure you actually do qualify for the
mortgage and most banks will require an appraisal to be done to on
the value of the home to ensure it matches or exceeds the sales
price. Different lenders require different amounts of time
depending on their own internal processes. It is best to have the
real estate agent and your mortgage professional consult with each
other on a good closing date. What actually happens on the day of
closing? You sign all the paperwork to get the mortgage and the
property. It can take anywhere from 45 to 90 minutes to complete
(most people’s hand start to cramp after a while.) The seller will
also sign some paperwork as well, but you won’t do it at the same
time. Most sellers only take about 30 minutes to complete their
side. After all the paperwork is signed and verified, the lender
will fund the purchase.
What other special considerations should be in the picture? With any contract, there are a number of miscellaneous items to keep in mind. With real estate, there is most likely an addendum for that consideration. The most commonly used addendum are listed below with an explanation of what you need to consider as you fill them out with your real estate agent.
Third Party Financing Addendum for Credit Approval – Since most of us require a mortgage to purchase a home, this addendum is the most common one used. In this form, you will tell the seller how many days you need to get financing approved as well as what type of mortgage you plan to pursue (aka conventional, FHA or VA). You will need to list the amount of financing being sought and various other details about the anticipated loan so the seller can ascertain if they want to accept your offer.
Addendum for Property Subject to Mandatory Membership in a Property Owners Association – With a lot of new developments in urban areas, you will have a governing Home Owners Association. With every HOA, you have documents outlining the community rules. You will need to get these so you know what to do when it comes to upkeep of the property. In addition, each HOA will require buyers to get a resale certificate, which allows the property to be sold. This addendum outlines who will get the documents and the cost share of obtaining this required paperwork.
Addendum for Seller’s Disclosure of Information on Lead-based Paint and Lead -based Paint Hazards as Required by Federal Law – For any home built before 1978, the seller has to disclose if lead paint exists on the property. It also gives the buyer an out if lead paint is discovered during an inspection. If such paint is discovered, the buyer can terminate the contract and recover their earnest funds.
Two other forms area used quite often. One deals with lease back of the property by either the seller or the buyer. This form outlines the lease terms if this step is necessary. Sometimes the seller needs more time in getting out of a property and will request to lease the property for a few days after closing. The other forms deals with the minerals rights for the property. Most sellers want to retain the mineral rights so this form allows them to disclose this fact.
These were the last considerations to take for the contract when buying your first house. With these nine consideration over the last three blog posts, I hope you can feel more confident moving forward in buying your first home. Please be sure to consult with an attorney if you should have any questions dealing with the legalities of the contract.