Becoming a homeowner is a rite of passage, and while the end result is joyous, the process is often fraught with frustration.
The following information will remove some of the anxiety that accompanies buying your first house. Feel free to share this with someone who is about to take the plunge.
- COMP LISTINGS: Once you've found a house that suits your requirements, you will need to make an offer to the seller. Be sure to ask your real estate agent for some comparable listings. "Comps" will help you understand if a seller has set a reasonable price for his house and whether he is open to negotiation.
- COMING TO TERMS: If you are able to reach agreement on price, the real estate agent will send the seller's attorney a "term sheet" specifying the terms you and the seller agreed to. Then your attorney will negotiate the terms of your contract with the seller's attorney.
- ENGINEER'S INSPECTION: Unless you are very familiar with building construction and building systems, utilize the services of a Licensed Home Inspector BEFORE signing a Contract of Sale. An inspection will uncover issues, such as termites, electrical system problems and foundation cracks. You can then make sure these problems are addressed in the contract, or it may be in your best interest to move forward with a different home. If it isn't in the contract, the seller may not be obligated to fix the items.
- THE CONTRACT: The seller's attorney will send your attorney a Contract of Sale. This can happen as soon as one day after the seller accepts your offer, or after a completed inspection. Here it is essential to retain the services of an attorney because the contract is subject to negotiations. Once the contract terms are agreed upon, you will sign it and write a check for the contract deposit.
- CLOSING DATE: The contract will specify a "closing" date. The closing is the final step in a real estate transaction. The closing date in the contract is only a target date, and the actual closing generally takes place within 30 days of the date written in the contract. The closing date will be confirmed by the attorneys.
- INTEREST RATE LOCK: Before locking your interest rate or making moving arrangements, check with our office. Most lenders will lock your interest rate for 30 days at no charge. If you would like to lock the rate for longer, lenders may charge between 0.5% and 2% of the loan amount. Be sure to ask your lender about this. Also, keep any bank statements and your good faith estimate, and please send us a copy of your mortgage commitment as soon as it is available. If there is anything that the bank sends you that you don't understand, please call us with any questions.
- MONEY USED FOR CLOSING: Ensure that your assets are liquid in time for the closing. Checks drawn on brokerage accounts will not be accepted.
- HOMEOWNER'S INSURANCE: Begin your search for homeowner's insurance immediately. The first year's premium must be paid prior to the closing date. The lender will need to see proof of homeowner's insurance in order for you to close.
- PRE-CLOSING INSPECTION: Your pre-closing inspection should be thorough. This is your final opportunity to be sure everything is in working order and that the seller followed through with his obligations. There may be no recourse for issues that come up on your inspection, unless you thoroughly inspect the premises and let your attorney know of any issues.
- COMMITMENT CONDITIONS: A closing cannot be confirmed until all of the lender's conditions are satisfied. Conditions may include proof of a homeowners insurance policy, employment verification or an appraisal. If a loan officer indicates to you that you are clear to close, check with us immediately.
- OUTSIDE ASSURANCES: The contract of sale controls the transaction. If a seller gives you any assurances not specified in the contract, the seller is not legally bound to satisfy them. These assurances should be brought to our attention.
- DEBT: Do not incur more debt between date of contract and closing. This could affect how the lender views your ability to repay your new mortgage, which could affect your mortgage terms.
- CLOSING COSTS: Get an estimate and explanation of your closing costs in advance, so you can be sure you have enough money to close on your mortgage. This can be done with a mortgage professional or an attorney.
Remember, as Benjamin Franklin once famously said, "By failing to prepare, you are preparing to fail." Happy home-buying!
Brian M. Lovell is an attorney in the Real Estate and Business & Transactional Law Practice Groups. He can be reached at Blovell@vmmlegal.com or at 516-437-4385, ext. 124.