Buying a house can be very stressful, especially if you’re a first timer and are not familiar with the process…but fear not! I have worked in real estate for over 7 years now and have formed an extensive knowledge on the entire process of purchasing and selling residential homes. My employer and I consistently deal with and represent realtors, attorneys, title companies, mortgage companies, short sale personnel, investors, courts, contractors, associations, builders, handymen, etc. Here’s a step-by-step process of how your purchase should transpire and what you will be dealing with.
1. Make an offer on a property based on market value and your realtor’s advice. Going in with a price too low in a competitive market can mean you might have to go into a bidding war and might wind up paying more for the home if someone else puts a bid on it as well. Still, if there are no other offers on the house, you can go in with a lower price and negotiate with the Seller and potentially save some money. Short sales are great because you can get a home for a much lower price, but the actual purchase process is a lot longer, more tedious, and you will not be able to ask for any assistance on closing costs, repairs or utilities from the Seller. The house might also be in bad shape due to not being maintained and you might have to put some money in prior to even closing/owning the home, but if you can negotiate with the bank and get the house for cheaper, it might be worth it to those who have time and money to wait it out. Once the offer is accepted, you will sign contracts and send to your real estate attorney for review. Before you go under Contract, you should be pre-approved for a mortgage.
2. Once the contracts are signed by all parties, attorney review starts. Attorney review is a 3 day period that allows for both parties to open negotiations on the contract and request changes to dates, provisions, etc. Review gives 3 days for either party’s attorney to send a letter via the method specified in the Contract (usually fax and certified mail or if the attorneys agree via telephone, email can be used). Once the letter is sent and negotiations opened, attorney review can go on as long as it takes to finalize said negotiations, but it should go rather quickly. Once your out of attorney review and all parties have received signatures on any requested changes, the contract is binding and the Seller cannot accept a higher offer and void the Contract, unless they specified that right during attorney review. That is usually not the case though and once attorney review is complete, you can rest assured that the contract can only be cancelled should inspections reveal defects you cannot afford or do not want to take on or some other major issue occurs and no agreement can be reached between parties.
3. After attorney review is complete, you will need to order a home inspection, termite inspection, and radon report. An inspection company can usually perform all of these at once (radon will take 3 days as the tester needs to sit at the property and measure levels) and the reports can be generated within a week. Then you can request any repairs be made by the Seller with another letter from your attorney. You can also request a reduction in purchase price or a Seller’s concession which will give you more money toward closings costs (but lender’s usually only allow a Seller’s concession of 6% of the purchase price), but it will be limited. Once repairs are waived or agreed upon, inspection contingency is satisfied and you can move forward with a mortgage toward a commitment. A pre-approval does not mean you will definitely get a mortgage, but it’s a document of good faith. A mortgage commitment takes about 30-45 days to get and it will require lots more documentation from you proving income, credit history, etc. That commitment is what the Seller will be looking for (and there will be a date it is due in the contract as well) because the lender is then committing to a rate and mortgage for you. The commitment really is the go-ahead from the lender, whereas a pre-approval is a quick estimation that you can move forward with a contract so as not to lose the home to another offer. Make sure to get an estimate of closing costs if you have not already so that you will know if you need to bring cash to closing and if so, how much. Usually closing costs (out-of-pocket expenses that are paid throughout the purchase and/or on the day of closing including your down payment) can total $14,000.00 between appraisal fees, inspection costs, mortgage fees, attorney’s fees, etc. Your mortgage company will require an appraisal be completed, which they should be able to order with your payment, before issuing the commitment as well. An appraisal is going to tell the lender how much the home is really worth. If the appraisal comes in low, you will have to negotiate on the price of the home with the Seller so as not to mess up your mortgage application.
4. Once you have a mortgage commitment, your attorney can order the title binder and title insurance which will reveal any liens on the property that need to be dismissed prior to you taking responsibility for it. For example, the Seller could have outstanding child support judgments that have been placed on the property to ensure that they are paid. These will need to be discharged by their attorney before you get title insurance and buy the home. You will also order a survey at this time if it is required by your lender. A survey is a good idea too because it will reveal if there are any easements and if any of the neighbors are infringing onto your property with their structures. Title insurance will protect you when you go to sell the home in the future as well should any of these issues come up at that time or in the meantime while you are the owner of the home.
5. One title insurance is in and all conditions are met with the title company and your mortgage company (the attorney will help you ensure all conditions are met and title is clear), you can continue to check with your lender and make sure they have everything they need. Once they do, your mortgage will be submitted to underwriting to be cleared to close. Commitment to close usually takes at least one week if not more. Some lenders are quicker at this process then others. Once you are clear to close, the lender will send all the mortgage documents and figures to the settlement agent (either your attorney or title company – the settlement agent is who will be cutting checks to everyone involved and conducting the actual closing). This will allow the title company or attorney to complete the HUD-1 Settlement Statement which is a breakdown of all Seller and Buyer expenses and gains at closing. It will show tax payments, water and sewer, attorney’s fees, title charges, etc. It will also give you as the Buyer the final number needed at closing. Title insurance and your lender will also require that a Certificate of Occupancy is obtained prior to clearing you to close and moving into the property. Usually this is the Seller’s responsibility to obtain, but just be sure that one is received before closing. This will certify that a township official has inspected the property and deemed it safe to occupy. This is different than the inspection report. Inspection reports are much more in depth as to the operating systems of the home, whereas a C of O report is about safety for township purposes. If they deem it unsafe, it is the Seller’s responsibility to perform necessary repairs to make it safe before closing, unless specifically changed during attorney review. Some townships require only a smoke detector cert. rather than a C of O to close and others require both and sometimes a heating cert. as well. It’s best to check with your township and/or attorney to find out what certificates are needed to deem the property safe to occupy.
6. Once you are clear to close, you will need to call utility companies and give them your information so bills can be directed to you post closing. Make sure to give them the date of closing. You will be reimbursing the Seller for any taxes or utilities for which you will be utilizing under their payments, if any and these reimbursements will be included on the HUD-1 for you to see and will be included in closing costs. Then the closing will be scheduled by your attorney, most likely to take place at the settlement agent’s office. You will attend closing and bring a certified check or cashier’s check in the attorney approved amount listed on the HUD-1. You will sign mortgage docs and the Seller’s attorney will bring the Seller’s closing docs signed by the Seller, which documents will transmit the title of the property to you (Deed, Affidavit of Title, etc.). These documents will be sent out post closing to the township to be recorded so that in their records, you are listed as the owner of the property. You will also get the keys and any other requested information and once closing is complete, you can take occupancy of your new home. The settlement agent/title company will take your certified check and disburse it as necessary to your mortgage company (for the first mortgage payment which is usually included in closing costs), attorney, and anyone else who needs to get paid out of closing costs. This is when a realtor would be reimbursed for any fees put out for you as well.
My advice is to always get an attorney because they will not only make sure you complete everything needed to purchase the home, but they will ensure that you do so in a legal manner and protect your rights under the contract. Without an attorney, you will be seriously stuck if any serious issues come up on the inspection report that need negotiating or you could wind up losing your deposit should you need to cancel. You can always get representation after the contract is signed and attorney review complete, but by that time, you may not be covered under all contractual aspects and the attorney will only be able to advise you on negotiations rather than protect you in any instance should the contract fall through.
If you can’t afford an attorney, just make sure that there is clear language in the contract that you can cancel and receive a full refund of deposit should the inspections reveal too much for you to handle, if the property is in a flood zone, or if you cannot get a mortgage commitment. Always make sure that your contract is contingent on a mortgage if you are not purchasing with cash. If you need to sell your current home to purchase this new one, it is imperative you include in the contract that the purchase is contingent upon the successful sale of your current home (this is called a house-to-sell contingency).
Also, make sure you have enough time allowed to complete said inspections and cancel should the results be unsatisfactory. Still, getting an attorney is always much easier and more advisable than trying to negotiate and understand a real estate contract on your own.
*Stay tuned for the next installment, Selling a House: All You Need to Know and Short Sales: All You Need to Know if you’re on the other ends of the transaction.
transcendentbeauty 