By Amy Magit, Esq.
I, like you, was once a first time home purchaser. It’s not like buying a couch or a television, which can be returned if you keep the receipt. It’s not even like buying a used car that is protected under the Lemon Law. Buying a home is not only a financial investment but it is also an emotional investment. Whether it is the home you will live in forever or a starter home, this is where you will build memories for a lifetime. And that is why the process of buying a home can be so overwhelming. Well, I want to make the process easier for you. The following will answer questions that every first time home purchaser has and put you at ease as you begin your home buying journey.
• The first step after deciding that you are ready to buy a home is to contact a mortgage broker. Feel free to call a few brokers to compare mortgage rates. At this point, you are simply looking for a pre-approval letter stating that you are qualified to obtain a mortgage for a given amount. Most Sellers, but not all, will ask to see a pre-approval letter so that they know you are a willing and able purchaser. You do not need to obtain your loan from the same mortgage company that issued the pre-approval letter but it is definitely easier to continue with the same party you started with.
• Second, you never know how quickly you may find the house of your dreams. Therefore, it is wise to contact a real estate attorney at the beginning of your search so you are not scrambling to hire one at the last minute. Also, if you know who your attorney will be, he can review the Offer to Purchase with you prior to signing. Many times, Buyers do not hire an attorney until after the Offer is already signed. It is helpful to find an attorney that not only will represent you as the Buyer but will also represent the bank/mortgage company that you will ultimately be obtaining your mortgage loan from. Not all real estate attorneys are lending attorneys as well. The advantage of using the same attorney to represent you and the lending institution is to avoid paying double fees.
• What is an Offer to Purchase? The first thing that happens when you find a house is to make an offer to the Seller or the Seller’s real estate agent to purchase the home. The formal document to confirm the offer is called an Offer to Purchase. A common mistake by Buyers is to rely solely on the real estate agent to complete the Offer form. Real estate agents are not lawyers and are not always diligent about including specifics on the Offer as the Offer is not technically the contract and therefore, not binding. However, since you have already contacted a lawyer in step two, you can simply call him to review the Offer to make sure the form has been completely with your best interest in mind.
• I mentioned that the Offer to Purchase is not the contract. After you have a signed Offer, accepted by the Seller, you typically have between 7 to 14 days to execute a Purchase and Sale Agreement. The Purchase and Sale Agreement is the contract that binds you into purchasing and the Seller into selling the subject property. There is a standard Purchase and Sale Agreement that a real estate broker will provide, but we prefer the Seller’s attorney to draft the Purchase and Sale Agreement. Much of the standard language will not be changed but your attorney will most likely add an Addendum to protect your interests. Don’t be overwhelmed by the length of the agreement. There will certainly be specifics relative to your property but much of the Purchase and Sale Agreement is interchangeable between buyers.
• During the time your attorney is negotiating the Purchase and Sale Agreement, you will be working with a mortgage broker to fine tune your mortgage rate, the amount of the loan, type of loan, and the specifics regarding your mortgage fees and costs. Always ask if there are any first time homeowner discounts. Your mortgage broker will issue you a mortgage loan commitment, which is needed to sign the Purchase and Sale Agreement, setting forth the documentation needed to qualify for the loan. Make sure you understand what fees are due at closing. Even no closing cost loans have upfront fees that are due and payable at closing. For instance, taxes and escrow fees are due at closing and are not fees a mortgage company covers, but they are amounts you must pay regardless and you should be aware of them in order to predict your ability to bring the right amount of cash to closing.
• What are escrow fees? Rather than pay your real estate taxes and homeowner’s insurance payments on a monthly basis, most banks require borrowers to keep an escrow account for these items. You, as the borrower, will pay a certain amount per month, along with your principle and interest, for taxes and home insurance. At the closing, you will be required to pay a certain required amount to set up the escrow account. Be aware of this escrow fee, as it could be a substantial amount of money you will need to bring with you to closing to cover this expense.
• Along with lining up your mortgage broker and attorney, contact a home inspector prior to finding your home. Again, this simply avoids rushing around trying to find one when time is of the essence to get the Purchase and Sale Agreement signed. I think the best way to find a reputable inspector is to ask your friends and family in the area who they have used for house inspections. Word of mouth is sometimes the best way to find a qualified inspector.
• So, now you have your home inspected, the Purchase and Sale Agreement is signed and your mortgage is in place. You simply have to wait until the closing day is here. Within 24 hours of closing, and typically the same day, you will have an opportunity to re-inspect the home to make sure any punch list items are completed and that the Purchase and Sale Agreement as been filed.
• The closing can take an hour or more depending on the amount of paperwork and how carefully you review the documents. You have your attorney with you at closing to explain the impressive stack of paperwork into understandable words. You are buying you first home. Be happy! Be excited! And congratulations!