FOR OUR CLIENTS: HELPFUL HOME PURCHASE INFORMATION
Purchasing Your Dream Home
The following summary provides a general overview of the steps involved in the purchase of residential real estate:
THE OFFER
The offer is usually made by signing a formal binder agreement or offer to purchase. At the time this agreement is signed, the buyer is generally expected to provide a check for one (1%) percent of the purchase price.
CONTRACT
After the seller accepts the offer, the buyer will then need to sign the contract of sale. As your attorney, one of the most important tasks we will perform is to review and, if necessary, revise the proposed contract of sale. Because each contract may be different, it is crucial that an experienced real estate attorney review the contracts to make sure that the buyer's interests are protected and to ensure the buyer understands his/her contractual obligations. Even if the seller uses a standard contract of sale, certain revisions to the contract are sometimes necessary to protect the buyer. Once the parties have signed the contract of sale, the rights and obligations of the parties become fixed and the parties can no longer change their mind about buying or selling the property. Many times the contract of sale may contain a mortgage contingency provision, which allows the buyer to cancel the transaction if, after using their best efforts, they are unable to obtain a mortgage to purchase the property.
INSPECTIONS
Once an offer has been accepted, a buyer should hire a reputable inspector to ensure that the structure is sound and its systems are in good working order. The inspection is sometimes completed before contracts are signed, but is sometimes done within a set number of days following the signing of the contract. A provision allowing a set number of days for an inspection requires the seller to sign a contract committing to sell to the buyer before the buyer invests a significant amount of money on inspections which is sometimes beneficial.
As a general rule, the buyer should attend the building inspection. The knowledge gained by spending time with the building inspector during the inspection can be invaluable. The inspector will generally check items such as the roof, plumbing, heating, air conditioning, electrical systems, water, radon levels, structural condition, water seepage and many other items.
The buyer should also consider retaining a separate inspector to check items such as termites, swimming pools, mold and septic systems. These items can be expensive to repair and often require a specialized knowledge that many home inspectors do not possess.
MORTGAGE
The buyer should speak with potential lenders about applying for a mortgage as early as possible because the process can be complicated and time-consuming. Many decisions have to be made about the loan, including whether to obtain a fixed or adjustable rate loan, the term or length of the mortgage, how much to borrow, prepayment penalties, nonrefundable lock-in fees, and whether to use a mortgage broker or a direct lender, such as a local bank.
Each lender that the buyer considers should provide a good faith estimate of settlement costs and a preliminary truth-in-lending statement. As part of our services, we will review these two documents with our clients and make sure they are receiving a fair deal from the lender.
After the loan is approved, the lender will provide a written commitment. The buyer should review the commitment carefully to make sure the lender has not added conditions and that the approved loan contains the rate and term promised. Until a written commitment is provided, the buyer should not rely on any pre-approvals or verbal assurances from the lender promising that the loan is approved.
TITLE SEARCH
As part of our services, we will obtain and review title of the property. The title search will confirm that the seller has good and marketable title to the property, whether any mortgages, judgments or other liens exist on the property that must be released prior to closing, whether anyone else has any rights to the property, whether there is access to the property, and whether any restrictions may affect the buyer's use of the property. The attorneys will resolve any title issues which arise prior to closing.
TITLE INSURANCE
One of the buyer's more significant closing costs will be title insurance. Title insurance protects the lender and/or owner against monetary loss due to title defects or claims against the property. Title insurance will be required by the lender. The buyer should also consider purchasing an owner's policy which protects the buyer in the event any title issues arise. Examples of title claims include unreleased mortgages or liens from previous owners, documents improperly indexed by the town clerk, claims by contractors for unpaid improvements made to a home (commonly referred to as mechanic's liens), forged documents and unpaid taxes that should have been paid by a prior owner. Title insurance will generally cover both the cost to defend the insured if litigation arises involving a title dispute and any costs necessary to remove title defects which existed at the time of the purchase.
SURVEY
A survey is generally not required by lenders in North Carolina. Although it is costly and time consuming, the buyer should obtain a survey in many cases. Unless a survey is obtained, the buyer will not receive any details regarding the property's boundary lines or where structures such as the house, garage, driveways or fences are located within the property. Only a survey will show exactly what is located on the property and whether a neighbor may be inappropriately, yet openly, utilizing the property being purchased.
HOMEOWNER'S INSURANCE
Unless the property is a condominium, the lender will require that the buyer obtain homeowner's insurance, or hazard insurance. The policy should provide guaranteed replacement coverage. If this is not available, the coverage must be at least equal to the amount of the mortgage. The buyer will be required to pay for the first year's insurance prior to closing. Since many lenders will not provide a final clear to close until they have received this proof of homeowner's insurance, we recommend that our clients have their homeowner's insurance in place at least ten days before the scheduled closing date. This allows the lender sufficient time to review the certificate of insurance and paid receipt prior to the closing.
WALKTHROUGH INSPECTION
Immediately before the closing, the buyer should meet the real estate agent to conduct a walkthrough inspection. The purpose of this inspection is to make sure that the condition of the property is in accordance with the contract of sale. During this time the buyer should make sure that the seller properly performed any agreed-upon repairs, that the premises are clean and that all personal property included in the sale, including appliances, have not been removed and are in proper working order.
ADJUSTMENTS
The contract of sale will generally require that adjustments to the purchase price be made at closing for certain expenses payable by the homeowner. The purpose of the adjustments is to fairly allocate the costs paid by homeowners so that the buyer and seller are only paying for the expenses incurred during the periods they own the property. Examples of expenses for which adjustments are made include fuel, real estate taxes, sewer charges, water, and, if a condominium, common charges. Buyers should discuss the adjustments with their attorneys prior to closing, as these costs can be significant and are not contained in the good faith estimate of closing costs or explained by the lender when discussing the amount the buyer will need to bring to the closing.
CLOSING
At the closing, the buyer will sign all bank documents and pay the balance of the purchase price to the seller, as well as any other closing costs that are due. The seller will also execute certain documents, including the deed, and provide those to the buyer along with the applicable conveyance taxes. After the money and documents have been exchanged, the real estate agent will provide the keys. After the closing, the buyer's attorney will check the title once more to be sure no new liens have been recorded since the date of the title search. The buyer's attorney will also record the deed and mortgage, and pay the conveyance taxes on behalf of the seller. Once the deed is recorded, the buyer is the official owner of the new home.
As you can see, the process is somewhat complicated and unexpected issues often arise. At Kipke & Rose, our goal is to provide you with the best possible representation so that your transaction proceeds as smoothly and efficiently as possible.
Part II of this document Building Your Dream Home
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