Buying Your First Home

 

Buying Your First Home : Part 1

Home Loan Pre-Approval versus Pre-Qualification: Pre-Approval is best

It's important to know in advance if you qualify for a home loan to purchase a home, and if you do, just how much home you can afford based on your income and personal needs. When you enlist the services of a real estate agent to act as your Buyer's Agent (which is strongly recommended), he or she is likely to ask you for a "Prequalification Letter" before showing you available properties. Understandably, a real estate salesperson wants to be sure that his or her time be spent working only with qualified buyers.

In the prequalification process, you tell the mortgage broker about your income, employment, rental history, what you think your credit is like and what price range you're considering (or a specific price if you've identified a home). Based on that information, a Prequalification Letter can be drafted stating that [it appears] you're qualified for a loan up to a certain amount, and a copy of the letter is then sent to your real estate representative.

Are you really preapproved for your home loan?
Depending on your actual qualifications, however, it can be a mistake to assume that you're pre-approved for a new home loan based solely on a Prequalification Letter. This is because none of the information you've supplied has actually been verified and no lender has reviewed your application. This isn't to say that the prequalification process isn't a good idea — in fact, it's a prerequisite to being pre-approved. By talking about your qualifications, financial goals, and other important points I'm in a much better position to assist you with obtaining your actual loan pre-approval..

Many highly experienced Realtors will only work with pre-approved clients. If you're a first-time homebuyer, we request that we pre-approve you as well.

Realtors and mortgage brokers' businesses rely heavily on reputation for successful closings. The relationship between a Realtor and his or her preferred mortgage broker is also very important because this relationship is based on trust-a trust that when your mortgage broker tells a Realtor that you're qualified for a loan that it means there is no chance that you won't qualify for a new loan after the purchase agreement has been signed. The relationship between highly successful Realtors and mortgage brokers takes years to form in many cases, and that relationship is highly valued between both parties.

Many top-producing Realtors with successful reputations will not accept an offer from a prospective buyer based on a simple prequalification interview. They will not jeopardize their reputation and take chances with buyers that they do not know with reasonable certainty will ultimately qualify for a home loan.

As a prospective homebuyer, you should want this level of certainty as well.

Getting pre-approved for your new home loan isn't difficult and can be done quickly. Here's what's needed:

An up-to-date credit report is obtained by a mortgage advisor and reviewed with you for accuracy.

Your basic loan application is taken in person or by phone.

If you're qualifying with documented employment, income, and assets, they will request that you supply them with copies of your most recent paystubs, tax returns, and asset documentation for verification. If you're self-employed, or if you're being qualified with "reduced" or "no" documentation, they will request other appropriate supporting information needed to pre-approve you.
A verbal or written verification of your current rental history or living arrangements is obtained.

You'll provide written proof of your down payment and closing costs necessary to close escrow. This may be a current bank statement, asset account statement, proceeds from the sale of another property, a Gift Letter, Trust Fund Entitlement or other verifiable source.

If there will be a co-borrower applying with you, the same information will be required from that person if his or her income or assets are used to qualify for the new loan.

Once they have completed the pre-approval, the mortgage advisor will submit your basic application and credit report to one or more lenders for a preconditional review. The lender's loan representative will ok the basic application for submission, or in some cases, list any conditions necessary to pre-approve the loan when it is formally submitted later (after you've found a property and your offer has been accepted). The mortgage advisor will review any lender pre-conditions with you before you start shopping for your new home and help resolve these conditions with you.

The mortgage advisor then submits your Home Loan Pre-Approval Letter to both your Realtor and the Seller's Agent along with a signed-off checklist of the above items so he or she can know that all of your most important qualifications have been obtained, reviewed, and verified. Equally important is the fact that you can be confident that you'll soon be a new homeowner!

As a prospective new homebuyer, the most important thing you can do before you start shopping for a new home is to become pre-approved for your new home loan.

Buying Your First Home : Part 2

The Costs of Home Ownership

In this second of our Buying Your First Home series, you'll learn most anything you want to know about the costs of home ownership.

Calculating Affordability
The Mortgage Loan — Closing Costs
Ongoing and Future Costs of Homeownership
Costs of Home Ownership
Calculating Affordability

Before deciding to buy a home, calculate your total monthly income and expenses. While there is no fixed rule which can determine how much an individual or family can pay for total monthly housing expenses, the main thing is to make sure that the monthly cost of home ownership won't strain your budget and still allow you to save money.

Compare the new total housing expenses you will have to pay against what you are currently paying for rent or for the house you now own. If the new home you plan to buy or build will increase the monthly expense above what you are now paying, be certain that you can pay the increased costs while retaining some savings. Calculating the net cost of ownership with your tax advisor in advance is highly recommended, because the net cost to you after tax credits is also important to consider as a benefit.

If you're not sure that you can handle the costs involved based on your present and anticipated income, you should postpone buying a home until you are sure you can afford the total monthly cost, or purchase a less expensive home which you're certain you can afford.

The Mortgage Loan — Closing Costs
The term "closing costs" generally refers to all charges paid for obtaining the mortgage loan and transfer of ownership.

Closing costs may include all or some of the following:

Your Down-Payment, if required
Discount Point(s) (a percentage of the loan amount you pay to reduce the interest rate on your new loan)
Credit Reporting Fee
Appraisal Fee
Lender's Underwriting Fee
Broker's Fee (point(s) paid to broker)
Processing Fee
Escrow Fee
Title Insurance
Notary Fee
Recording Fee
Documentary Transfer Tax Fee and Tax Service
Pest Inspection (if required)
Certain other costs, technically referred to as "prepaid items," are also paid at closing. Among such costs are:

Prepaid Interest on the new loan (prorated daily through close of escrow)
Prepaid Taxes (required for an "impound" account, or if due)
Prepaid Hazard Insurance (homeowners insurance policy)
Prepaid Mortgage Insurance Premium (if applicable)
Note: Having an Impound Account means that your monthly mortgage payment includes taxes and insurance in addition to principal and interest. Some loan programs may require impounds, others let you choose to pay your taxes and insurance separately if you so choose.

It's also worth noting that 100% financing programs cover the cost of the loan only — you will still need to have some cash to pay closing costs unless the seller has agreed in writing to include all or part of the non-recurring (one-time) costs. Loan programs that exceed 100% financing, such as 103%, 104% and 107% financing can cover the cost of the loan plus some or all of the non-recurring closing costs by the lender. A seller can also elect to carry a Second Trust Deed (second mortgage) for a significant amount if the borrower cannot qualify for more than a certain percentage of the purchase price, and lacks the cash necessary to pay the combined difference and closing costs. The interest rate on a seller-carried 2nd mortgage is determined by the seller, and the seller also reserves the right in most cases to sell the note to another lender after close of escrow.

Ongoing and Future Costs of Homeownership
Mortgage Payments. You will be required to make monthly payments to cover interest and principal on the mortgage. This is the biggest item of monthly expense but is not the only one.
Taxes and Insurance. You will also have to pay future real estate taxes and assessments, and for insurance on the property (that is, insurance that will pay for losses due to fire or other hazards). If you have an impound account, an amount to cover real estate taxes and insurance will be added to the monthly payment you make to the lender. You should bear in mind that your monthly payment may later be increased if real estate taxes or insurance costs rise. A loan broker can estimate what the taxes and basic insurance will be in advance, and these amounts are disclosed in a Good Faith Estimate.
Utilities and Trash Collection. You will need to pay the utility bills and for trash collection. Utility bills for electricity, water, gas, and the like will vary, depending on the extent to which your household uses them. In figuring whether you can afford to pay the expenses on the home you propose to buy, be sure to make adequate allowance for these items. Also, don't forget to figure in utility costs for an in-ground swimming pool or heated spa.
Maintenance. Remember that, like everything else, your house will require maintenance and repairs as it ages. If your home is newer and well-built, these expenses should not be too large during the first two or three years, but may rise as your property gets older. You may also want to inquire with your homeowner's insurance company about additional insurance packages that cover the cost of repairs or replacement on many major household items that aren't normally covered under your standard homeowner's policy.
Homeowners Association fees are an added expense for ownership in certain residential areas and condominium and townhome developments.
Other Debts. If you already have other debts such as credit cards or automobile payments, or if you buy things for your home on credit, be sure you can afford to make these payments in addition to the other costs discussed above. Some homeowners run into serious trouble because they burden themselves with too much unsecured, revolving debt, which can lead to poor credit, default, bankruptcy or even foreclosure.

Buying Your First Home : Part 3

Finding a Suitable and Affordable Home

In this third installment of our Buying Your First Home series, you'll learn you'll learn about finding a suitable and affordable home — and some tips on evaluating those you find.

 

The Neighborhood
The Lot
The House
Floors
Doors
Ceilings and Walls
Utility & Electrical Outlets
Windows
Bathrooms
Closets
Kitchen
Heating & Air Conditioning
Insulation
Other Storage
Roof
Additional Notes About "Old" Houses
Finally ...

Finding a Suitable and Affordable Home The Neighborhood

If you want to be entirely satisfied with your new home, ask yourself the following questions:

Is the house suitably located for schools, churches, shopping facilities, transportation and your place of work?
Is the neighborhood well-maintained and are the other houses similar in type and price range to the one you wish to buy?
Are emergency facilities close by, such as police, fire, hospitals, etc?
Is the house located so that you won't be bothered by noise and danger from highways and other streets with heavy traffic?
Does the area have local zoning laws or deed restrictions which will protect the neighborhood?
The Lot

In addition to the general location and neighborhood, you should make sure you are going to be satisfied with the size and shape of your lot, and with the existing or proposed lawn, shrubbery, walks, driveway, garage. etc. If any additional work on the lot is to be done, make sure that the purchase agreement lists all such improvements which the builder or seller will make as part of the purchase price, if any. If you want to add rooms, have play space for the children, a pool, garden or other exterior amenity, make sure that sufficient space is available.

Is the land properly graded to prevent standing water and soil saturation while maintaining convenient access to the lot area? If it is an existing house, take careful notice of the slope of the ground around the house. If possible, it should slope away from the home so that water will be carried away from the foundation. If possible, check the lot after a heavy rain to see whether it drains properly.

If you are building a house on land you are purchasing separately or already own, consider how far away the utilities are and the cost of hookup. If service from a public or community water and sewage system is not available, find out if the ground water and subsoil conditions are satisfactory for an individual well and sewage disposal system.

The House

The criteria you use to determine the quality of the home you wish to buy depends on a number of factors: age, location, type of home, the reputation of the builder, how well the home has been maintained, etc.

In general, there are a couple important guidelines to follow when purchasing a home:

If you're buying an older, "pre-owned" home, have a reputable and experienced home inspection service company conduct a thorough inspection of the property prior to purchasing. In most cases, it is the buyer's responsibility to pay for and obtain this inspection, but it is well worth the expense, even if you're familiar with other homes in the area. Securing a satisfactory report from a private home inspection firm should be a contingency of yours (as the Buyer) in the purchase agreement of the house. Beware of any seller or real estate agent who tries to pressure you into purchasing the home without an inspection.

If you're purchasing a new home, particularly a "tract home" in a subdivision of similar homes, investigate the builder. Contact the Better Business Bureau and Consumer Affairs offices in your region to see if there are complaints on file regarding the builder. You can also search the Internet for information about builders, particularly the larger, well-known firms. In particular, you should be looking not only for negative information, but positive commentary as well. If you're purchasing a home in a "Phase" other than the first (such as Phase 2, 3 or 4) in a particular subdivision, consider talking to several residents in the already completed sections regarding their overall satisfaction with the quality of construction and service of the builder. Document any problem issues, particularly those that owners may have in common. For example, if two out of every four new homeowners claims to have had electrical problems, be sure to find out what type of problems and how well the builder responded to correcting the situation. Don't be afraid to present findings of problems to the builder, and do so in advance. Let the on-site supervisor know about your concerns and ask what, if anything has been done to ensure that you won't experience the same problems. Remember, too, that you can employ the services of a home inspection service company during construction of a new home to verify the quality of workmanship and materials, although you will bear the cost for such an inspection.

If you're having a home custom built to your specifications, be sure that the builder you employ can provide references to other satisfied customers, and call those people to confirm the quality and service of the builder. Oftentimes, a custom-build contractor merely oversees and supervises the construction of homes and the subcontractors contracted to perform various services. Don't be afraid to obtain references for subcontractors as well.
If you're buying a house with a FHA loan, a FHA-approved appraiser will appraise the property to establish its reasonable value, which is an estimate of the current market value. Both you and your loan broker will be notified of the reasonable value. If you are building a home or buying a newly completed home with FHA financing, HUD/FHA will usually inspect the property during construction.

But remember that the Federal Housing Authority cannot guarantee you that the house is properly constructed in all respects, nor can it guarantee that you will be satisfied with the house in every way. The responsibility of the FHA is limited under the law. FHA is guaranteeing your loan, but it cannot guarantee your house.

As you look over the house, your primary job is to make sure that the house meets the needs of your family. The following pointers are also provided to help you to know what to look for:

Floors Utility Outlets Closets Insulation
Doors Windows Kitchen Other Storage
Ceilings & Walls Bathrooms Heating & A/C Roof

Floors

You should examine the floors carefully to see that they are level and without serious surface defects. If it is a wood floor, take careful note to see that the joints are tight and that it has been properly sanded and finished. Small knots in the flooring do not necessarily mean that it is of poor quality, but they should be tight knots to be acceptable.

Wood flooring comes in a number of types. The two major types are square blocks (known as "parquet flooring"), and flooring that is in strips of various lengths (known as "strip flooring"). A good way to determine if the floor is well laid and tight is to walk over it slowly to make sure that there are no places where there is noticeable depression under foot. If so, that part of the floor should be corrected.

Some new houses today may have concrete floors covered with asphalt tile or wood flooring. When asphalt tile is used, you should be able to tell whether the flooring is well-laid and tight. It is important that the joints be smooth.

Kitchen floors may be either linoleum or asphalt tile, and the bathroom floors will usually be either linoleum, asphalt tile, or ceramic tile. You should inspect these floors to see that the material has been well-laid. In some rare cases, bathrooms may be carpeted. Make sure the condition of the carpeting in a bathroom is the same, and not worse than any other area. Moisture, mold or mildew can adversely affect carpeting when used in bathrooms.

The asphalt tile or linoleum should be properly fitted around the corners and fixtures. If there are cracked or chipped pieces, you should require that these be corrected, because water may get down in these places and work its way under the material and loosen it.

Doors

Open and close all exterior doors a few times to see that they fit well. Large gaps can cause drafts in outside-facing doors, although some clearance around the door is necessary. Look at the finish of all exterior doors to make sure that they're painted or varnished so as to be protected against moisture. While examining these doors, also look at the threshold, which is the separate piece installed under the door and fastened to the floor. This threshold or bottom piece should be well-fitted to the bottom weather stripping to keep out wind and moisture. Check the existing locks for proper operation and adequate security.

Inspect all of the interior doors also. Make sure they all close and latch properly and are not warped out of shape. Be sure that locks on doors to children's rooms are keyed on the outside, and not lockable only from the inside of the door which could represent a safety hazard in case of fire or emergency.

Ceilings and Walls

Inspect the walls and inner ceilings for cracking or staining which could indicate a leaky roof. Regardless of the wall material (brick, plaster or drywall), the walls should be smooth and even both vertically and horizontally.

If you're buying an old home, keep in mind that most of the paint used in structures built in 1950 or earlier contained significant amounts of lead. Lead-based paint has been determined to be a health hazard to children who might eat chips from the paint. Before you decide to buy any older house which has cracking, peeling, scaling or loose paint, you should know if the house has been repainted with non-lead-based paint. If not, insist that the paint is removed and replaced or that an adjustment is made in the purchase price to offset the cost for replacement.

You should also know that asbestos was used in wall materials in some homes built between 1945 and 1978. You should determine if asbestos-based products are in your home before purchasing, and what, if any, remedial construction is necessary to replace this material if replacement is necessary.

Utility & Electrical Outlets

While looking at the walls, take time to note the utility outlets, their locations, and if there are enough of them to meet your needs. Make sure that the cabling is actually in place behind blank face plates for utilities. Light switches should be placed so they're reachable when you open the doors. Make sure you have sufficient power circuits to run whatever appliances or equipment your family intends to use. Remember that many older houses were not originally wired to accommodate electricity, cable television or telephones in every room, as is common today.

Tip! If your home is just being built, consider whether you would like to have a computer network in your home. For example, many families can save money by sharing an Internet connection between computers rather than having multiple ISP accounts. If you'd like to have your home "network wired", talk to the builder (or builder's electrical subcontractor) about installing network cabling (CAT-5) at the same time other wiring is being installed. In most cases, the added cost is very reasonable and the feature can be considered an upgrade. The same principle can be applied to other wiring needs, such as a whole-house audio system.

Windows

Be sure there are enough windows to give proper light and ventilation. Try opening and closing all windows to see that they operate properly and that they close tightly to keep out the weather.

Security bars on windows should always have a working quick-release mechanism accessible from the inside of the house in case of fire or emergency. You should seriously consider removing or replacing security bars which are permanently bolted to the window frame.

If you find the windows in a new house do not close tightly, ask the builder to correct them before you move in. If you find the windows painted shut, be sure to have the builder free them because if you try to do so you might damage the window or chip the paint, and you may have to pay the replacement cost.

Does your contract provide for screens? If not, keep in mind that you may wish to add them later. The same applies to storm windows and storm doors.

Bathrooms

Bathrooms should be conveniently located. Inspect the bathrooms to see that fixtures are installed and are functionally well-placed.

Examine the location of the wall switch for the light in the bathroom. Be sure that this switch is located so that you cannot reach it while standing in the bathtub. If you can reach the switch easily from the tub, require the builder to move it, because you or your children can get a severe or even fatal shock by standing in a tub of water and turning on a switch.

The lower part of some bathroom walls may be covered with ceramic tile, plastic tile, or some other waterproof material to protect the wall against splashing. Inspect the tile and bathtub for proper installation and look for signs of chipping which may lead to an expensive repair job later.

Closets

Check on the number, size and location of closets. Do they meet the needs of your family? Make sure there is sufficient room for storage and that there is no evidence of mold or mildew in the walls or flooring.

Kitchen

When you buy your home, certain equipment for the kitchen and laundry may be included in the purchase price. Be sure that any appliances and fixtures included in the sale price of the home are written into the purchase agreement. Examine the equipment to make sure that you have received the the agreed upon make, model and capacity of included appliances or their price-equivalent substitutions. For example, do not accept a second-rate range or refrigerator when you were offered a top-of-the-line model. Your sales contract should specify the type and size of kitchen and laundry equipment to be included in the purchase price. The same goes for the water heater, heating unit, and air conditioning unit if you're buying a new house.

Heating & Air Conditioning

The main concern for heating and air conditioning equipment is that the particular units have the proper capacity for comfort and yet remain economical to operate.

Besides testing the units themselves during your inspection of the home, it's best to consult with a professional heating and air conditioning supplier or service professional to determine if the units installed are sufficient in capacity to perform well. This holds true for both new and old homes. Also remember that in areas with hard water, water heaters need to be flushed and/or decalcified periodically. Find out from the previous owner if proper maintenance has been performed on the water heater.

Tip! If you're buying a pre-owned home, consider purchasing additional insurance which covers the repair cost and/or replacement of high-dollar items such as air conditioners, water heaters, major appliances, etc. Most insurers offering basic homeowner's policies have some form of extended coverage. These plans usually carry a nominal additional cost, but have very reasonable deductibles. Cover the most important and expensive items, including your electrical and plumbing systems. If you're purchasing a newer home, be sure you verify any warrantees on existing equipment before committing to purchase.

Insulation

If insulation is specified, check on the insulation in the attic and also see that you have open louvers (ventilators) in the attic. A louver is a slatted opening with screen wire on the inside that provides circulation of air, summer and winter. It is very important that these attic vents or louvers be left open throughout the year. Occasionally, homeowners cover up the vent opening to conserve heat or keep out wind-driven rain or snow. Openings should never be left closed up for more than a very brief time, such as during a severe storm period. Closing up this ventilation area can produce excessive condensation, and the resulting moisture may cause rapid deterioration of parts of the roof, walls, or ceiling.

There are a number of types of insulation which are satisfactory. Foil, fill, slab, or board types of insulation installed between, over, or under framing members will be effective when properly used. If you have a flat roof, the method of installation will be different from that for sloped roofs. The important consideration is proper use of the particular type specified.

In basement-less houses with crawl spaces, foundation vent openings are for the same purpose of providing air circulation. It is important also that these foundation vents be left open the year round except for very brief periods of severe storm. Where a heavy, treated ground-cover paper or roofing has been laid over the entire surface in the crawl space, the need for foundation ventilation is reduced. However, in all cases some ventilation is important, not only to prevent excessive condensation and deterioration of floor construction but also to maintain safety. A tightly enclosed crawl space where gas-fired heating systems and/or sewer pipes are located without proper ventilation could cause accumulation of explosive gas pockets and represent a substantial danger to your family.

Other Storage

Check to make sure the home has ample storage space. In houses with no basement, storage may be found in attic space, utility rooms or the garage. Be sure that the garage is large enough to park vehicles and that the garage door is in workable condition.

Roof

Check the condition of the roofing material. If you're purchasing a pre-owned home, find out if and when the roof was last replaced. Inspect the inside ceilings for discolored staining which could be an indication of a leaking roof. A good home inspection service person will usually carefully examine the condition of the roof as part of a complete inspection.

Additional Notes About "Old" Houses

If you buy an "old" home, you should be absolutely sure the house is in sound condition. If you find some defects in an old house which the seller agrees to correct, be sure to get a written agreement specifying what the seller will do before you obligate yourself to buy.

The time and expense of getting expert advice is well worthwhile - you don't want to buy a house with termites, a leaky roof, a poor foundation, poor lot drainage, a faulty sewage disposal system, an inadequate water supply system, or defective floors, walls, or ceilings, without knowing exactly what you're getting into. Extensive repairs to correct such defects may be very expensive.

Finally ...

If you have any doubts about the condition of the house you are buying, it's in your best interest to seek expert advice before you legally commit yourself in a purchase agreement, particularly with a previously occupied home. Most sellers and their real estate agents are willing to permit you, at your expense, to arrange for an inspection by a qualified residential inspection service. Also, most sellers and agents are willing to negotiate with you concerning what repairs, if any, are to be included in the purchase agreement. Steps of this kind can prevent many problems, disagreements and disappointments later.

Buying Your First Home : Part 4

The Agreement to Purchase a Home

For many homebuyers, purchasing a home (especially a first home) can be a complicated, confusing and sometimes frightening matter, so understanding your rights and obligations as a Buyer as well as those of the Seller in advance are important.

To begin, make sure that you're pre-approved for a loan before you sign a Purchase Agreement. In the following section, you'll learn more about the real estate purchase contract. A proper sales contract should contain the provisions listed below, but keep in mind that this is only a guide covering the major components. Other terms and conditions may be involved.

Also remember that the Purchase Agreement is a binding and legal document containing real estate terms which can be difficult or confusing for some Buyers to understand. Make sure you do understand everything that's in the contract before you sign. Any of its provisions may be vital to your interests. This is also a good reason to be sure that you are represented by a qualified Realtor acting as your Buyer's Agent.

The Contract to Purchase a Home
First, a contract consists of an Offer and an Acceptance. Once you've decided to buy, the Seller may require a cash deposit as evidence that you intend to go through with the sale. Do not put more deposit money into escrow than necessary. Make sure that your Purchase Agreement includes a provision allowing a refund of your deposit if you are unable to obtain financing (within a reasonable specified time), or if the seller or builder fails to perform on his or her part of the contract. Likewise, you're expected to agree that if you fail to go through with your part of the contract that your deposit will be forfeited. These are customary clauses in real estate sales agreements. To be safe, it's highly recommended that make your deposit and down-payment into an escrow account, rather than directly to the Seller.

You initiate the sales contract by signing an offer to purchase on a form called a "Residential Purchase Agreement," which is supplied by the Seller's agent. When completed with all the important terms and signed by you, it becomes your formal offer to purchase the property on the stated terms. A contract forms when the Seller accepts your offer by signing the Agreement before you withdraw it, if you're inclined to do so. In many cases, written Counter-Offers are exchanged between your agent and the Seller's agent before the actual contract is formed. Counter-Offers usually apply to adjustments to the purchase price, shared closing costs, any fixtures and appliances included in the deal and any repairs or upgrades to be made prior to the purchase as a condition of the sale.

When the closing date arrives, you're committed to the purchase of the property. Therefore, the time to ask questions or negotiate the price, costs and terms of the sale is not on closing day. By the time of the settlement date, any changes in costs and purchase terms may be very difficult or impossible to negotiate. You may have to pay additional costs if the contract or loan documents have to be changed, and the lock on your interest rate may expire as well.

Your sales contract should cover the following points:

The sales price should be specified in the contract. For your protection, it's usually best if the contract states that the sales price is not subject to change.
The sales contract should state the amount of cash deposit that will be required from you and the manner for financing the balance. Usually the contract will require that you arrange to obtain a loan for the balance due, which you should have done already. It should also provide that any cash deposit you make will be refunded to you if you cannot obtain a loan within a specific period of time.
The sales contract should include a provision concerning closing costs and prepaid items with an understanding as to who is to pay what portion of each. Keep in mind that many loan programs have limits as to the amount of non-recurring closing costs that a Seller is allowed to pay--verify the maximum Seller contribution allowed before negotiating closing costs. This allows you to anticipate the cash needed for closing and to prevent disputes. Note that in a "Seller's Market", it can be difficult to negotiate to have the Seller pay some portion of the closing costs, so don't hinge your sale on the assumption that any Seller will want to help you with closing costs.
The contract should provide for appropriate identification of any easily removable or built-in equipment, appliances, fixtures or devices which are to be included with the property.
You should not sign any contract containing a "safety" or "escape" clause which enables the Seller or builder to back out of the contract at any time unless you also have the same right. However, it's recommended that your contract have a provision which will permit you to withdraw from the agreement without a penalty if the sales price is greater than the reasonable value of the property as determined by an appraisal, particularly if you sign the contract before the appraisal is actually done.
The contract should contain a provision stating who will be responsible for the property from the date of the contract to the date the house is transferred to you. The seller or builder usually assumes this responsibility.
The contract should require the Seller to transfer the property to you on or before a certain date. The contract should also specify your right to withdraw and get your deposit back if the property is not transferred on time.
If you're attempting to buy a new home in a particular "phase" of a multi-phase housing development which has been sold out, some contracts for new construction may contain an "escalator" clause which permits the builder to increase the price of homes between phases when the prices for homes in the next phase have not yet been established. You may still make a deposit on the new home, but a contract containing this clause should also provide that you have the option of canceling the contract and receiving a full refund of your deposit if the increased price is not acceptable to you.
In the case of new construction, the contract should state that the builder will complete the home in accordance with definite plans and specifications by a specific date or within a reasonable time thereafter. The plans and specifications describe the type of house that will be built, the dimensions, the type of materials which will be used and other construction details.
Before you sign the contract on a new construction home, you should review the plans and specifications to which the contract refers, or have someone familiar with building construction do it for you. Unless you have a construction background, most people are not able to understand a set of plans and specifications to know whether the actual construction is being or has been done in accordance with those plans and specifications. It's common that either you or the builder will want or need to change one detail or another from the original plans and specs as construction progresses. Most major changes are arranged between the builder and you, and your loan may need to be adjusted if you make changes or additions resulting in increased costs that you are not paying for in cash.
If you do not get a copy of the plans and specifications for a new construction home before you sign the contract, you should make sure that you'll have the right to look them over again at another time and place. Normally, the builder will cooperate in allowing you to examine the plans and specifications or else furnish you a copy.
Remember that these are just a few of the things that you as a prospective homeowner should be careful about when signing a Residential Purchase Agreement. Legal documents are fairly complicated, and in most cases your real estate representative can answer many questions you may have. If you find yourself at some point during the process where you do not fully understand the details of the transaction as they've been presented, or you have serious doubts as to the validity or legality of any provision contained in the agreement, you should seek legal advice from a reputable and experienced real estate attorney. You could save yourself a lot of future complications by obtaining such advice in advance.

Buying Your First Home : Part 5

Closing your Mortgage Loan

When it comes time for your mortgage loan to close, it's important to know what to expect with regards to closing costs, the Promissory Note, Deed of Trust, recording of the Deed, funding of the loan, and transfer of ownership. The following can assist you in preparing for the final step in the mortgage acquisition process.

Closing the Mortgage Loan
Once your property is appraised and the financing arranged, a date is set for Closing Day, also known as Settlement. It's the day you sign your loan documents and the property officially becomes yours. Depending on your schedule, you may sign your loan documents and related paperwork at the escrow office, or they may be delivered to you by a mobile notary public who will oversee the signing process. The escrow officer or Notary will ask you to sign the Promissory Note agreeing to repay the loan and a security instrument (Deed of Trust) in favor of the lender which makes the property the security for the loan. If a purchase, the escrow officer will have the Seller execute a Deed to convey title to the property over to you. Once the documents are signed you'll pay the balance of the down payment and your share of the closing costs if you haven't done so already. After closing, the escrow officer will send the Deed of Trust to the County Recorders Office for recording. Once recorded, the Deed will be mailed to you as the "grantee" and the Deed of Trust is reposited with the lender. The Deed of Trust remains on record as a lien against your property until your loan has been paid in full.

Mortgage Closing -- Your Important Papers
At closing you will receive important papers for your records, such as any written warranties, receipts for the payments you made, Title Insurance papers and a Settlement Sheet (known as HUD-1 Statement). Your HUD-1 Closing Statement will show the amounts you paid for the down payment (if any) and other settlement and closing costs, including amounts you have already paid. Be extra careful not to lose your HUD-1 Closing Statement. It can be a valuable statement during tax time for deducting certain costs, depending on the loan you've received.

The Promissory Note which you will sign at closing is a negotiable instrument which the lender can sell, assign or transfer to another investor without your consent or prior knowledge. If this happens, you will receive instructions as to who and where to make your new mortgage payments. However, your rights and obligations under the Promissory Note remain the same as do those of the holder of the loan. For example, you may purchase your home through Down-and-Out Savings Bank. Six months later, you receive a notification from a "Washing Machine Bank" that you are to mail your mortgage payment to their address. You may assume, therefore, that your loan has been sold to Washing Machine Bank. You still have to make your payment, in full and on time. It's a good idea to verify that your payments are being received and properly credited whenever your loan changes lenders, at least for the first few payments. A secondary lender sometimes purchases hundreds of new loans at once, but it's still your responsibility to make sure they handle your account with the same effectiveness as the previous holder.

Buying Your First Home : Part 6

Before & After Moving Day

In the following sections, you'll learn a little about before and after moving day.

Before and After Moving into your New Home
Soon after closing you'll move into your new home. Before you move in, you should check the house carefully to be sure that it is in move-in condition, and that the builder or seller has completed everything called for in the contract.

If you are buying a new house, you may make an agreement with the builder to move in before all outside work is completed. For example, the builder may not be able to complete the landscaping, driveway or walkways due to inclement weather. In such cases, however, it is important that you have a clear understanding in writing that any uncompleted work will be finished properly by a specified date or within a reasonable time thereafter. Call me to confirm that an early move-in is okay with our lender.

You should obtain copies of the manufacturer's warranties on any mechanical or electrical equipment included in the home (heating and AC units, water heater, refrigerator, range, washing machine, dishwasher, etc.), together with contact information in case the equipment needs to be serviced. Follow any instructions that are supplied to you on how to use and maintain each piece of equipment properly.

In general, once you buy a single family residence in a non-homeowners association tract you will have to pay for future repairs and upkeep, such as painting, decorating and routine maintenance. However, when you buy a new home you will be given a warranty by the builder. You should carefully review this warranty so that you have a full understanding of what is, and more importantly, what isn't covered and for how long.

If at all possible, you should get an agreement in writing as to what the builder is willing to do to correct defects. Many builders of new houses usually assume responsibility during the first month or two after you move in for certain items requiring repairs or adjustments. In all cases where you find flaws that need correction, you should notify the builder or product manufacturer and allow for a reasonable period of time for the company to make any needed corrections. You should expect friendly cooperation from the builder and in turn you should be friendly and polite about it as well. You should not ask for any work or repairs for which you are not entitled, as the builder will be less willing to work with you on other matters in the future. If you have legitimate items which need repairing or adjustment, and have contacted the builder but do not receive a response to your requests after several tries, you may need to contact an attorney that specializes in settlement of builder-buyer disputes.

If you buy a house which has been previously occupied, there is seldom any action you can take against the seller to have defects corrected unless the defects were agreed to be fixed in the purchase agreement or there has otherwise been egregious (knowing and deliberate) misrepresentation by the seller. That makes it even more important to be sure that the house is in proper condition before you buy. The same applies to fixtures included in the property, but don't expect to win a dispute for repairs on older fixtures and appliances which may break as a result of normal wear after you move in. One of the smartest moves you can make to insure yourself against costly repairs by obtaining a Home Warranty Policy, available from nearly all homeowners insurance carriers. Policy costs vary by the amount and type of items covered, but at a minimum, you should make sure that your electrical, plumbing, heating and air conditioning units and other major appliances are covered.

It's important that you make each mortgage payment on the date it is due. If you are unable to make a payment on he due date (or at least by the end of any "grace period"), get in touch with your lender immediately. In most cases, lenders are happy to work out an arrangement to overcome a short-term problem. Remember, though, any late payments of 30 days or more will most likely be reported to one or more major credit bureaus whether the lender makes an allowance for being late or not. Your credit can be vastly improved by having an excellent mortgage payment history, or very damaged by failing to do so.

Finally, be very, very careful about over-extending your unsecured credit after purchasing your home. Getting into too much unsecured debt as a homeowner can result in personal bankruptcy or even losing your home to foreclosure. Be smart and protect your investment by minimizing as much debt as possible and put the money you save into solid financial investments for your future.

Most likely after you move in, you'll start receiving junk mail offers from all sorts of vendors of products and services, some of which could prove useful, most of which is not. Some of these offers are for credit cards, and the even more dangerous "automatic lines of credit". Some of these credit lines carry interest rates as high as 30%!!

 

Hope you found this information very helpful and as always, email me or call if you have any questions.