The following is a short summary of the typical home purchase transaction to assist you in understanding the process from the contract through to the closing.
You have found a house that you are interested in purchasing and make a bid. A preprinted form of contract is usually prepared by a realtor incorporating the principal terms and is signed by you. An initial deposit is also provided with an additional deposit to be paid within about ten days of the contract date. The contract is then presented to the seller for consideration. The seller will sign the contract if the seller accepts your bid.
1. Attorney Review Period. After the contract is fully executed and a copy is provided to the buyer and seller, the attorney review period commences. You typically have three days from receipt of the fully executed contract to have an attorney review the contract and disapprove of it. At this stage, either party can disapprove of the contract and render it null and void. If the contract is not disapproved within the attorney review period, you are bound by the contract as written. Therefore, it is important to contact an attorney immediately. An attorney will advise you of your rights and recommend certain modifications to the contract that may be appropriate. If there are certain changes to be made to the contract, the contract is disapproved and the modifications provided to the other side for consideration. After all modifications have been considered and agreed upon by both sides, the contract is binding.
2. Contract Provisions and Contingencies. With respect to the contract, there should be certain provisions and contingencies included within the contract for your protection. As a buyer, you should have home inspection clauses covering the: (a) structure; (b) electrical; (c) plumbing; (d) heating and cooling systems; (e) appliances; (f) wood destroying insects; (g) environmental contaminants (i.e. radon, lead paint, etc.); and (h) septic and well, if applicable. You should also have a mortgage contingency provision making the purchase contingent upon your obtaining a mortgage commitment with certain terms. There may be other clauses and contingencies that are advisable depending on the circumstances.
3. Home Inspections. You will usually order a home inspection and provide the results to the seller within ten days of the contract date. Depending on the home inspection clauses, you may have certain rights with respect to any inspection issues. Inspections should be commenced immediately after the contract is finalized. Your home inspector should be instructed to complete his report in a timely fashion and forward a copy of the report directly to your attorney. Home inspection issues will be discussed with the seller and, hopefully, resolved. Home inspections are not a tool to renegotiate the sales price but are designed to protect you if a house has significant defects.
4. Mortgage. You are usually required to apply for a mortgage immediately. It is important to review the mortgage contingency clause carefully. The clause may have certain specifications regarding the amount of the mortgage, type of mortgage, points, interest rate and terms. Make sure you apply for the correct type of mortgage. If you do not apply for the mortgage as recited in the contract, you may lose the benefit of this contingency. Also, be aware that some mortgage contingency clauses provide for a waiver of rights if you do not cancel the contract pursuant to the mortgage contingency clause by a certain date.
After you have obtained a mortgage commitment, review it carefully. Make sure the rate and terms are correct before you sign the commitment and return it to the lender. There may be certain conditions that must be satisfied prior to closing. Be sure to provide your attorney with a copy of your commitment and conditions. In addition, lenders have specific requirements that need to be met prior to closing a loan. Your attorney will usually obtain the requirements directly from the lender and ensure these requirements are fulfilled.
5. Title and Survey. A title search is usually ordered by your attorney after all inspections are resolved and you have received a mortgage commitment. Your attorney will review the title search to determine the chain of title and the status of the property (i.e., liens, mortgages, easements, taxes, etc.). The title company that performs the search will also provide title insurance to you which is required by the lender. This insurance protects your interest and your lender’s interest in the property. In many cases, there are title issues that need to be resolved prior to closing.
A survey is generally required by the title company and lender. The purpose of the survey is to ensure that you are purchasing the proper parcel and to determine if there are any encroachments, easements or zoning violations.
6. Closing. After the lender and title company requirements have been satisfied and appropriate financing procured, a closing date can be scheduled. The closing is customarily held at the office of the buyer’s attorney. A day or two prior to the closing date, figures will be provided to you by your attorney and reviewed with you. You will be advised of the amount and type of funds to bring to closing. You can anticipate paying certain closing costs in connection with the purchase (i.e., title company fees, bank fees, recording fees, homeowner’s insurance, survey, attorney fees, etc.). All transactions differ and the final closing figures will depend on many factors. Your lender should provide a good faith estimate of your closing costs.
The mortgage documents (i.e. mortgage, note, etc.) are executed so that you can obtain the mortgage funds to purchase the property. The lender provides the mortgage proceeds which are deposited into the attorney trust account of the buyer’s attorney. These funds, along with funds that you may directly provide, are used to pay off the seller’s mortgage, realtor’s commission and closing expenses. A net check is provided to the seller as the seller’s closing proceeds. The seller in turn provides possession of the property to the buyer by providing a deed, other related documents, and the keys to the home.
There are specific situations where a seller may be remaining on the premises for a short time after the closing or you may wish to move into the home prior to the closing. These arrangements raise certain issues and should be discussed with your attorney.
7. Post-Closing. After the closing, the buyer’s attorney forwards the mortgage pay off to the seller’s mortgage lender and records the deed and mortgage. The buyer’s attorney also forwards the necessary documents to the title company to obtain a title insurance policy and forwards the required documents to the lender. The buyer’s attorney will also pay certain expenses such as taxes, real estate commissions, etc. from the closing proceeds as set forth on the closing statement.
Purchasing a home may be the biggest investment of your life, and you should consult an attorney to protect your rights. The expense of an attorney is minimal in comparison to the amount of the purchase, costs of other vendors, bank charges and other amounts. The above is a general summary of the home buying process and is not a substitute for legal advice.
If you are purchasing new construction, a condominium, town house, home on a waterway, etc., there may be additional considerations. Each purchase differs and you should consult an attorney to be advised of your rights and responsibilities.
