You found your dream home and you agree to make an offer to purchase it. Your agent draws up a contract and sends it to you. Now you're staring blankly at the pages, wondering what on earth this all means, what you're getting into, and whether you should sign it before talking to an attorney. Keep reading to have some peace of mind, or bookmark this blog to read it when you're in that situation.
Making an Offer
Once you decide on making the offer, your agent will discuss the parameters of your offer: the amount, the deposit you can put down within about 2 weeks, how long you need to get your mortgage, when you can close, what inspections you'll be doing, etc. With that information, your agent will draft a contract and send it to you. Rest assured, you can sign this contract without any legal consequence, and changes can be made to it later. Your signed Contract then gets sent to the Seller; this is your OFFER to purchase their real estate. If the Seller agrees, and signs the Contract, it is still not legally binding! Strange, I know, but stay with me. Once both sides sign the Contract, your agent will then send it to both attorneys.
Attorney Review
Every Contract states that each party has the right to have the Contract reviewed by an attorney, and this attorney review process must start within 3 days of the Contract being fully executed. Once the attorney receives the Contract, they should give you a call to discuss it and explain their next steps: the attorney review process. This process involves the attorney(s) sending a rider, or amendment, to the Contract (these are the changes that can be made that I mention above) to the other attorney. The final agreed-upon rider/amendment becomes part of the Contract. During this process and before attorney review is officially completed, either side can cancel for no reason, without consequence. Once the attorney review process is over, THEN you are officially "under contract" and it is legally binding. This is also the trigger date for all of the other dates in the Contract.
Deposit
One of the first things you will have to do once you are under Contract is pay the deposit. Your deadline is typically anywhere from a few days to 10 days. This money gets held in a trust account by one of the attorneys, or the title company. Whoever is holding the money legally cannot disperse it to anyone unless both sides agree, in writing. If the Contract gets to closing, then this money is given directly to the Seller (you get credited for it at closing, I'll explain later). If the Contract gets canceled, these funds are given in full, or in part, to the Buyer, depending on if it is a legitimate cancellation and the Seller's agreement. You are under Contract, so you cannot just change your mind anymore or continue shopping for other homes. The time for that was during attorney review.
Inspections
Your next deadline under the Contract will be your time to complete your inspections. You will have approximately two weeks to do this. Every Contract and home are different, so make sure you speak to your attorney during attorney review about what inspections you will be doing. You will coordinate the inspections with your agent, and you will have to pay your inspector at that time. I highly recommend attending the inspection with your inspector, so you can see the home for a longer period of time. Your inspector will send you a report of their findings. You need to discuss this report with your attorney as soon as possible because there is a deadline to make requests. If there are any issues, your attorney can send a request for repairs or credit, and negotiations for same will begin with the Sellers. If both sides come to an agreement on the requests, the Contract moves forward. If not, the Contract gets canceled and the deposit gets returned in full to you.
Mortgage
Read my prior blog about getting pre-approved for a loan and getting ready for a Contract before making an offer. Once you are officially under Contract, you should be in contact with your lender so they can start their process. You will need to provide, at the very least, recent financial documentation to your lender. There will be a whole slew of requests, documents, and other proofs they require while getting your file ready to close, so do not hesitate to get this step started, and get your lender whatever they need. The standard Contract deadline for providing a mortgage commitment is 30 days. Once you have your commitment, you are very close to being ready to close! The lender will work together with your attorney and the title company to officially clear your file for closing.
Title Search
As the Buyer, your attorney will order title searches as part of the transaction to get ready for closing. This is a third-party company that searches the land records, the courts, the taxes and municipal utilities, and others, to ensure that you are buying 100% of the property. These searches are very important because the title company will issue you an Owner's Policy after the closing. This is an insurance policy of your Deed, and thus ownership, of the property. This means you can rest assured that all prior mortgages are paid off, there are no judgments against any prior owners or Sellers, the taxes and municipal utilities are all paid through the closing, and no one else can ever claim any interest in your property while you are the owner. The title company will work together with your lender and both attorneys in preparing your file for closing and making sure everything is in place so you walk away from the closing with 100% ownership. The title company conducts the entire closing, holds all of the money (except the deposit, as explained earlier), reviews and accepts all of the documents for closing, and is overall the responsible party for the closing itself.
Closing
The Contract has a closing date in it, but that is a mere target date. It is NOT actual. There are too many moving parts and variables to set an actual contract closing date when you sign the Contract, months in advance. Once the lender and the title company officially clear your file for closing, we can schedule the closing date. This is usually within a few days because there's nothing else to do for your Contract but close! As the Buyer, you will have to be in attendance, because lenders and title companies will only accept an original signature witnessed by a notary (the closing agent, who works for the title company).
Closing Costs
Closing costs are different for Buyers and Sellers because they each have different things to pay for at closing. About a day or two before the closing, your attorney will tell you the exact amount you have to bring to closing via certified check or wire transfer. This amount will be to the penny for all costs associated with your closing. This will include any outstanding lender/mortgage fees and costs, title fees and costs, attorneys' fees, taxes, etc. The average amount for Buyer closing costs is $10,000.00.
Sellers are entirely different for closing costs. Sellers' costs are deducted from their proceeds, so they do not have to pay anything upfront. Their costs include paying off any loans, judgments, or other liens against them or the property, the real estate agent commissions, real estate taxes and municipal utilities to the day of closing, attorneys' fees, and the realty transfer fee. Buyers only have to pay a realty transfer fee if the purchase price is over $1,000,000.00.
After Closing
The original Deed signed by the Seller and your Mortgage are given to the title company (you get a copy at the closing). After the closing, the title company sends the Deed and Mortgage to the County Clerk's office for recording. Once they are recorded, the title company will issue the original Deed and your Owner's Policy to you, and the original Mortgage to your lender. This process takes about a month or two post-closing, depending on the County and the title company. After this, you don't need the original of either document, so I recommend making a digital copy in case the originals are ruined, lost, or destroyed. County records are public so be aware that you WILL get junk mail and scam attempts right after closing. This will range from documents stating you need to pay for a certified copy of your Deed, to scary documents that will make it sound like you need to buy some insurance policy to protect your home. You can ignore ALL OF THEM. If you're unsure, send them to your attorney and ask them to review it.
Lastly, it's time to celebrate! Take the time to truly appreciate this incredible milestone. You can close the book on your first home-buying experience and start enjoying your wonderful new home!
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