Buying a home is an exciting milestone, but it can be daunting if you're not…
First-Time home buyers need to know these nine things to reduce stress by familiarizing themselves with the various steps. First-time buyers, in particular, need to ask questions. The real estate agent should explain the reasoning behind their suggested offer. They can also describe ways to handle issues that may arise with one or more contractual contingencies and summarize expected closing costs. Let’s explore these topics one at a time.
Question #1: Will you please send me a blank copy of a residential purchase contract?
- Read anything you are going to sign. It may be 12 or more pages filled with legalese but try to get through it. Pay particular attention to check boxes or blank lines the real estate agent must fill in.
- Highlight specific areas that you don’t understand.
Question #2: How do you decide on an offer price?
- The suggested offer price might mirror the sales price of recently closed similar properties in the same neighborhood as the subject property.
- Market conditions may affect the offer. For example, if there is a potential for a bidding war, the real estate agent may want the buyer to “sweeten the pot” and offer more than the list price.
Question #3: What is the escrowed Initial Deposit?
- Good Faith or Earnest money is held in an escrow account by the closing agent (title company or attorney.) Therefore, a buyer will most likely forfeit the funds to the seller if they breach the contract.
- There can be a dispute about who should receive the funds. Mediation, arbitration, or a civil lawsuit may be required to resolve this issue.
Question #4: What happens if the home inspector discovers items that need repair?
- A Home Inspection Contingency in the contract grants buyers the right to cancel after the home inspection.
- A standard contract has a maximum amount the seller must contribute toward repairs. Additional amounts are negotiable.
- An As-Is contract does not require a seller to contribute money toward repairs. However, the buyer may negotiate this issue with the seller.
Question #5: What happens if the appraisal value is lower than the offer?
- The Appraisal Contingency gives the buyer the right to cancel the contract.
- The seller may agree to lower the sale price to the appraisal value.
- The seller may credit the buyer all or part of the difference between the accepted offer price and the appraisal value. The buyer can also pay the difference between the two.
Question #6: What happens if my lender denies my mortgage loan application?
- The Financing Contingency gives the buyer the right to cancel the contract if they fail to receive loan approval within the stated timeframe.
- The buyer can apply to another lender if enough time remains in the approval window.
- The buyer can request an extension of time from the seller to apply to another lender.
Question #7: What happens if we can’t close by the date on the contract?
- If the contract states that “time is of the essence,” the seller can cancel.
- The seller may agree to extend the closing deadline.
Question #8: What are closing costs, and how much will I have to pay?
- Buyers may pay for the credit report, appraisal, and annual hazard insurance premium before the closing.
- Costs at the closing include down payment, lender fees, title company fees, title insurance, and recording fees.
- If the buyer is escrowing property tax and hazard insurance, the lender will collect two months of payments.
- The escrowed good faith money is applied to the down payment, lowering the amount of money the buyer needs to bring to the closing.
Question 9: When can we move in?
- The day of funding is the typical move-in day.
- The seller may want to stay until they can find something to buy. The seller can pay rent, but there is a liability issue if someone is injured on the property before the buyer moves in. An attorney should write the agreement.
- The buyer may want to move in early. The buyer can pay rent, but there is a liability issue if someone injures themselves on the property before the closing date. An attorney should write the agreement.
Buying a home for the first time can be a stressful and confusing experience. Let this article serve as a conversation starter with a real estate agent. Let them be a trusted partner who will answer any other questions. The more an individual knows about the process, the less stress they will feel when things don’t go smoothly. Knowledge is power.