What Price Home Can I Afford? Back to Top
Most people use financing of one type or another to buy a house, since few of us can afford to pay for a home in cash. The amount you can afford will depend upon how much cash you have for your down payment, plus the amount of loan you can afford according to your income and debts. There are many loan programs available where you can still buy a home with little or no downpayment. For VA and USDA loans, they require $0.00 down payment. For homes purchased with an FHA loan, they require 3.5% down payment. I always suggest to my clients that they get preapproved for a loan before we start searching for homes. Why do I do this? Because when you get preapproved, the lender will tell us exactly what is the maximum priced home you will be able to buy. This way, I will not waste your time showing you homes that are out of your price range.
We Found Our Dream House. What Now? Back to Top
Once you've found the right home, I will help you to write an Offer to Purchase and Contract as well as complete all necessary addendums to the contract to make sure your rights and interests in the real estate transaction are protected. I will provide you with all the necessary documents the seller must provide such as the Residentail Property Disclosure Statement and if the house was built before 1978, Federal law states that you must also receive a Lead Paint disclosure statement.
How do you make an offer to purchase? Once a specific property has been selected, in order to buy the property several things must be satisfied: the offer must be in writing, there must be mutual agreement and communication of that agreement between all parties, and there must be something of value, or “consideration” in order the make the offer enforceable. In North Carolina and most other states the consideration typically takes the form of a cash security deposit or “earnest money deposit". The intent of the earnest money deposit is to show the seller that you are serious about purchasing; it shows that you are acting in good faith. The earnest money deposit is normally held by the listing agent for the seller and by law, it is required that it be deposited in an escrow account in the purchaser’s name. If the transaction closes, the earnest money deposit is subtracted from the amount owed at the closing table.
As your agent, I will complete the Offer to Purchase and Contract with you. I will explain the purchase agreement to you, and the various contract clauses that are placed within a contract for your protection. I will also provide you with market data in order for you to make a knowledgeable decision. If I am representing you as your Buyer Agent I will be glad to give you an opinion as to whether I believe the home is priced in line with the current market, and to help you formulate your offer in terms which are beneficial to you.
When you have signed the Agreement to Purchase, it will be presented to the seller, either in person, or through the Listing Agent. Following presentation several things may occur:
- Once the contract has been presented to the seller, it may be accepted unconditionally. Congratulations, you now have a legal binding contract, or -
- The contract may be accepted in part by the seller, but other portions of the contract altered. This is called a "counter offer". You are not obligated to the terms of the counter offer. At that point you have the option of accepting the revised offer, countering with additional revisions, or rejecting the counter offer, or -
- The contract may simply be rejected.
Each Offer to Purchase and contract I write has an addendum stating a definite expiration time and date. In the event the seller takes no action prior to the expiration time/date, the contract is considered to be rejected. Please remember that any change to the contract constitutes a brand new offer which may or may not be rejected so we will revise the expiration date as necessary.
If either party required to sign the Offer to Purchase and Contract and related documents is unavailable, I will arrange with an attorney to have a Power of Attorney drafted in order to complete the sale. In Onslow County, with a large number of military personnel, it is very common for the spouse to be given power of attorney. Note that for a real estate transaction, it is best to get a “specific” power of attorney designed solely for use in real estate transactions as a general power of attorney is too broad. POWER OF ATTORNEY DOCUMENTS ORIGINATED IN OTHER STATES MAY NOT BE SUFFICIENT. CHECK WITH YOUR ATTORNEY.
Once the Offer to Purchase and Contract has been completed, signed and accepted by both parties, you should be prepared to provide us with a check for the agreed upon down payment, if any. Often, this will be in the form of a bank check. Similar to the Earnest Money Deposit, the downpayment will usually be held by the Listing Broker in his firm’s Escrow Account, and will be credited to you at the closing.
Unless you are paying all cash and the sale does not involve a mortgage, you will be required to make official loan application, usually within five to seven working days after the contract has been accepted. As mentioned earlier, it is best to get pre-approved by a lender prior to even looking at homes. Pre-approved loans can be a great advantage when negotiating your offer, as the seller will feel very comfortable accepting your offer if he knows that your loan is already approved.
The loan processor will usually require a great deal of personal, financial and employment data. You should be prepared to provide two recent pay stubs, past two years tax returns, bank account numbers, approximate account balances, credit card numbers, creditors' addresses, and personal references. For military personnel, proof of rank and pay are necessary.
If you wish I will assist you in finding the best rates and terms. You are not obligated to use any suggested mortgage company. However, I will, if you wish, research the market and make recommendations based on the best terms and service. The choice, however, remains yours.
For purchasers who are self employed, the lender will require that you furnish a great deal of documentation to support your income history. It is recommended that you contact your lender immediately to obtain a list of current requirements. It is certainly wise to do this before you begin your search for a new home.
Depending on the activity in the real estate market, loan approval usually takes between 7 and 21 days. Your processor will provide you with an estimate of costs and a loan commitment for up to 30 days. This commitment will lock you into current loan terms. For an additional sum, a lender can lock in the current interest rates for an additional 30 days or more if necessary. This is often recommended if interest rates are highly fluctuating or if you are purchasing a new construction home where the closing may not be for 3 or 4 months. As the lender verifies the information you have provided, he will sometimes ask you for more information. Please make sure that you provide all additional information promptly. This will help in making the loan process as speedy as possible.
In the Offer to Purchase and Contract, you will often see the term “Time is of the Essence” next to a date in the contract. For example, the date could reference the day you must apply for loan by or a date when inspections must be done by. This means that the date stated must be strictly adhered to, otherwise the party that is responsible for doing something on that date is in breach of contract if he does not do so.
When a mortgage loan is involved in a purchase, your lender may or may not require a survey of the property. A survey is simply a one-dimensional drawing as if you were looking down onto the property from above. A survey provides:
- Lot dimensions
- Easements
- The position of the home on the property, where applicable
- Location of out buildings, fences, pools, etc.
- Any encroachments
- Flood Zone
It is strongly recommended that a survey be obtained on all purchases of real estate, whether or not one is required by the lender. A survey can help eliminate many boundary disputes and ensures that you are purchasing the correct property.
Even in cash sales purchasers are encouraged to obtain a current survey, simply to protect themselves. Costs vary according to the property, but a typical residential survey is approximately $400.
An appraisal is one person's opinion of the value of a particular property on a specific date. An appraisal gives some assurance to the purchaser that the price they are paying represents a fair market value and appraisals are always recommended.
An appraisal is normally required by all lenders for the sale real estate which requires a mortgage. The lender orders an appraisal once the contract has been accepted and the loan approved. The appraisal fee is a buyer expense and most lenders require the buyer to pay for the appraisal up front. Rates can vary depending on location and size of the property but most range between $350 - $400. Appraisals normally take one to two weeks to complete. During very active market periods, the time it takes for an appraisal can vary significantly.
If an appraisal is not required, should you get one anyway? The answer is an unqualified “YES” for a variety of reasons. First, you will not be able to take out a loan for more than the property is appraised for. In cases where the appraised value is less than the asking price of the property, the purchaser can still purchase the property but would have to make up the difference between the appraisal value and what the purchase price is. If you hire me as your buyer agent, I would try to negotiate with the seller to lower the asking price to whatever the appraised value is.
When purchasing real estate it is incumbent upon the purchaser to thoroughly inspect the property. Most Offer to Purchase and Contract agreements allow for inspections by the purchaser, and/or his representatives. While it is not mandatory that the purchaser inspect anything, I highly recommend the inspections to see the exact condition of the home being purchases. Also, only if the home is inspected can I as your agent, negotiate repairs to be made by the seller. The cost of a home inspection is normally borne by the purchaser. A basic professional home inspection usually costs in the $250 - $400 range depending on the property. In addition, there are other specialized inspections that I recommend the purchaser do such as septic, well/water, heating, soil, termite and radon. Again, a purchaser can opt not to have these inspections done, however, given this is the single biggest purchase you will probably ever make, I strongly suggest you have these inspections done for your own piece of mind and to know exactly the condition of the property you are purchasing.
The Offer to Purchase and Contract agreement specifies the time frame all inspections must be completed by. This is called the Due Diligence Period. This is something the buyer dictates in the offer but the dates must be acceptable to the seller and give the seller enough time to complete necessary repairs that he has agreed to prior to closing. Note that for VA and USDA loans, the laws require that the seller, rather than the buyer, pay for the termite inspection. It is also required that the seller provide the buyer with a termite contract that covers the home for the buyer for a period of one year from the closing date.
Purchase agreements may specify that all systems and appliances are to be in working order on the date of the act of sale. In that case, it is incumbent upon the purchaser to conduct an appliance and systems check approximately five days prior to closing and to ensure everything is as it was when the purchase agreement was signed. The purchaser will be required to sign a statement that everything was checked and was in working order, or the exceptions so noted.
In the Offer to Purchase and Contract, there is a clause that puts a limit on the amount of necessary repairs that is acceptable to the buyer. If, once the inspection is done, the estimated cost to make repairs is above that stated in the Offer to Purchase and Contract, the buyer can terminate the contract and get his earnest money back.
If, after inspection, the estimated cost of repairs is lower than the maximum amount stated in the contract, the seller has a choice. He can agree to make all, some or none of the repairs requested. Please note that cosmetic repairs to the property are not included but rather only defects to major systems/structures of the property such as the roof, electrical systems, foundation, heating and AC etc. An inspection report should not be considered an opportunity to re-negotiate the contract unless a major defect is discovered. You may then have a valid reason to ask for repairs or for release from the contract.
I STRONGLY RECOMMEND INSPECTIONS FOR YOUR OWN PROTECTION.
Prior to closing, you MUST be able to show proof to your lender that you have obtained adequate insurance on a property with improvements. There are so many different types of insurance policies available that it would be impossible to cover them all in any detail. It does pay, however, to shop around to obtain the best possible price and terms. You may wish to investigate the difference between simple coverage and actual replacement cost coverage. Replacement cost coverage costs a little more, but the coverage escalates with the value of the home. This could be a significant advantage in the future. Homeowners policies do not usually cover damage caused by rising water, and your lender may also require that you carry flood insurance on the property if your property is in a flood zone. As Onslow and Carteret Counties are located in an area which may be affected by tropical weather systems it is a prudent measure. Do not wait until the last minute to begin researching your home insurance options.
At the closing table you will notice that, if there is a mortgage involved in the sale of the property, the lender will normally require you to pay for title insurance. In this case, as the lender holds the title to the property until the loan is paid in full, it covers the lender and the purchaser in the event there is a title problem in the future.
Reasons for Title Insurance Back to Top
- Conveyances altered before recording
- Instruments executed under fabricated or expired Power of Attorney
- Fraud, duress or coercion in securing essential signatures
- Deeds delivered after death of grantor or grantee, or without consent of grantor
- Invalid, suppressed, undisclosed and erroneous interpretation of wills
- Undisclosed or missing heirs
- Deeds by persons of unsound mind
- Deeds by minors
- Deeds by persons supposedly single but secretly married
- Birth or adoption of children after date of will
- Mistakes in recording legal documents
- False representations in appointment of Guardians and Administrators
- Undisclosed community property rights
- Liens for unpaid estate, inheritance, income and gift taxes
- Destruction or mistakes of records which may later appear
- False or misleading statement of fact
- Tax titles invalid because of irregularity of proceedings, reversals of court decisions
- Defective foreclosures of mortgages
- Old unsettled estates
- Errors by administrators and executors
- Insufficient evidence to establish title by inheritance
- Falsification of records
- Illegal acts of trustees
These are just some of the problems which may arise after a sale. Of course, the vast majority of sales are completely unencumbered by any defect in the title, but the relatively low cost of owner's insurance can bring much needed peace of mind.
This remains an area where many homeowners are confused. When paying RENT, the tenant pays in advance of actually renting the property. When you close on the home you are buying, the first full payment does not become payable until some 30 to 45 days later. However, at closing you will pay interest from the date of closing until the end of the month in which the property is closed. You then “miss a month” and your first full payment becomes due on the first of the subsequent month. The confusion exists primarily when the property is sold. Simply remember that your payment is after the fact, rather than before the fact. For example, a mortgage payment which is due on the first of August pays the interest for the previous month, July 1st – July 31st.
The term “closing costs” covers a multitude of fees which are involved in any real estate transaction. The lender will have fees which you will be responsible for paying, and the closing attorney will also have fees for researching the title, preparing paperwork, etc. A simple rule of thumb to follow is to ask who is responsible for which cost. The following are some items that are normally considered purchasers closing costs.
- Purchaser's attorney fees
- Title Search or Abstract
- Recording Fees
- Lender's Title Insurance
- Purchaser's Title Insurance
- Document preparation
The following items are also included in the term "closing costs" and are fees involved in obtaining your loan:
- Discount points
- Origination Fee
- VA funding Fee
What are "pre-paids"? This is a description that simply means TAXES AND INSURANCE. In order to purchase a home, a buyer must have sufficient cash available, in addition to his down payment and closing costs, to pay for approximately 12 months of home owners insurance and 3-6 months of taxes. There are few, if any, loan companies that will permit a seller to pay for a purchaser's pre-paid items.
When investing in a home, be it new or previously owned, it is always a good idea to have some type of home warranty placed on it. There are several Homeowners Warranty Companies available. They are similar, in that they all cover mechanical items only and not structural items. Depending on the plan, they would cover things such as air conditioning units, heating units, electrical and plumbing systems, built-in appliances, etc. Some restrictions apply to each plan, and each plan has some form of deductible.
Sometimes, sellers offer a Home Warranty Plan with the home, in which case the seller pays for it. However, in the event a seller does not provide a home warranty the purchaser can buy one. The warranty plan normally runs for one year from the date of purchase. Some plans are renewable. Costs vary, but typically are in the $350-450 range. You may purchase additional coverage for such things as swimming pools and spas.
Please understand, machines being what they are, an appliance or air conditioning unit may work perfectly one day and fail the next. There is usually no warning when a machine is about to fail, and it would be most difficult to prove that a seller had prior knowledge that something was defective. The warranty plans have saved homeowners millions of dollars.
Imagine, should an air conditioning compressor fail, the repair could cost hundreds of dollars to repair or replace. For the simple payment of a small deductible, the compressor may be repaired or replaced.
HOME WARRANTY PLANS ARE WORTH THEIR WEIGHT IN GOLD!
This is the time when the buyers, sellers, real estate agents and the lender's representative, meet to sign the final papers to transfer the title from one owner to the next. At this, the bank brings the check for the amount of the loan. The seller signs the title (or deed) over to the buyer and the buyer signs a deed of trust for the lender agreeing to pay the terms of the loan on a monthly basis. Other documents relative to Federal law are signed by both the buyers and sellers, and a settlement sheet is drawn up so that all parties understand their costs. If a loan is involved, there will be several papers relating to the loan to be signed by the purchasers. All costs will be shown on the HUD-1 Settlement Statement. This form is furnished to give you a written statement of your actual settlement costs. If possible, I will review the settlement statement and closing procedures with you prior to closing. In NC, the transaction does not legally close until the deed is recorded at the local court house. After this is done, the buyer gets the keys and the home is now yours.
Fair Housing and the Law Back to Top
It is very simple. All real estate agents in the US are bound by the Federal Fair Housing Law. This means that an agent can not discriminate in any way involving the listing and/or sale of real estate. Prospective purchasers who are financially qualified to look at properties will be shown properties regardless of race, color, religion, sex, age, familial status, handicap, etc.
I know I have provided a lot of information for you in this article but I believe an informed, knowledgeable buyer results in a happy buyer. If you have any questions on any of the things covered, or any other real estate matters, please don’t hesitate to call me at 910-787-2160.
The information contained in this document was obtained from sources deemed to be reliable. It is believed to be accurate, but is not guaranteed. The buyer should carefully verify all facts and figures. Information contained herein is not intended nor should it be construed as legal advice.
