The Basics of Buying a Home

The purchase of a home is a very significant event in anyone’s life. We advise you to seek a reputable attorney to make sure your rights are protected throughout the buying process and would be happy to represent you and to help you achieve your goal of buying a home!

While buying a home can seem overwhelming, understanding the process will certainly make it less daunting. Here are some useful tips:

BEFORE YOU START LOOKING

Determine what you can afford, considering your income and your spending habits to determine a manageable sum that can be allocated toward a monthly home payment, which will include principal and interest on a mortgage as well as monthly tax and insurance costs.

Have money saved! In order to get a loan without having to pay private mortgage insurance (PMI), you will usually need to pay 20% of the home’s value out of pocket. In addition, you will need to consider the closing costs that go along with your purchase, including fees for inspections, lender fees, title and appraisal costs and attorney fees.

Check your credit score and work on improving it to increase your ability to obtain a mortgage with a lower interest rate.

Contact a lender to obtain a pre-approval letter stating the loan amount for which you qualify in order to be taken more seriously by sellers and to give you an edge in negotiations.

BEGIN YOUR SEARCH

In order to help things go smoothly, we encourage you to work with a real estate agent who is experienced, reputable and knows the neighborhood in which you are searching for a home. The real estate agent should provide you with knowledge of the community, average home prices and market conditions to help you match homes and neighborhoods to your needs and budget and to help you locate professionals, such as mortgage brokers and home inspectors.

BEFORE SIGNING A CONTRACT

As soon as your offer is accepted you should arrange for inspections of the property. Hire an independent home inspector to determine if there are any material defects which exist, to determine if there are roof leaks or foundation problems, and to report on the condition of all major systems, such as, plumbing, heating, cooling, electrical. You should attend the inspection to be sure the inspector does a thorough inspection and so that you can ask questions. Even a new build should be inspected to catch dangerous or costly issues that could end up costing thousands of dollars in repairs. Homes that look to be in good condition can be full of hidden problems. If the house has a septic system, have the septic inspected as well. You may also want to have inspections done to determine the presence of termites or termite damage, the presence of mold, asbestos or lead in older homes, and to determine whether the level of radon in the home is acceptable.

If issues are discovered, then the parties should renegotiate the terms of the transaction, which could include a price adjustment or a seller performing repairs prior to closing.

If you will be purchasing a condominium or a co-op unit, it is important to review the offering plan and the by-laws, and to have your financial advisor review the financial history of the condominium or co-op. If the reserve funds are low it could be a red flag for you and for lenders. You should also contact the Management Company to confirm whether there are any assessments or to determine the procedures required for prospective purchasers.

ENTER INTO A CONTRACT

The Seller’s attorney will prepare a contract and your attorney will review it and negotiate any changes necessary to protect your interests. Once a contract is fully executed and the downpayment has been deposited into escrow, the parties will work on satisfying contract requirements. As a buyer, you have quite a bit to do during this time:

– You will work diligently with a lender to obtain a mortgage commitment and have the house appraised.

– You will work on finding a homeowner’s insurance provider.

– If you are buying a co-op unit, you will promptly put together your package for board approval.

Your attorney will obtain a title search from a reputable title company. The title company searches public records for any liens, easements, or other encumbrances or title restrictions that may affect the property. The title report also includes a search of governmental departments for violations cited against the property. Your attorney and the title insurance company will review a survey of the property to ensure that the home does not encroach on neighboring property and that neighbors’ homes do not encroach upon the property being purchased. If the title search locates problems, your attorney will give notice to the seller to correct those problems as a condition to closing. Your attorney may recommend obtaining a new survey prior to closing.

If the title company is satisfied with the title, at closing, it will issue an insurance policy agreeing to defend the buyer (or lender) against any challenges to the title and pay damages up to the amount of the policy. The title insurance will not cover claims related to disclosed encumbrances. At closing, you will pay the one-time cost for a buyer’s title policy and a lender’s policy.

CLOSING

Once any and all contract contingencies, such as obtaining a mortgage commitment, are met and the lender has cleared the matter to close, the parties will work on scheduling a mutually agreeable closing date. Once the closing has been scheduled you should contact the phone, electric and cable companies to arrange for utilities to be switched over to you and you should contact movers to finalize moving arrangements.

Prior to closing, your attorney will find out what fees your lender will be charging you and the the net proceeds of your mortgage loan which will be available at closing. Your attorney will also calculate the proceeds you owe to the seller, confirming the proper calculation of adjustments with the buyer’s attorney for taxes, fuel oil, propane, water and any common charges, if applicable. By the day before your closing, your attorney will instruct you what checks you will need to bring to closing and how they should be made payable.

Right before the closing on your new home, arrange for a final walk-through to make sure everything is being left in the condition outlined in the sales contract and to confirm that the house is vacant and broom-clean. You should check to see that all required fixtures have been left behind. In addition, you will want to check light switches, water taps, appliances and flush toilets to make sure no new issues have cropped up. If an issue is found, for example, a storage area hasn’t been cleared or a faucet isn’t running, you can ask for a credit at the closing to pay for junk removal or repairs.

On the closing day, your attorney will review all loan documents, confirm the proper calculation of lender’s fees and the calculation of adjustments with the seller, resolve any issues in the title report, and review all closing documents including the deed. The parties will then sign the papers necessary to complete the sale. You will pay the balance of the purchase price and applicable closing costs including lender fees, title fees (including mortgage recording tax if there is a loan used to finance the purchase, premiums for title insurance policies of the buyer and the lender, special transfer tax if the purchase price of the home exceeds $1 million), and attorneys’ fees. When all the documents have been signed, and all funds have been properly distributed, the deed of ownership will be transferred to you and you will take possession of the house.

If the home is your primary residence, after the closing, you should apply for the STAR program for a partial property tax rebate. In order to do so, you will need a copy of your deed which will be provided to you at the closing.

Please contact Anne Aicher at aaicher@smhal.com or (914) 666-5600 for any additional guidance on these issues.