How to Buy a Home
Buying a home is never an easy thing. Buying your first home can be especially trying. First, of course, you must determine your price range and approximately how much of a mortgage you can afford. Having a “pre-qualification” letter from a lender will help to show that you are a serious buyer. However, it is no guarantee that you will obtain a mortgage commitment.
This is not meant to instruct you as to how to obtain a mortgage, or how to estimate the size of the mortgage for which you might qualify. Rather, this is an overview of important considerations and what you are entitled to expect in a typical real estate purchase.
First, KNOW THE MARKET - as well as anyone. Read real estate sections of newspapers and research on line for house listings and houses sold. Contact multiple real estate brokers. Go out on your own, on weekends and weekdays. Make sure you have a good understanding of what it might take to make a house suitable for your purposes. Make sure you investigate property taxes (local assessor’s office), schools and the general neighborhood.
Find out if there are any tax exemptions on the property, such as veteran’s, senior citizens or enhanced STAR exemptions, because you might not be entitled to them, and they will be removed in determining your tax bill.
Find out what the zoning classification is for those 20 vacant acres behind the property, and what could be built there. Don’t assume it will always stay that way.
Once you have made an offer that is accepted, a contract will be prepared. Before contract signing, make sure you have made a thorough inspection of the house so that any necessary repairs can be negotiated and incorporated into the contract if the parties agree. Most buyers hire an expert to do an inspection pre-contract. Make sure you hire a lawyer you can rely upon. This is no place to skimp. If the purchase is new construction, be aware of “options” (upgrades) that are not included in the base price, and get prices for them in writing before you sign a contract.
You should expect that, in the typical resale, the seller will be responsible to make sure that all of the mechanical systems (plumbing, electrical, heating and A/C) and appliances will be in working order and the roof and basement free of leaks at the time of closing. However, these items are always negotiable. It is only in rare instances, where fraudulent concealment can be proved, that the seller can be held responsible for any problems that are discovered after closing.
The typical contract is subject to an inspection to determine whether there are any wood destroying insects or resultant damage. The seller usually has the option of treating the condition and repairing any damage or declining to do so, cancelling the contract and refunding the contract deposit.
You can expect that you will have to pay five to ten percent of the purchase price upon signing the contract. This deposit will be held in escrow by the seller’s attorney until the closing.
The typical time frame from contract to closing subject to a mortgage is approximately sixty days. During this time, a title search will be done to insure that the sellers have “clear” title. If no suitable property survey is available, a new one will be done. You will usually have forty-five days after contract signing within which to obtain a mortgage commitment. Lenders often attach various conditions to the mortgage commitment, and it is important that throughout the process you cooperate and respond timely to all requests that the lender makes.
If you do not obtain a mortgage commitment within the time frame allowed by the contract, the seller may cancel the contract and return your deposit. However, if it is shown that you did not obtain a commitment because of your failure to truthfully and diligently cooperate in that process, your contract deposit could be in jeopardy.
Some lenders will give you the option to “lock in” your interest rate. I recommend that you do not lock in any interest rate without first consulting with your lawyer and the seller (to know when he or she will be ready to close) so that you have a better chance that the closing will take place before the lock-in period expires. Typically, you must pay a fee to the lender to extend your lock-in rate.
Circumstances beyond your control might delay the closing, such as liens on the property of which the seller is not aware, a seller who changes his or her mind about the closing date (usually because there is not yet a place to move to), or even a seller who dies.
Some of delays cannot be avoided. However, with proactive planning, some can. It is important to have a title search conducted as soon as a contract is signed, so that the seller has adequate time to remove liens. It is also important that a survey accurately show the locations of structures and fences to insure that there are no encroachments over boundary lines. A new survey ordered late in the process could delay the closing, and if it discloses an encroachment, more delay likely will occur.
As far as a seller who does not or cannot close when anticipated, my best advice, which I have been repeating for 32 years, is:
1. “You get more flies with honey than you do with vinegar.” You are the honey. I am the vinegar. Communication between buyer and seller – directly if possible – is the key to a smooth transaction. If after contract you somehow are able to speak with the seller, ask when he or she plans to move out, since you need to make plans perhaps to lock in an interest rate, to sell your own house or to notify a landlord, or to register the children for school. Use of the personal approach often goes a long way. If the seller likes you, you might even get an offer for free furniture or garden tools. On the other hand, I am not permitted to speak with the seller. As I have an undivided obligation to you, so does the seller’s attorney to the seller. Although we deal with each other professionally and cordially, there is less likelihood that we can get “the real story’ about the seller’s plans.
2. “Don’t pack your bags until I tell you to.” Enough said.
Lenders are required in good faith to give you a “loan estimate” of your closing costs within three business days after you apply for the mortgage. Often I find that clients who simply look for the cheapest deal are unpleasantly surprised. My best advice is to obtain a referral or two from people you trust who have had a good experience with a lender.
While the purchaser of a newly constructed home is entitled to certain minimal warranties under New York law, no such law exists in New York for sales of used homes. New York does have a “Property Condition Disclosure Act” that applies to resales, but sellers can easily decline to provide the disclosure by giving a $500 credit to buyers at closing. Since $500 in the scheme of things is not a lot of money, virtually every seller gives a credit rather than the disclosure. This means that after closing, the seller has no liability for any problem that is discovered unless a buyer can prove that the seller fraudulently concealed the problem.
At the closing, the deed is exchanged for the purchase price and the buyer reimburses the seller for any fuel oil or propane, pre-paid property taxes, common charges and any other minor applicable adjustments. Occasionally, the seller will not be able to move out before the closing. The contract typically allows the seller to stay in the house for a few days after closing under a written agreement where money is held in escrow to make sure that everything is okay after the seller finally moves out.
Although a house purchase is always a significant change in someone’s life, knowing what to expect goes a long way in making the process run smoothly.
While this summary addresses the main concerns involved in purchasing a home, each purchase varies. Therefore, it is strongly recommended that you obtain the advice of an attorney before signing any document.
Copyright 2017 Joseph A. Bollhofer, Esq.
Editor’s Note: Joseph A. Bollhofer, Esq., is an attorney who practices law in the areas of real estate, elder law, Medicaid, and estate and business planning and administration. He is a member of the National Academy of Elder Law Attorneys (NAELA), and of the Elder Law, Real Property, and Surrogate’s Court Committees of the Suffolk County Bar Association and of the Elder Law and Real Property Law Sections of the New York State Bar Association. He has been serving area residents since 1985 and is admitted to practice law in New York and New Jersey. His office is located at 291 Lake Ave., St. James, NY. (584-0100). For reprints of this article and others concerning Medicaid, Elder Law, Estate and Business Planning and Real Estate, send a request to email@example.com or visit www.bollhoferlaw.com.