Buying a Home
THIS IS A SUMMARY OF LAW AND IS PROVIDED TO YOU AS GENERALLY GOOD ADVICE. IF YOU HAVE MATTERS RELATING TO THIS OR OTHER LEGAL SUBJECTS, BUT ARE NOT AN ATTORNEY, WE ADVISE YOU TO CONSULT WITH ONE.
Home Ownership
Do you feel like you’re pouring money down the drain every time you pay the rent? Considered buying your own home but don’t know much about the process? These 10 steps give you a general outline of the home buying process.
Preliminaries: Do you have the time, money, and commitment?
Owning your own house can be a money making enterprise. However, you’ll need both time and money to turn that possibility into a reality. Real estate professionals consider three to five years the minimum time frame to recover the costs of buying a home, and possibly making a small profit. For officers, this can be a dicey proposition. Enlisted personnel have a better chance of living in one place that long before the next PCS.
Money is often the biggest obstacle. Most military members don’t have enough money stashed away for the 20% down payment required by most commercial lenders, or even the 5% required for a deal with mortgage insurance. The good news is that you don’t need a down payment to get a loan from the Veteran’s Administration. However, you’ll still need an income great enough to cover your mortgage and other monthly costs. Given the pay scale, we recommend only E-5s and above give home ownership serious consideration.
How committed are you to the area? You might love Colorado in the summer, but what about the winter? It’s best to avoid jumping into a house unless you’re virtually certain you will be happy here.
Getting the ball rolling: Do you have an agent?
A real estate agent can help you find and buy a house. Using their expertise and knowledge of the local market, they narrow down the choices to the houses most suited to your needs. On the other hand, the buyer’s agent and seller’s agent typically split 6% of the selling price. Although the seller often pays for both, it doesn’t take a genius to figure out that you’re paying part of it in the form of an inflated selling price. On balance, it’s probably better to use an agent, especially a buyer’s agent, unless you are quite experienced in real estate.
Financing: How do I get the money for the biggest purchase of my life?
Banks, credit unions, and mortgage companies all finance home purchases. They’ll analyze your income and decide how much money they are willing to lend you. Your financial institution will issue you something called a 90% letter. This says that they are 90% certain they will lend you a certain amount of money. This becomes important when making an offer on a house.
Finding the Perfect Home
Although it’s difficult with the pressures of TLF and TLA, we recommend taking your time in looking for a house. Remember that it’s probably the closest thing to marriage the financial world can produce. You will be stuck with the house for richer or poorer for at least a few years.
Offer and Acceptance
Once you’ve found the house you want, you’ll make a tentative offer to the seller. The seller will respond, and eventually you will work towards a figure that both of you can live with. At that point, you’ll put down some cash as "earnest money" to prove you are seriously interested. This money will come back to you, usually through paying part of the closing costs, if you go through with the deal. You will also get the money back if the deal falls through for a reason that’s not your fault.
Inspection
Inspections are required for VA loans. As the buyer, you need to choose (and pay for) a competent inspector. We recommend choosing a professional engineer to do the inspection. The inspector will tell you everything that’s wrong with the house, large and small. We recommend you accompany the inspector during the inspection to help get a feel for what he’s talking about.
Haggling Over the Details
Now that you know what’s wrong with the house, you’ll want to ask the seller how much he or she will repair. The seller can respond by saying anything from, "I’ll fix it all," to, "I won’t fix a thing". At some point, you’ll probably have to decide which repairs are truly important to you, and which ones you’re willing to let slide. If the seller fails to agree to do any of the repairs, you may back out and retain your earnest money.
Appraisal
After the repairs are completed, the seller will have the house appraised. The appraiser will usually get the inspector’s report and take a walk-through of the house. After analyzing the house, he or she will give an estimate of the house’s worth. For a VA loan, the appraisal must come in above the selling price, or the VA will not lend the full selling price. It’s an incredibly bad idea to cover the difference yourself! Appraisers are hired by the seller, and tend to come in high on the value of the house. Paying more than their inflated value is like burning money. Usually, the seller will come down to the appraised price. If they’re unwilling, sometimes the real estate agents will cut their commission down slightly. It’s important to stand firm and insist that the selling price be equal to or below the appraised value.
Tying Up Loose Ends
If you’ve completed all the above steps, there isn’t much left to do. You’ll need to pick a title company to insure the title and conduct the closing. However, everything above takes time, and that will almost always leave a waiting period before you can close and move into the new house. Be patient and go over everything carefully. This is your last chance to call the whole thing off.
Closing
Congratulations! You’ve made it to the end. Closing is where you sign all the documents necessary to transfer ownership of the house and officially borrow the money. Generally, you’ll go to the title company and fill out all the paperwork. You’ll need to get a cashier’s check for your part of the closing costs. There’s no set number for closing costs, but the VA will only let the buyer pay for certain
costs associated with the sale. When you sign paperwork, the house is yours on the next day. Typically, the title company will record your title the next day, officially notifying the state of the sale.
FAQ's
A home is the largest purchase most Americans will ever make. Buying or selling a home is chock full of legal issues, and you can save a lot of money-to say nothing of time and hassle-by knowing the legal ins and outs. Here are some high points. We begin with quick overviews from the perspective of buyer or seller, and then go into a bit more detail on some key topics.
Under the law, who does the buyer's real estate agent work for?
Oddly enough, for the seller-unless you make arrangements to the contrary. A buyer's real estate agent can help you choose a home. But the typical real estate agent does not work for you, but for the seller. That's because the agent's fee is a percentage of the selling price of the home, and the agent has a legal duty to the seller, not the buyer. The higher the price, the more money he or she earns. Therefore, don't expect the agent to necessarily represent your interests. If you want an agent to work only on your behalf, arrange to pay for a buyer's agent directly.
Whether you work with an agent or not, it's best to talk to an attorney before you sign any documents, starting with your agreement with your agent if you decide to go that route. The terms of a broker agreement are negotiable, and you'll want to be sure to protect your rights.
What is an offer?
Once you find a home you want to buy, you make an offer. The offer is a detailed document that becomes the contract for the sale if it is accepted by the owner. Therefore, it is important that it covers all the essential details of the sale.
An offer should include:
- legal description of the property
- purchase price and amount of down payment
- closing and possession dates
- a statement that you expect clear title to the property
- a mortgage contingency clause that cancels the contract if you can't get a mortgage
- a description of items included in the sale such as appliances, curtains and fixtures
Include an inspection clause that cancels the contract if the building fails to pass a professional inspection covering:
- pests
- radon gas
- structural soundness
- plumbing
- electrical systems
If your attorney can't review the offer before you present it, include an "attorney approval clause." That allows your lawyer to be sure it is in your interest before it becomes final.
How do I get a mortgage?
Once the offer has been accepted, you'll apply for financing. Typically, the buyer pays 10 or 20 percent of the purchase price in cash and takes a loan for the balance.
Banks and other institutions offer a wide range of mortgages with a variety of interest rates and terms. It pays to shop around and compare. You will probably be charged a "loan application fee" of a few hundred dollars.
Some people "pre-qualify" for a mortgage before they make an offer. That speeds up the process.
What is the title search?
Prior to the closing, your lender will arrange for a title insurance company to look for any "title exceptions" against the property, which may include:
- easements that give utility companies the right to enter the property to service gas, electric or phone lines
- right of access by neighbors
- prohibitions against exterior remodeling
- any liens or claims of ownership
Your attorney should review the report of the title insurance company to make sure that there are no complications. In most cases, you'll want to obtain title insurance.
What happens at closing?
This is the final stage of the purchase. A settlement statement covers all aspects of the sale.
You and your attorney will examine the seller's documents:
- deed
- bill of sale
- sworn statement that there are no liens against the property
You will sign the documents necessary to obtain your mortgage.
You and your attorney will also review closing costs:
- survey fees
- title charges
- fees for recording documents with the proper government bodies
- state and local taxes on property transfers
- real estate taxes
The buyer, seller and their attorneys usually attend the closing, which often takes place at the office of the title company. Your loan company will set up the date and location of the closing. Plan to spend several hours there. In most cases, you can move in that day.