Outlined below are the steps for Buying a home
|I. INITIAL CONTRACT REVIEW|
When you have located the property you wish to purchase you will most likely present an offer to purchase through a licensed realtor. Contracts prepared by a realtor must provide a three-day attorney review period, during which either party may review the proposed contract with their respective attorney. During such review the contract may be approved, disapproved or approved with changes. It is in your interest to discuss the contract with your attorney during the three-day review period so that your attorney may more effectively represent your particular concerns.
II. MORTGAGE APPLICATION
Since most purchases of residential real estate include the provision that a that the purchasers primary duty is to immediately, efficiently and aggressively pursue such mortgage financing. As a practical matter, that means an application for mortgage financing must be completed immediately following attorney review, if not before, with a mortgage company previously chosen by the applicant. Typically, mortgage contingency purchaser will need mortgage financing to complete the purchase, it is important to note periods run between thirty and sixty days. Although this office will assist you in perfecting your mortgage application by dealing directly with the mortgage company, it is the purchaser's primary responsibility to keep in contact with their mortgage banker or broker to ensure the completion of the mortgage application itself and to satisfy any subsequent conditions that the mortgage company imposes on the commitment. THE COMMITMENT IS AN EXTREMELY IMPORTANT DOCUMENT. YOU MUST CAREFULLY READ YOUR COMMITMENT IN ORDER TO UNDERSTAND WHAT IS REQUIRED OF YOU FOLLOWING THE ISSUANCE OF THE WRITTEN COMMITMENT AND BEFORE CLOSING OF TITLE.
III. HOME INSPECTION CONTINGENCIES
Residential real estate contracts call for the purchaser, at his own expense, to conduct an inspection of the premises in order to determine the existence of any latent or non-apparent deficiencies in the property. It is extremely important that you keep our office informed of the status of all contingencies contained in your contract of sale including termite inspection, structural inspection, well and septic inspections and radon inspection It is vital that these inspections be completed and a written report received within the time period set forth in the contract. Please arrange to have the inspection company forward to your attorney copies of all relevant inspections as soon as they are prepared. Upon your receipt of the results of these inspections, contact your attorney to discuss any problems revealed by the inspections. Your attorney will assist you in negotiating with the Seller to resolve any such deficiencies.
IV. TITLE INSURANCE
When obtaining mortgage financing it is required that a title search and a title insurance policy be obtained in at least the amount of your mortgage. This office is responsible for ordering same for you. Most banks require a new survey of the premises at the time of closing.
V. POST-COMMITMENT REVIEW BY MORTGAGE COMPANY
Once you have received your mortgage commitment and this office has received the title search and survey, this office will comply with your bank's instruction and submit all documentation they require for review prior to closing. After the bank's review of the documentation, they will allow us to schedule a closing at which time we will contact you, the Seller's attorney and the real estate broker and arrange for a mutually convenient closing date and time. Immediately following your receipt of a mortgage commitment, you should make arrangements to obtain an ORIGINAL homeowner's insurance policy NOT BINDER (hazard insurance) along with an ORIGINAL paid receipt of the first year's premium.
VI. CLOSING OF TITLE
The date of the closing on the contract is an estimated closing date and should be used as a rough guideline. Please do not plan on closing on this particular date, as that is not always possible. On the afternoon immediately prior to the actual closing, our office will prepare the final figures in consultation with both the mortgage company and the opposing attorney. Once this calculation has been completed, our office will contact you with the exact amount of money you should bring to the closing to cover the remaining down payment and any closing costs attendant to the closing. Our office will give you a bottom line figure that will include the amount due to the Seller along with these closing expenses.
VII. CLOSING COSTS
One of the most underestimated factors during the closing process is the various settlement charges or closing costs. Your mortgage company will provide a document to you entitled "Good Faith Estimate". While this document is a helpful guideline, we urge you to contact our office to discuss other potential settlement charges.
VIII. CALCULATING THE AMOUNT YOU NEED AT CLOSING
The first page of the HUD-1 Settlement Statement summarizes all the costs and adjustments for the borrower and seller. Section J is the summary of the borrower’s transaction and Section K is the summary of the seller’s side of the transaction. You may receive a copy of the seller’s side, but it is not required.
Section 100 summarizes the borrower’s costs, such as the contract cost of the house, any personal property being purchased, and the total settlement charges owed by the borrower from Section L.
Beginning at line 106, adjustments are made for items (such as taxes, assessments, fuel) that the seller has previously paid. If you will benefit from these items after settlement, you will usually repay the seller for that portion of the cost.
Here is an example for you to use in making your own calculations:
|J. SUMMARY OF BORROWER'S TRANSACTION|
|100. GROSS AMOUNT DUE FROM BORROWER:|
|101. Contract sales price||100,000.00|
|102. Personal Property|
|103. Settlement charges to borrower (line 1400)||4,000.00|
|Adjustments for items paid by seller in advance|
|106. City/town taxes to|
|107. County taxes to|
|108. Assessments 6/30 to 7/31 (owners assn.)||40.00|
|109. Fuel Oil 25 gals. @ $1.00/gal.||25.00|
|120. GROSS AMOUNT DUE FROM BORROWER||104,065.00|
Assume in this example, the cost of the house is $100,000 and the borrower’s total settlement charges brought from Line 1400 of Section L are $4,000. Assume that the settlement date is July 1. Here the borrower has agreed to pay the seller for the $40 Home Owners Association dues that have been paid for the month of July and for the 25 gallons of fuel oil left in the tank. This is added for a gross amount due from the borrower of $104,065.
Section 200 lists the amount paid by the borrower or on behalf of the borrower. This will include the deposit of earnest money you put down with the agreement of sale, the loan(s) you are getting and any loan you may be assuming.
Beginning at Line 210, adjustments are made for items that the seller owes (such as taxes, assessments) but for which you as the borrower will pay after settlement. The seller will usually pay you or credit you this portion at settlement
|200. AMOUNTS PAID BY OR IN BEHALF OF BORROWER:|
|201. Deposit of earnest money||2,000.00|
|202. Principal amount of new loan(s)||80,000.00|
|203. Existing loan(s) taken subject to|
|Adjustments for items unpaid by seller|
|210. City/town taxes to|
|211. County taxes 1/1 to 6/30 $1,200/ year||600.00|
|212. Assessments 1/1 to 6/30 $200/yr.||100.00|
|220. TOTAL PAID BY/FOR BORROWER||82,700.00|
In this example, assume the borrower paid an earnest deposit of $2,000 and is getting a loan for $80,000. A tax of $1200 and an assessment of $200 are due at the end of the year. The seller will pay the borrower for six months or one-half of this amount. Line 220 shows the total $82,700 to be paid by or for the borrower.
Section 300 reflects the difference between the gross amount due from the borrower and the total amount paid by/for the borrower. Generally, line 303 will show the amount of cash the borrower must bring to settlement.
|300. CASH AT SETTLEMENT FROM/TO BORROWER|
|301. Gross Amount due from borrower (line 120)||104,065.00|
|302. Less amounts paid by/for borrower (line 220)||(82,700.00)|
|303. CASH (x FROM) ( _ TO) BORROWER||21,365.00|
In this example, the borrower must bring $21,365.00 to settlement.
This discusses the settlement services which you may be required to get and pay for and which are itemized in Section L of the HUD-1 Settlement Statement. You also will find a sample of the HUD-1 form to help you to understand the settlement transaction.
700. Sales/Broker's Commission: This is the total dollar amount of the real estate broker’s sales commission, which is usually paid by the seller. This commission is typically a percentage of the selling price of the home.
|L. SETTLEMENT CHARGES|
|700. TOTAL SALES/BROKER’S COMMISSION based on price $ @ %=||PAID FROM BORROWER’S FUNDS AT SETTLEMENT||PAID FROM SELLER’S FUNDS AT SETTLEMENT|
|Division of Commission (line 700) as follows:|
|701. $ to|
|702. $ to|
|703. Commission paid at Settlement|
800. Items Payable in Connection with Loan: These are the fees that lenders charge to process, approve and make the mortgage loan:
801. Loan Origination: This fee is usually known as a loan origination fee but sometimes is called a "point" or "points." It covers the lender's administrative costs in processing the loan. Often expressed as a percentage of the loan, the fee will vary among lenders. Generally, the buyer pays the fee, unless otherwise negotiated.
802. Loan Discount: Also often called "points" or "discount points," a loan discount is a one-time charge imposed by the lender or broker to lower the rate at which the lender or broker would otherwise offer the loan to you. Each "point" is equal to one percent of the mortgage amount. For example, if a lender charges two points on an $80,000 loan this amounts to a charge of $1,600.
803. Appraisal Fee: This charge pays for an appraisal report made by an appraiser.
804. Credit Report Fee: This fee covers the cost of a credit report, which shows your credit history. The lender uses the information in a credit report to help decide whether or not to approve your loan and how much money to lend you.
805. Lender's Inspection Fee: This charge covers inspections, often of newly constructed housing, made by employees of your lender or by an outside inspector. (Pest or other inspections made by companies other than the lender are discussed in line 1302.)
806. Mortgage Insurance Application Fee: This fee covers the processing of an application for mortgage insurance.
807. Assumption Fee: This is a fee which is charged when a buyer "assumes" or takes over the duty to pay the seller’s existing mortgage loan.
808. Mortgage Broker Fee: Fees paid to mortgage brokers would be listed here. A CLO fee would also be listed here.
|800. ITEMS PAYABLE IN CONNECTION WITH LOAN|
|801. Loan Origination Fee %|
|802. Loan Discount %|
|803. Appraisal Fee to|
|804. Credit Report to|
|805. Lender’s Inspection Fee|
|806. Mortgage Insurance Application Fee to/td>|
|807. Assumption Fee|
|808. Mortgage Broker Fee|
900. Items Required by Lender to Be Paid in Advance: You may be required to prepay certain items at the time of settlement, such as accrued interest, mortgage insurance premiums and hazard insurance premiums.
901. Interest: Lenders usually require borrowers to pay the interest that accrues from the date of settlement to the first monthly payment.
902. Mortgage Insurance Premium: The lender may require you to pay your first year’s mortgage insurance premium or a lump sum premium that covers the life of the loan, in advance, at the settlement.
903. Hazard Insurance Premium: Hazard insurance protects you and the lender against loss due to fire, windstorm, and natural hazards. Lenders often require the borrower to bring to the settlement a paid-up first year’s policy or to pay for the first year's premium at settlement.
904. Flood Insurance: If the lender requires flood insurance, it is usually listed here.
|900. ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE|
|901. Interest from to @$ /day|
|902. Mortgage Insurance Premium for months to|
|903. Hazard Insurance Premium for years to|
|904. years to|
1000 - 1008. Escrow Account Deposits: These lines identify the payment of taxes and/or insurance and other items that must be made at settlement to set up an escrow account. The lender is not allowed to collect more than a certain amount. The individual item deposits may overstate the amount that can be collected. The aggregate adjustment makes the correction in the amount on line 1008. It will be zero or a negative amount.
|1000. RESERVES DEPOSITED WITH LENDER|
|1001. Hazard Insurance months @ $ per month|
|1002. Mortgage insurance months @ $ per month|
|1003. City property taxes months @ $ per month|
|1004. County property taxes months @ $ per month|
|1005. Annual assessments months @ $ per month|
|1006. months @ $ per month|
|1007. months @ $ per month|
|1008. months @ $ per month|
1100. Title Charges: Title charges may cover a variety of services performed by title companies and others. Your particular settlement may not include all of the items below or may include others not listed.
1101. Settlement or Closing Fee: This fee is paid to the settlement agent or escrow holder. Responsibility for payment of this fee should be negotiated between the seller and the buyer.
1102-1104. Abstract of Title Search, Title Examination, Title Insurance Binder: The charges on these lines cover the costs of the title search and examination.
1105. Document Preparation: This is a separate fee that some lenders or title companies charge to cover their costs of preparation of final legal papers, such as a mortgage, deed of trust, note or deed.
1106. Notary Fee: This fee is charged for the cost of having a person who is licensed as a notary public swear to the fact that the persons named in the documents did, in fact, sign them.
1107. Attorney's Fees: You may be required to pay for legal services provided to the lender, such as an examination of the title binder. The cost of your attorney and/or the seller’s attorney may also appear here.
1108. Title Insurance: The total cost of owner's and lender's title insurance is shown here.
1109. Lender's Title Insurance: The cost of the lender’s policy is shown here.
1110. Owner's (Buyer’s) Title Insurance: The cost of the owner's policy is shown here.
|1100. TITLE CHARGES|
|1101. Settlement or closing fee to|
|1102. Abstract or title search to|
|1103. Title examination to|
|1104. Title insurance binder to|
|1105. Document preparation to|
|1106. Notary fees to|
|1107. Attorney’s fees to|
|(includes above items numbers; )|
|1108. Title Insurance to|
|(includes above items numbers; )|
|1109. Lender’s coverage $|
|1110. Owner’s coverage $|
1200. Government Recording and Transfer Charges: These fees may be paid by you or by the seller, depending upon your agreement of sale with the seller. The buyer usually pays the fees for legally recording the new deed and mortgage (line 1201). Transfer taxes, which in some localities are collected whenever property changes hands or a mortgage loan is made, can be quite large and are set by state and/or local governments. City, county and/or state tax stamps may have to be purchased as well (lines 1202 and 1203).
|1200. GOVERNMENT RECORDING AND TRANSFER CHARGES|
|1201. Recording fees: Deed $ ; Mortgage $ ; Releases $|
|1202. City/county tax/stamps: Deed $ ; Mortgage $|
|1203. State tax/stamps: Deed $ ; Mortgage $|
1300. Additional Settlement Charges:
1301. Survey: The lender may require that a surveyor conduct a property survey. This is a protection to the buyer as well. Usually the buyer pays the surveyor's fee.
1302. Pest and Other Inspections: This fee is to cover inspections for termites or other pest infestation of your home.
1303-1305. Lead-Based Paint Inspections: This fee is to cover inspections or evaluations for lead-based paint hazard risk assessments and may be on any blank line in the 1300 series.
|1300. ADDITIONAL SETTLEMENT CHARGES|
|1301. Survey to|
|1302. Pest inspection to|
1400. Total Settlement Charges: The sum of all fees in the borrower's column entitled "Paid from Borrower's Funds at Settlement" is placed here. This figure is then transferred to line 103 of Section J, "Settlement charges to borrower" in the Summary of Borrower's Transaction on page 1 of the HUD-1 Settlement Statement and added to the purchase price. The sum of all of the settlement fees paid by the seller are transferred to line 502 of Section K, Summary of Seller's Transaction on page 1 of the HUD-1 Settlement Statement.
|1400. TOTAL SETTLEMENT CHARGES (enter on lines 103, Section J and 502, Section K)|
Paid Outside Of Closing ("POC"): Some fees may be listed on the HUD-1 to the left of the borrower’s column and marked "P.O.C." Fees such as those for credit reports and appraisals are usually paid by the borrower before closing/settlement. They are additional costs to you. Other fees such as those paid by the lender to a mortgage broker or other settlement service providers may be paid after closing/settlement. These fees are usually included in the interest rate or other settlement charge. They are not an additional cost to you. These types of fees will not be added into the total on Line 1400.