Buying A New Home
Buying A New Home
By: Clay Roe, Assistant Vice President
One of the biggest private financial transactions that many of us are likely to engage in is the purchase of a new home. If you are thinking about purchasing a new home, what should you expect? Some of the factors in the home buying process are described below. Separate articles examine the loan application process and what happens at closing.
A homeowner can attempt to sell a home on his or her own, but often the owner will list the home for sale through a real estate broker. Sometimes a buyer will hire a "buyer's broker" to represent the buyer in the home-buying process. In many transactions, there will be two real estate brokers, one representing the buyer and one representing the seller. In some states, a real estate broker may have obligations to both parties to a transaction, which can be difficult since there are potential conflicts of interest. You need to know who the broker you are dealing with represents - the seller, the buyer, or both?
When the buyer and seller reach agreement regarding the terms of the sale of the home, a written sales contract needs to be drawn up. The form used could be a preprinted form with fill-in-the-blank spaces that is provided by the realtor, the seller, or the seller's attorney. Before signing the contract, consider having it reviewed by an attorney to make sure your interests are protected. And note that many lenders will require a copy of this contract as part of the loan application process.
What are some of the variables included in a sales contract besides the sale price? Some of the typical provisions include, but are not limited to, the following:
- Contingencies that, if not met, could affect the enforceability of the contract. Such contingencies could include the buyer's inability to obtain a mortgage loan in an amount or at a rate specified in the contract. Another such contingency could be the buyer's failure to sell his or her current residence (e.g., when the proceeds from the sale of that residence are needed to complete the purchase of the new home and/or when the buyer cannot qualify to carry the mortgage loan payments on both the present and the new home).
- Environmental problems. Asbestos, radon, lead-based paint, and other environmental hazards may exist. Testing for such hazards may be optional or mandatory, depending upon local laws. Typically, the cost for testing for such hazards is paid by the buyer, and any cost to fix or clean up a problem is paid by the seller. However, this may be negotiable and, in all cases, should be spelled out in the contract.
- Other problems with the property. The contract should provide you with a right to inspect the property and to cancel the contract or reduce the price if the home's structure is not sound, and/or the systems are not in working order. In some states, sellers must disclose known conditions and problems relating to the house. It is a good idea, and increasingly common, to have a professional home inspector inspect the plumbing, heating, cooling, and electrical systems, as well as the soundness of the structure. Your lender also may require a pest inspection. Who pays for the inspection and what happens if there is damage or infestation should be addressed in the contract.
- Title. The contract should provide that the seller will deliver "marketable title" to the property at closing - this means that, if not completely clear, the title contains only minor objections that a well-informed and prudent buyer of real estate would accept. To determine whether the title is "clear," a search of records must be conducted. Which party customarily pays for the title search may vary from state to state.
- Closing date and date of possession. The closing is the time when the buyer pays the purchase price of the property to the seller and the seller executes the deed conveying title to the buyer. In some cases, a buyer may want possession of the property before closing if the buyer has already sold his or her old home. In other cases, a seller may want possession of the property for a brief period after closing because his or her new residence is not ready to occupy. In either of these cases, the contract should address this issue and whether and what rent will be paid.
Now that you've contracted to buy a house, what happens next? See "Applying for a Residential Mortgage Loan."
Updated: January 1, 2013
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.
© 2013 Wilmington Trust Corporation.