First Time Homebuyer? Here?s what you need to know . . .


I. Selecting a Real Estate Agent – It?s always a good idea to ask friends, family members and co-workers to suggest a real estate agent with whom they had a very positive experience. You should then sit down and interview two or three agents to learn about their plan for helping you buy your home. This little interview process will also assist in determining whether you like the agent?s ideas, style and strategy for finding your new home. I recommend selecting a full-time agent who has at least three or four years of experience handling a number of transactions. Full-time agents are more likely to be in tune with industry trends, changes in the law and unique marketing strategies than people who work as agents on a part-time basis. Finally, you always need to inquire whether or not your agent is only representing you in a particular transaction. If your agent is also representing the seller, then this creates a ?dual-agency? situation. The agent will be required to make certain disclosures and then you must decide if you are comfortable moving forward under this type of arrangement.

II. Obtaining a Mortgage
– If you want a particular seller to know that you are serious about buying his/her home, then you should consider getting pre-approved for a mortgage before you make your offer to purchase. It is important to note that getting pre-approved means that a lender has given you a commitment for a specific amount of funds. This is different from getting ?pre-qualified?, in which the lender only gives you a general idea of the dollar amount that may be available to you as a loan subject to final approval in the lender?s discretion.

It is very important to shop around for the best mortgage terms. A well-informed buyer will contact several lenders in order to obtain the following information from each:

  1. The rate of interest;
  2. Whether the rate is fixed or adjustable;
  3. The Annual Percentage Rate which incorporates points, broker fees, underwriting/processing fees and other transaction fees;
  4. The minimum down payment required for the loan;
  5. Term of loan.

Keep a checklist of this vital information so that you can compare one lender to another in order to determine your best deal. If possible, get the lender to ?lock-in? your interest rate for a specific amount of time. A seller knows that you are serious when you make an offer to purchase and already have your mortgage in place.

III. Agreement of Sale – When it comes to signing the agreement of sale, many realtors utilize pre-printed agreements provided by the National Association of Realtors. Many inexperienced buyers are under the impression that the terms are not negotiable since they’?re already in the pre-printed form. A good agent will advise you that all the terms are negotiable and will work to get you favorable provisions while being sure not to sabotage the deal. Most importantly, it is prudent to have your agreement of sale reviewed by an attorney, as your real estate agent is not licensed to advise you on the legal implications of the contract.

The following key terms should be included in your agreement of sale:

  1. Purchase price of the property;
  2. Terms of payment – Amount due upon signing the contract/Due date of the deposit balance/Due date of purchase price balance;
  3. Date on which seller must give approval of the agreement of sale;
  4. Settlement date.

Pay special attention to these key terms and the language contained in the agreement dealing with them:

  1. Mortgage Contingency Clause – As the buyer, you want to make the settlement of the transaction contingent upon obtaining a mortgage. In the mortgage contingency clause, it is advisable to include a maximum rate of interest for your loan. If you are not able to obtain a rate at or below the maximum rate in the contract, then the mortgage contingency has NOT been satisfied and you can void the agreement;
  2. Home Inspection – Carefully review the options set forth in the agreement of sale. Some clauses give the buyer the ability to void the deal entirely if not satisfied with the inspection results. Other clauses give the seller the opportunity to make repairs or issue credits for repairs at closing;
  3. Termite Inspection/Radon Inspection – Buyers should also insist on these clauses as contingencies in the agreement of sale;
  4. Risk of Loss – Buyer wants seller to bear the risk of loss (in the event of fire or other damage) on the property up to the settlement date;
  5. Liquidated Damages Provision – Buyer should restrict seller?s damages to the deposit monies in the event that buyer does not go through with the transaction.

IV. Settlement – Prior to actually sitting down at the settlement table, it is advisable to conduct a final ?walk-through? of the property to make sure that the condition of the home and its systems (heat, air, electric, plumbing, appliances, etc.,) have not changed since your home inspection. At the closing table, the buyer will be asked to sign numerous documents from the lender. It is important to read through the lender?s disclosures and make sure that you understand all of the terms of your loan including interest rate, term, pre-payment penalties, late payment fees and other conditions/restrictions of your particular loan. Your real estate agent and/or attorney should thoroughly review the HUD-1 (settlement statement) with you so that you can understand the breakdown of your closing costs. The seller is responsible for providing the deed and affidavit of title, which when recorded, transfer ownership of the property to you.

Once all of the proper documents have been signed/notarized and the title company has dispersed funds, you are officially a homeowner . . . congratulations!!

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