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BUYING A HOME  

How Big a House Can You Afford?
Real Estate Brokers
The Real Estate Contract
Closing Costs
Taking Title
Walk Through
Conclusion

Congratulations! You have decided to follow the American dream and purchase your own home. Because this is probably the biggest purchase you will ever make, this pamphlet will discuss issues for you to consider.

How Big a House Can You Afford?

You should talk to a lender as to how large a mortgage you can get. Your income, savings, the amount of the down payment you are willing to make, the current interest rate and your credit history are all taken into account in deciding how much money someone will lend you. There are programs that will lend up to 100% of the purchase price of your home. If you are a first time home buyer there may be a program sponsored by your city to assist you in your purchase.

You should check your credit report and get your financial documents in order in preparation of your meeting with a lender. The amount you can put down as a down payment and the amount of money a lender is willing to give you will determine how much you can afford to pay.

Real Estate Brokers

It is not necessary to go through a real estate broker to purchase a home. However, if you decide to use such a person, you should make sure you know who the broker represents.

In the past, brokers represented the seller in any transaction, even if they were showing the property to potential buyers. They were paid from the commission paid by the seller and therefore, their loyalty was to the seller. A broker must now inform you whom he/she represents. If you feel uncomfortable using a broker, you can hire a buyer's broker. Be prepared to pay a fee to your broker, which can range from a flat fee to a percentage of the sale's price.

The Real Estate Contract

When you have found a house you want to purchase, the broker will give you a form contract to submit to the seller. There may be some negotiations between you and the seller over the purchase price, date of possession, the amount of earnest money, date of closing, personal items included with the property and how long you will have to obtain a mortgage.

Once all the terms have been agreed upon, you will be expected to increase the earnest money deposit to 5 to 10 percent of the purchase price. The earnest money will be held in an interest-bearing account for you.

The contract usually provides for an attorney approval within 3 to 7 days of acceptance of the contract. However, attorneys prefer to see the contract before you sign it. The approval provisions are often restrictive, and if an attorney does not agree with the contract, the only remedy is to disapprove the contract. While attorneys want to work together to arrive at a contract that is fair to both sides, it is still to your advantage to have an attorney look at the contract before you sign it.

Once a contract has been signed, the seller must give the buyer certain documents. These documents include a Residential Real Property Disclosure Report describing the condition of the property and a disclosure statement as to the knowledge of any lead-based paint on the premises. In Chicago, the seller must also disclose utility costs.

These documents, however, are not a substitute for an inspection. The contract should provide for the buyer to have someone inspect the property. Finding out the condition of the property is well worth the money spent.

The buyer will be given between 30 to 45 days to obtain a commitment from a bank or lender for a mortgage. This time period is very important. If the buyer is unable to get a commitment within that time period, he/she must ask the seller for additional time to obtain the commitment. If the seller refuses to give any further time, the contract is terminated.

If the buyer is purchasing a condominium, he/she must request various documents. These documents include the By-laws, Rules and Regulations and an Operating Budget. The buyer must review these documents to see if the rules and regulations are acceptable. In addition, the buyer wants to make sure that there is enough money to handle any emergency repairs, whether there are special assessments that have been proposed or whether there is a proposed increase in the monthly assessment.

Closing Costs

In addition to the application fee, credit report fee and appraisal fee, there are certain other closing costs that the buyer must pay. These costs include some of the following: points, loan discount fee, flood certification, title insurance, recording fees, local transfer stamps, insurance premium and property tax escrow, attorney's fees, private mortgage insurance, homeowners' insurance, and document preparation fee.

Your lender must prepare a good faith estimate of what closing costs you can expect. You should check with your accountant or attorney to make sure which of the above costs will be deductible by you at tax time.

Taking Title

There are many ways to take title to a piece of real estate. Your options may depend upon whether you are buying the property alone, with your spouse or with another person. Your options may also depend upon whether you want the property held in trust or otherwise. These options should be thoroughly discussed with your attorney to determine which is best for you. It no longer a simple decision of joint tenancy or tenants in common.

Walk Through

Within 48 hours of the closing, you and the broker should walk through the house. This is done to make sure that everything is still in good condition. If anything needs to be fixed, you should tell your broker and attorney. Arrangements will be made to have it done or to give you a credit at closing for you to have the repairs made.

Conclusion

Buying a house can be the most exciting time in your life. There is nothing like owning your own home, to say nothing of the tax advantages. However, when dealing with the amount of money that is exchanged, when you realize how may items can break down in a house, when you consider how many legal documents you will be signing, it is best to have good professionals working for you. Then you can relax and enjoy your new home.

 

This pamphlet is for informational purposes only. You should consult with an attorney regarding your specific situation.
© Copyright 2012 Shimberg and Crohn, P.C.

 

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