How Big a House Can You
Real Estate Brokers
The Real Estate
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.
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
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
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.
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
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
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
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.
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.
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.
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
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
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