What Are The Key Details In Your Home Purchase Contract?
The process of buying a home is often much more complex than the average person expects. The home purchase contract is loaded with details - from the critical to the minute - that can make or break your home-buying experience.
Online, July 23, 2012 (Newswire.com) - The process of buying a home is often much more complex than the average person expects. The home purchase contract is loaded with details - from the critical to the minute - that can make or break your home-buying experience. Knowing the key details in your contract can be critical.
Guardian Mortgage of Michigan and North Texas has a free handbook for homebuyers that takes you through every detail of the home-buying process, from getting pre-approved for the loan to move-in day. The e-book is free at this link: http://scr.bi/FreeGuardianHandbook. This page from the book (page 23) reviews key sections the home purchase contract, so you can avoid serious mistakes and be sure you are getting exactly what you expect.
Loan contingency. This a specific period of time you are allowed to secure loan approval from the mortgage lender, based on the terms you have outlined in the contract. The terms of this loan contingency may be included on a document called the "Third-Party Financing Addendum." This loan contingency is typically between15 and 21 days, depending on what you and your real estate agent have negotiated on your behalf in the contract. The earnest money deposit that you put into an escrow account at the time the offer was accepted may not be refunded once the loan contingency has expired. According to the terms of the standard contract, if the loan contingency has expired and you fail to close the purchase transaction, you can lose your earnest money deposit and would not have loan-related issues as the reason for the nonperformance. Formal pre-approval will help eliminate such risk related to the loan contingency.
Home inspection contingency or "option period." Based on the terms of the contract, you and the seller will negotiate a period of time sufficient to complete a home inspection and any subsequent inspections (elevation survey, structural engineer, plumber and electrician) as required from the details of the general home inspection. A licensed residential inspector should be contracted with to complete the general home inspection and provide the home inspection report. Upon completion of the home inspection report, the residential home inspector will review the details of this report with you to ensure you have a complete understanding of the results. The focus of the report should be on any material defect or conditions of the property that could affect the property value. Since you did not have knowledge of these defects at the time the offer was made, you and your real estate agent will contact the sellers and their agent concerning adjustments to the purchase price or a seller contribution toward your closing costs to account for the defects and issues discovered in the inspection. If the home inspection contingency or option period has expired, you will no longer have this leverage.
Termite inspection. This is a lender requirement for some loan programs or if the appraiser makes notes of concern about possible termites. If termites are located on the property, both parties will need to negotiate how this pre-existing condition will be remedied. Commonly, the solution is that the buyer will request and pay for the termite inspection and, if a problem is found, the treatment will be covered by the seller. At the time your offer is submitted to the seller, be sure to discuss with your real estate agent if you will be obtaining a termite inspection, who will be paying for that inspection, and who will pay for the termite treatment if termites are discovered on the property.
Contract period. This is the time allowed to complete all due diligence on the property (home inspection, termite inspection, and any other inspections or reports), all loan requirements, and any additional steps to allow both buyer and seller to proceed with the loan closing and loan funding. Be sure to contact your lender to discuss the timing of the loan process, which will prevent any nonperformance on the contract due to loan contingency. Typically, purchase contracts are drawn up for approximately 30 days from contract date to closing.
Seller contributions. As part of the negotiation of the contract, any issues related to the home inspection or the seller's eagerness to close the transaction, the seller may provide a contribution to pay some or all of the closing costs and prepaid expenses related to the purchase money financing. This contribution can be applied to the lender-related costs, title and other third-party costs, prepaid interest and funding of any escrow/impound account. Therefore, the contribution will effectively reduce your cash needed to close or allow you to use "points" to reduce your rate and monthly payment. This seller contribution will be subject to any limitations based on the loan program you are using to finance the acquisition of the property. You should discuss the specific seller contribution limitations of your loan program with your lender prior to including this feature in your negotiations. In Texas, the seller is not allowed to contribute funds back to the buyer after the closing to accommodate for repairs or upgrades to the property. Any seller contribution amount that exceeds the actual closing costs and prepaid expenses - or may exceed the limitations for this contribution based on the selected loan program- should be applied as a reduction in the sales price. To meet with underwriting guidelines, any seller contributions should be included in the appropriate section of the contract and not make reference to any language like "in lieu of repairs" or reference any specific items for repair.