Purchasing a home is one of the most significant decisions a person or family can make. The process begins with deciding on where to buy and which house to purchase and ends with the closing at an attorney’s office. The home buying experience can be a stressful and nerve-racking process. To ensure that you are well informed with the process, here are 10 things to keep in mind.
- Be Prepared. Preparation begins with obtaining a pre-approval letter from a bank or mortgage company that indicates how much of a mortgage you will likely be able to obtain. A pre-approval letter should not be confused with obtaining a mortgage commitment and a letter does not guarantee that a mortgage for the stated amount will ultimately be received. However, since a pre-approval letter will give you an idea of how much of a mortgage you will ultimately be granted, it all also gives you an idea of how much money you can spend on a house. You should keep in mind that a pre-approval letter is not a contract and you are not bound to obtain a mortgage from the same bank or mortgage broker from which you obtained the pre-approval letter.
- Do not overlook the importance of a Realtor. Realtors play a key role in the house buying process and their value should not be overlooked. Realtors guide buyers to communities and to homes that fit a buyer’s needs and personalities. They are also invaluable sources of knowledge and are able to tell buyers about the local school systems and towns with high property taxes, for example. When a home is found, it is the realtor who helps the buyers with determining the amount of the offer and ultimately conducts the negotiation with the sellers. Once an offer is accepted, your realtor continues to work with you throughout the home inspection process and with any issues that come up until closing. Since the realtor plays such an important role in the home buying process, buyers must feel comfortable with their realtor and have a relationship built on trust. Obtaining a referral is one of the best ways to find your realtor. If a referral cannot be found, check out websites, print advertisements or open houses. Before selecting a Realtor to work with, interview them and make sure you feel comfortable with the relationship.
- Finding Your Attorney. In order to buy residential real estate in New Jersey, you are going to need an attorney. Finding an attorney is similar to finding a realtor. Ask your realtor for a recommendation, ask friends and look on the Internet. Attorneys are critical for revising the contract to ensure you are legally protected, to ensure that contract deadlines are being satisfied, to conduct inspection credit negotiation and to prepare all of the closing documents.
- Attorney Review. Once an offer on a home is made and accepted, the attorney-review process begins. Attorney review is a period during which buyers and sellers have an opportunity to terminate the contract. The thought behind the attorney-review period is that buying a home is such a big decision that each party should be given a few days to reconsider. Within the attorney-review period, the buyer’s attorney will typically reach out to the seller’s attorney with an attorney-review letter. The letter may change some of the terms of the “standard” real estate contract. After negotiating the final terms of any rider or addendum, the parties are bound by the terms of the contract, rider or addendum and attorney-review is complete. Please note if neither party acts within 3 business days after signing, the parties are bound to the contract as signed. Attorney-review can also be shortened or extended by consent of both parties.
- Obtaining a Mortgage. After attorney-review is concluded, it is time to think about obtaining the mortgage needed to purchase your future home. Maybe you already have a mortgage broker or want to utilize a local bank to obtain the mortgage. Otherwise, there are several websites where mortgage rates can be shopped around and you are able to select the best quote. In order to obtain a mortgage from any bank or broker, you are going to need to submit information about your financial history. To expedite the process, even before applying for a mortgage, it is a good idea to start collecting your tax returns for the past 3 years, W-2s for the past few years and recent pay statements. The more information you have ready to go, the quicker and easier the mortgage process will be.
- Deadlines are Important. Every real estate contract contains deadlines for things such as making deposit payments, for getting the property inspected and for obtaining your mortgage. These deadlines are important because once they expire, the contract can be considered breached, thus allowing the Seller an out if they want to terminate the contract, or binding the contract as written.
- Inspection. Every real estate contract in New Jersey is sold “as is.” What that means is that the property, in its present condition, should be factored into the sale’s price. Accordingly, if you a buying a fixer-upper, the property should be priced accordingly. That being said, New Jersey real estate contracts allow buyers to have a licensed inspector go through the property to notify the buyers of any areas of concern that could not have been known prior to making an offer. For example, if the house requires a new roof or has structural damage that will require significant investment, the buyer may want to reconsider making the purchase. The inspection contingency allows a buyer to request a seller to make repairs to the property or obtain a credit in lieu of making a repair. The seller may comply with the request or say no. If the Buyer is not satisfied with the Seller’s response, the Buyer may opt-out of the contract.
- Private Mortgage Insurance (“PMI”). In the event you do not have 20% (as in some cases 25%) of the contract price to put down at closing, you can still purchase a home. However, most lenders will require that you obtain insurance until you achieve the percentage threshold. Called PMI, the insurance allows those who may not have significant discretionary savings to purchase homes they could not otherwise afford. The cost of the PMI is simply added to your monthly mortgage statement. It is important to determine this added cost in advance to prepare your budget accordingly.
- Buyers’ Costs. In addition to the purchase price of the home you are buying, there are additional costs associated with purchasing a home. A few of the costs include paying for an inspector, title insurance, recording fees and attorney fees. The one significant cost that Buyers do not incur is paying for realtors, which is a Seller’s expense. Nevertheless, in preparation for purchasing a home, Buyers must be cognizant of all the additional costs and include them into their budget. The good faith estimate from a lender generally sets forth these costs.
- The Closing. You can expect that the real estate closing will take approximately 1 ½ to 2 hours. The first half of the closing will involve signing the mortgage documents. These documents are provided by the bank and differ slightly between each bank and mortgage broker. Some banks require many documents to be signed and others somewhat less. However, for all banks and brokers, the key documents are the Promissory Note, which is the document which says you promise to repay the loan, and the Mortgage, the document empowering the Bank to repossess the property if you do not pay. After the mortgage closing is complete, the Seller’s attorney will arrive to complete the transaction. Once the Deed is handed over and the keys are exchanged, you will be officially a homeowner.
The home buying process can be fraught with stress. However, if you are prepared and know what to expect, the stress associated with the process can be reduced. Hopefully these 10 things to keep in mind for buying real estate in New Jersey answered some of your questions regarding the home buying experience or gave you some insights you did not otherwise know. If you have any additional questions or want to speak with an attorney about buying or selling a home in Bergen County or Passaic County, New Jersey, contact one of our real estate attorneys.
About the author: Andrew P. Bolson, Esq. is an attorney with Meyerson, Fox, Mancinelli & Conte, P.A. in Montvale, New Jersey. Andrew’s practice focuses on commercial and estate litigation, business law, real estate law, estate planning and privacy and Internet law.