Relocation Quarterly, Spring/Summer 1996

Legal Brief


From Contract to Closing:
Tips for the Prospective Home Buyer


By LEE MARCH GRAYSON

 

Buying a home can be fraught with financial and emotional uncertainties.  Purchasing a home is usually the most significant financial investment a person makes in a lifetime.  Most people invest the bulk of their life savings just to meet the down payment on a home, and commit themselves to decades of mortgage payments. With so much at stake, it is important to protect yourself by demystifying the home-buying process.  Here are some valuable tips:

 

  1. Retain an experienced real estate attorney.  Even though a recent New Jersey Supreme Court decision held that lawyers were not required to close residential home sales, you would be acting at your peril if you proceeded to buy your home without one.  The money you spend on your attorney (Minuscule in comparison to the purchase price of your home) is well worth the peace of mind you will have knowing that someone is looking out for your best interests.  Interview the lawyer.  Ask questions.  Do you feel comfortable with the attorney?  Does he or she return your telephone calls? If youÕre in the market for a new residence, the time to select your attorney is NOW – before you sign the contract of sale.

  2. Have your attorney review your contract of sale right away.  The contract of sale is a legally binding contract that is signed by both the buyer and the seller when they have reached an agreement about the purchase of the home.  This document defines your rights.  It can be extremely difficult to break and may subject you to dire legal consequences if you fail to comply with its terms.  Federal law imposes a three-day grace period, referred to as the Òattorney review period,Ó after both parties have signed the contract of sale.  During the attorney review period, either party may cancel the contract for any lawful reason, including a change of mind or a higher offer by another prospective buyer for the home you want to purchase.  When the attorney review period has ended both parties must do what is required of them as specified in the contract of sale so that the property can be sold to the buyer.

    A small (partial) deposit is usually paid by the buyer ($5000 or $1000) at the time the contract of sale is signed.  Further deposits are typically required within 10 to 30 days, with the balance of the down payment due at the time of closing.  Your deposit should be held by a third party in an interest-bearing account until the closing or right of cancellation is exercised.  Your contract should specify how the interest will be divided between the parties.
  3. Apply for your mortgage immediately.  Do not wait!  Most mortgage contingency clauses require the buyer to obtain a written mortgage commitment in as little as 30 to 45 days.  Failure to comply with this provision can result in a breach of contract and damages paid to the seller, including the forfeiture of your deposit monies.

    Be sure the mortgage contingency clause addresses your needs.  Is 45 days enough time for you to get a commitment from the bank?  Does the clause specify the amount of the mortgage you will be applying for, along with the maximum interest rate and points you can afford to pay?  Can you extend the mortgage commitment if the closing date is delayed?  Do you have a home that you must sell before you can buy your new residence?  If so, your mortgage contingency clause should address this issue so that the ÒsellingÓ buyer does not forfeit his or her deposit monies if their current residence is not sold.


With current interest rates in the 6 ¾ to 7 ½ percent range, the serious home buyer should be mortgage shopping even before the contract of sale is executed.  Be sure that you Òpre-qualifyÓ with your realtor.  Explore the different types of mortgage products to see which one best suits your needs.  Compare 30-year fixed mortgages with 20- and 15- year fixed term rates.  Remember:  the shorter the loan period, the less interest you will pay on the life of the loan.  Try to avoid adjustable rate mortgages and teaser rate loans.  Mortgage rates are very low now and will most likely start to go up.