Purchasing your first home can appear very complex, there are so many rules and laws to be followed! There are a number of clauses in your purchase agreement (PA) you must understand because they can have a big impact on your costs to get into your home and your mortgage costs down the road.
Here are some of the common sections of the typical sales contract:
LOAN CONTINGENCIES
A “contingency” is an item that the sale will depend upon to go forward or not go through at all. There are a number of contingency clauses that are standard or may be inserted into any real estate sales contract:
- Financing – the period of time the seller is allowing you to find a loan for the purchase, usually 30 to 45 days. The earnest money deposit you gave at time of signing the sales contract will be forfeited if you do not close by a certain day. To prevent that, get pre-approved prior to beginning your house-hunt. You will then know you can get a loan for a certain amount. And to the seller you appear to be a serious buyer, not a “tire-kicker” and your negotiating position is strengthened considerably.
- Loan contract period – This is the overall period of time in which all necessary “due diligence” activities must be done, such as having a home inspector and termite inspector examine the property, getting approved for the loan, having the property appraised, surveyed if necessary, flood certification issued, etc. Necessary tasks differ from one state to another. Your mortgage broker, lender or Realtor is knowledgeable about what will need to be done. Any problems with any aspect of these tasks can and often is written into the contract as an escape clause, for instance, if the home does not appraise for the estimated value, the sales contract does not have to be closed upon and the buyer can get their deposit returned.
- As to a home inspection contingency, this is a must! There could be roof problems, foundation problems, electrical or plumbing code violations or needed repairs which could cost you thousands of dollars later. Find out about the problems now, and if they are serious, sit down with the seller and re-negotiate the sales price to take these problems into account. Ditto for termite inspection, if there is a termite problem, who will pay for the necessary extermination work? Has the infestation damaged the structure to point of needing to replace wood frames?
- Seller move-out date: sometimes the contract will permit the seller to remain in the home and pay the new buyer rent for a few weeks, while they finalize their own new home purchase or other personal details of moving out. Such situations should be agreed to in writing and should not be permitted for longer than 30 days, or the lender may see this purchase as not an owner-occupied but non-owner-occupied (NOO) deal, and that kind of loan carries a higher interest rate.
- Seller concessions – in today’s market, selling a home can be difficult, and many sellers now will agree to pay some or even all of the closing costs and/or points at closing (called “seller buy-down”) in order to get the deal done. There are lender limitation as to how much a seller can contribute toward the sale, typically no more than 6% of the sales price. Government loan programs such as VA and FHA have their own rules about this as well.
As always, consult with an experienced loan consultant when shopping for a home, and consider asking them to refer you to a good Realtor to act as your agent. They both can be an invaluable resource as you house hunt And go through the home buying process!
James Hussher is a Certified Mortgage Planner and licensed in all 50 states. Please visit James at http://ezmortgages123.com for all of your residential and commercial mortgage needs. Apply online, check current offered rates and loan programs and more! Many free articles and educational resources may be accessed at http://swifthussherrealestate.com which James also runs!
Article Source: http://EzineArticles.com/?expert=James_Hussher
Author: James Hussher
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