The Buying Process
Buying a house is an extremely important decision for a consumer. The wrong choices can have long standing financial ramifications. The best advice I can offer is to first select an honest and trustworthy agent to represent you.
In Pennsylvania, real estate agents may legally represent the buyer, the seller, neither, or both Dual agency is what occurs when either one agent or one company represent both buyer and seller in the same transaction. Some companies practice designated agency, which is when one agent in the company is designated to represent the buyer, and another one the seller. Single agency is when the agent and/or company only represent one side of the transaction buyer s agent, once you enter into an agreement with them, owes you all the duties outlined on the Consumer Notice, as well as the additional duties of confidentiality, obedience and loyalty.
When beginning the process of looking for a house, remember that the agent whose name is on the sign already represents the seller of that house so if you call that agent, he or she will likely want to be a dual agent to both you and the seller. The fiduciary duties are all comprised by a dual agency: the agent cannot, by law, take any steps which would harm either consumer, so some instructions either party might want to give the agent cannot be followed Even if the agent knows either party’s highest price or lowest acceptable price, the agent cannot tell the other party; and finally, the duty of loyalty is most comprised: the agent is supposed to simultaneously put both parties’ interests ahead of all others, including his own.
For all of these reasons, selecting the right agent to represent you is very important. Once this is accomplished, here are steps that need to be taken:
- Decide what you are looking for, and narrow your search to properties which meet your criteria, which should include:
- Price range
- Amenities (baths, garages, fireplaces, etc.)
- Location (school district? Proximity to a job or other place?)
- Any other important features?
- Get pre-qualified by a competent lender, preferably a local lender, with a bricks and mortar presence in the community where you are buying a house. This lender will understand the local market better than an on-line lender. Qualification involves:
- Verification of assets necessary to close the transaction down payment, closing costs
- Note that closing costs are above and beyond the down payment. On the buyer’s side of the transaction, a reliable estimate is 5% to 6% of the purchase price for closing costs.
- Suitable credit scores lenders are very focused now on credit
- Source of income to pay back the debt and a verification of income
- Verification of other debts. Note that debts which will be paid in full within 6 months are not counted in your debt ratio
- Verification of assets necessary to close the transaction down payment, closing costs
- Begin looking at houses with your agent. Attend Open Houses; if your agent is unable to accompany you, tell the agent on duty you are working with a buyerâs agent, and identify your agent by name. If you have Internet access, you will find a plethora of information online about houses for sale Take notes as you look at houses about what you like and what you don’t like. Eliminate homes which do not suit you.
- You have found the right houseNow what? Contract! Here in Pennsylvania, your agent will draw up the Agreement of Sale. It is 13 pages long, so at your first meeting with the agent, ask for a blank copy so that you can review it and familiarize yourself with it. Your contract will need to contain the following information:
- Offering price
- Mortgage information (how much you need to borrow)
- Mortgage approval date
- Closing date
- Any personal property to be included in the sale
- Any inspections you want done, and the time frame for those inspections
You will need to put down an earnest money deposit when you sign the contract. By law in Pennsylvania, this must go into the brokers escrow account, or if it is to be held by a third party (rarely such as an attorney) you must be notified who is holding it. The earnest money deposit is part of your down payment, and it is added to the rest of your down payment and your mortgage proceeds to make up the total price of the house.
- The contract is accepted (perhaps after some back and forth negotiation) and now you have a meeting of the minds At this point, you are on the clock. You have specific time frames to get your loan approved and your inspections completed. You now need to make a formal application to the lender; so called because now you have a signed agreement of sale and are applying for a specific amount of money to buy a specific house. At this time, the lender will ask for some up front fees, including the application fee and the appraisal fee. The lender orders the appraisal; they are the client of the appraiser, not you (despite the fact that you are the buyer). This is because the lender is hiring the appraiser to evaluate the collateral for the loan Inspections are typically paid for by the buyer, although you can ask for the seller to pay for them. These are your reports, and you are the home inspector’s client. The money you spend on an inspection can literally save you thousands later. You may want to be present when the home inspection is done, so you can ask questions. The standard form used in Pennsylvania allows you to cancel a contract due to a home inspection issue, but you must do so in a timely manner; otherwise you lose your right to cancel and you must proceed with the sale. During this time, the bank will order an appraisal (you do not need to be present for that).
- The loan is approved now what? Great! At this point, you need either an attorneyor a title company to search the title for you, and prepare the documents for closing (mortgage, note, etc.). The lender will require title insurance. Have your agent check to see if a title policy has been issued within the past ten years; if so, you qualify for a reissue policy, which is less expensive. I recommend you also obtain an owner title policy. The lenders title policy protects the bank; the personal policy protects you. Some of the flaws in a title which may not come to light until years later include things like forged deeds and incorrect marital statements; title insurance protects you against this. Speaking of insurance, you also need to line up your home owner’s insurance. You can begin shopping for this when you sign the contract. You must get the policy, or proof of the policy to the lender before closing. One important thing to not do during this period is to incur additional debt. The lender will pull a credit rating just before closing; if you have added debt, you may no longer qualify for the loan, and the lender will withdraw the offer of financing.
- ClosingThe closing is scheduled at a time and place convenient to you, your attorney and the lender. Often, sellers do not attend; their agents or attorneys simply bring the signed deed to closing. You will need to bring the money necessary for closing, driver’s licenses (to prove your identity) and a strong arm, as there are many papers to sign. You will be signing a mortgage, which creates a lien on the property in favor of the lender (if you don’t pay your mortgage, they will foreclose on the house). You will also be signing a note, which makes you personally responsible for the debt. If the bank forecloses and resells the house, and there are insufficient funds to cover the debt, the bank may come back on your personally through the note. You sign a variety of other papers, including one which promises that if you forgot to sign anything, you will come back in and sign it! Immediately before closing, have a final walk through of the property with your agent This is your last look to make certain that everything mechanical works; all personal property included is there; all the personal property you don’t want (the old tires, the cans of dried-up paint) has been removed and the property is broom clean and free of debris Within the week of closing you should also arrange for utilities to be put in your name final water and sewer reading should be made, and this bill paid at closing from the seller’s funds. This utility is a lienable item in Pennsylvania, meaning any unpaid water or sewer bills become a lien on the property The seller delivers a signed deed (the legal instrument which conveys title to you), keys, and any leases to you at settlement. Property taxes must be paid, or they are paid at settlement. The exception would be taxes which are not yet due. Taxes are prorated; meaning divided between buyer and seller according to their respective shares. In Pennsylvania, county and municipal taxes come out March 1st, but run on a calendar year basis, from January 1stthrough December 31stSchool taxes run on a fiscal year basis; they come out July 1st and run from July 1st to June 30th. One of the options you have when you take out a mortgage is to set up an escrow account for your taxes and/or insurance. This means you will pay 1/12th of the annual costs of both of these with each mortgage payment; the lender then pays the taxes and/or insurance out of this account At the closing, you and the seller (or his agent) will both receive and sign a copy of the HUD-1 settlement statement. This details the financial aspects of the transaction, so you know exactly what everything cost. This will be reviewed with you at settlement. The HUD-1 correlates to the GFE (Good Faith Estimate), which the lender gave you when you made formal application for your loan.
- After closing: You now have less money that you did before, but keys to a property (the deed will be mailed to you after it is recorded) Immediately go to the house and re-key all doors. You do not know who had keys; this way you will be assured that you have the only keys which work Make certain garage door openers have been left behind for you At this point, you will either move in immediately, or perhaps spend some time painting, re-carpeting, etc. Take all the papers from the closing and put them in a safe place. These should not ever be destroyed; the IRS tax code has rules about capital gains, even on a personal residence, so you need to have a good record of what you paid, when. It is also a great idea to set up a notebook for your house, noting when you make repairs, improvements, or new installations.