7 Steps to Buying a Home in New Jersey
For most people buying a home can be one of the most important financial and lifestyle-changing decisions that you make in your life. The past several years has seen many changes in the real estate market, including fluctuating prices, increased governmental regulation and more stringent lending practices. If your home purchase is not handled properly, the dream of home ownership can quickly become a nightmare. With so much at stake, it is important to work with trusted and trained professionals including realtors, mortgage lenders, mortgage brokers and legal counsel knowledgeable with local practice customs and laws to help guide you through the process and to help you avoid many of the pitfalls that could impact your transaction. This guide seeks to provide you with an overview of the steps in a standard real estate transaction. As you read through its contents, please contact us with any questions that you may have.
- DECIDING TO PURCHASE A HOME
A prospective Buyer must first determine where and what type of home they want to purchase and what they can afford. One of the first steps in this process is to contact a bank or mortgage broker to review your finances and provide you with a mortgage commitment or pre-approval letter. Real estate agents and sellers typically require this letter prior to showing you a home or accepting any purchase offer that you may wish to make so a Seller can be sure that you are financially able to purchase a home.
- USING A REAL ESTATE AGENT
Choosing the right realtor can make a big difference on the outcome of your purchase. Buying a home in New Jersey may be the largest financial investment that you can make in your lifetime and it is critical that you are represented by a realtor that you can trust to act in your best interests and who also has the skills necessary to execute your wishes and best interests adequately. When a buyer finds a home on which they wish to make an offer, the realtor-broker usually serves as an intermediary to negotiate the price and other items of the sale and typically in New Jersey the realtors will prepare a realtor standard form of contract for the buyer to sign as an offer and for the Seller to sign to accept the offer. Sellers most often engage realtors to list their home but, a Buyer should be aware that the listing realtor works for the Seller, and not the Buyer. As a Buyer, you can also privately engage a realtor to act as your agent so you can be assured that your agent has your best interests in mind when showing you a home or negotiating a purchase for you. A realtor is typically paid a commission by the Seller, and while the commission amount is negotiable the combined commission typically ranges from 2%-6% of the purchase price and paid when and if the transaction closes.
- THE REAL ESTATE CONTRACT
The next step in a home purchase is to sign a written offer in the form of a proposed contract of sale that your realtor will then submit to the Seller. The contract should include all the details of your offer such as the price, the nature of the property (i.e. 1 or 2 family home), a mortgage contingency, the contract deposit amounts, the closing date, inclusions, exclusions and home inspection contingencies. If the Seller accepts the offer the seller will sign the contract. After the executed contract is delivered to Buyer and Seller the contract is then forwarded to both parties’ attorneys for a process called attorney review. The review by the parties’ attorneys can take 3 business days or as the contract allows. An experienced attorney will review the terms of the contract with you to ensure that it is in line with your understanding of the transaction. Likewise, your attorney should further negotiate additional provisions and protections on your behalf such as a more protective mortgage contingency and home inspection clauses to ensure that if the Buyer’s mortgage application is denied, or the seller refuses to make certain repairs that the Buyer can recover the contract deposit and terminate the transaction. During the attorney review period either party many cancel the contract without cause or without penalty or consequence. If you really want the home (and if you’ve gotten this far, you should be excited and happy), then you will want to promote a speedy attorney review and it is up to you, the Buyer (as well as the seller) to help facilitate the process. When choosing an attorney be sure to choose someone who has experience in real estate transactions, particularly in the municipality or county in which the property is located to ensure that the attorney is familiar with local real estate practice and customs. Once attorney review is completed, you are officially under contract.
- HOME INSPECTIONS
In most cases contracts to purchase real estate in New Jersey are subject to the Buyer’s right to inspect the property for defects. Additionally, local ordinance or state law requires that the seller deliver a certificate of (continued) occupancy and/or a smoke detector and fire inspection certificate at closing. You should hire a licensed New Jersey home inspector or engineer to complete your inspection. A Buyer typically has a short time following the conclusion of attorney review within which the Buyer can schedule and perform the inspections, receive the results and then raise any objections with the seller concerning the condition of the property. Some of the items that your home inspector may raise may also be required to be repaired by the seller to comply with the Certificate of Occupancy requirements in the municipality in which the property is located. Generally, an inspector will inspect the home’s structural, electrical, plumbing, HVAC and other components of the house as well as arranging for radon testing, inspecting for termites and other pests, and other environmental concerns. Other inspections may be necessary or warranted such as lead paint hazard testing, searching for underground oil tanks or inspecting a pool. Since each property is unique you should ask your attorney, realtor and home inspector for guidance on these issues.
- OBTAINING FINANCING
Most home buyers in New Jersey finance 80% or more of their purchase price. Many types of mortgages are now available including fixed and adjustable-rate mortgages, FHA & VA mortgages. Another important issue to consider when applying for a mortgage other than the interest rate and term are the closing costs. These costs will affect the amount you decide to finance and the funds needed to complete the closing. You may want your attorney to review the terms of the mortgage including your estimated closing costs prior to the closing, in which case you can provide your counsel with copies of the preliminary Closing Disclosures provided by your mortgage lender when you apply for your mortgage. Some of the important questions that you should raise with your mortgage lender are whether and when a mortgage can be prepaid, what happens if you make a late payment, how interest is calculated and how real estate tax and insurance payments are calculated and handled. Be sure to use a licensed and qualified mortgage broker or licensed direct mortgage lender when applying for mortgage financing.
- TITLE INSURANCE & HOMEOWNER’S INSURANCE
The Buyer’s attorney will typically order a title search from an abstract of title company on your behalf. The title company has several functions. The first is to search the seller’s title to the property including any liens or encumbrances that have been placed on the property or that affect the seller. Some other issues determined by the title company include whether or not the deed correctly describes the property, if problems exist with adjoining owners or prior owners, the existence of — and whether the prior owner agreed to —any easements, covenants, or other restrictions, and whether or not the premises are subject to a condominium or homeowners’ association. The title company will either order a new survey or endorse a pre-existing one if an old survey is accepted by the buyer and the buyer’s mortgage lender. The title company will create a title report that will provide for these items and that further details what is included and excepted from the title insurance coverage. After closing and after the deed to your home has been recorded the title company will provide you with an owner’s title insurance policy that insures amongst other things, your rightful ownership of the premises. At closing you will also be required to obtain a title insurance policy for your lender. Finally, depending upon where the property is located the local practice and customs will dictate as to whether the title company or the buyer’s attorney will act as the settlement agent for your mortgage loan and the closing. Fees for all these services and title insurance policies will be paid at closing.
Homeowner’s insurance is very different from title insurance. Homeowner’s insurance covers you in the event of damage to your property and can include liability coverage for various other hazards. Your mortgage lender will require that you obtain homeowners’ insurance at or in advance of closing and name the lender as an insured on the policy so a buyer should contact an insurance agent to obtain a homeowner’s policy in time for closing. Typically, a mortgage lender requires that the buyer/borrower provide a paid receipt for the first year’s insurance premium at or well in advance of the closing.
- THE CLOSING
Once the mortgage lender has provided its mortgage commitment, title objections are cleared and the Buyer and Sellers are able to close in accordance with the terms of the contract then the purchase is ready to be closed. You should plan on inspecting the house sometime in the 48-hour period prior to closing. Generally, this walk through is conducted just prior to the closing. The settlement agent will determine the mortgage payoff and other payoff amounts, determine any credits and adjustments due to the parties for taxes, water, sewer, maintenance charges and similar costs, calculate the remaining lender and other closing costs and determine the exact amount needed from the buyer to close as well as the sum to be disbursed to the Seller at closing. The settlement agent will prepare separate buyer and seller Closing Disclosures (each commonly referred to as a “CD”) and should provide the buyer and seller CD separately to the parties for review prior to closing. Usually the attendance at closing includes the Buyer and Seller with their attorneys however, in some cases the Seller’s attorney will prepare the deed and related transfer documents and delivered them in advance of closing so that the Seller does not even have to attend. If the title company acts as the settlement agent in the transaction, then a title representative will be present at the closing. At the closing, the mortgage loan funds will be made available to the buyer to apply towards the contract price and closing costs and the buyer’s attorney or settlement agent will supervise the signing of the buyer’s mortgage loan documents.
GET AN ATTORNEY INVOLVED EARLY IN THE PROCESS.
At Bonfiglio & Asterita, LLC, our team of experienced attorneys and staff can guide you through the difficult process of buying or selling a home. We regularly assist clients with simultaneous purchase and sales, short sales, and other real estate, condominium and cooperative transactions in both New Jersey and New York and the earlier you involve your attorney in the process the better. Whether you are just beginning to think about buying or selling a home, have started looking for a home to purchase, or are ready to proceed to contract on a home, you can speak with one of our experienced attorneys to help you navigate the process via email at Info@BAlawllc.com or by calling our New Jersey office at (732) 741-5800 or our New York office (718) 370-2900.
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