Buyer's Tips

Prepare- and be far more Powerful to bargain with sellers!

From 'Contract to Closing'

Buying a new home is both exciting and a bit scary all at the same time. As your personal Realtor, it is my pledge to you- to make the process smooth and understandable- and we’ll have fun, too.

Below is a list of all the steps involved in purchasing your new home- from ‘contract to closing’.

1- We will start by evaluating all the homes matching your search criteria- and in your price range.

2- Once the options are narrowed down, we will examine most recent sales (comps) together, to assure the proper price is negotiated.

3- With your chosen lender’s ‘pre-approval’ letter in hand, we will then sit together and sign the written contract for your home of choice.

4- Each and every part of the contract will be explained to you, and copies of all documents you have signed will be given to you at once.

5- Deposit- Along with your lender’s letter, a deposit must also be submitted with any contract of sale. This amount, usually about 1% of the purchase price, will reflect your sincere desire to purchase the home, and be credited to you at settlement- against the cost of the house.

**It is important to note, deposit money is NOT deposited until and unless we ‘ratify’- meaning all parties agree in writing to all terms. This money is held in an escrow account- by Champion Realty- and applied toward the cost of the house at closing**

6- Negotiation- Some offers are accepted immediately- while other sellers will try to ‘counter’ the original offer, with different terms. Unless you agree in writing – we will not ratify- and you are not obligated to purchase the home.

7- Assuming buyers and sellers come to terms- we are then ratified. Once this happens, we have a timeline for the following actions.

8- Inspection- Typically within 10 days from the date of ratification, a home inspector of your choice- will meet with us at the house to inspect all the structural and mechanical aspects of the home. Depending on the size of the house, most inspections take 2-3 hours, and will normally cost $300-350. This is an out-of-pocket expense you will incur prior to settlement.

9- Once complete, if anything more serious in nature- about the house is not in proper repair, we submit our ‘request list’ to sellers, along with a copy of the inspection report- and await seller’s response. Most often, the vital issues with the home are the ones requested for repair.

10- Assuming the repairs are agreed to by sellers, we will receive receipts of said repairs prior to settlement- and further verify the completion of said repairs at final walk-through the day of settlement.

11- Aside from the home inspection, an appraisal is also ordered within 10 days of ratification. This is ordered by your lender, and a copy of the report will be sent to you within days of closing. Most lenders include the cost for an appraisal in the closing costs (usually $400-450). Some lenders will request payment for the appraisal up front- but most do not.

12- The appraisal is done to provide a check and balance- so to speak- to protect the bank’s investment, and yours. Most appraisals come in just fine, substantiating the contract sales price. On occasion, the appraised value will not match the sales price. If too low, we submit the appraisal report to the seller, and request the price to reflect the report. Most sellers will comply, as even a different, future buyer will run into the same situation. Should they choose to be firm on price, you are afforded the opportunity to declare the full contract of sale null and void- and have deposit monies returned to you, without being in default (meaning you choose NOT to move forward with purchase of the home without a viable reason). So, you are protected here, as well- by assuring your new home will have the proper value to protect your investment.

13- Once the inspection and appraisal are complete, you will be well on your way to settlement.

14- Homeowner’s Insurance policy- Your lender will require you to purchase your homeowner’s insurance policy prior to closing (you can put this payment on credit card). The choice of company is yours, and typically the first year of coverage is paid upfront. Your lender is then supplied with a copy of the policy by at least a week prior to closing.

15- Settlement day will be right around the corner at this point. We will check things off the ‘to-do’ list each step of the way.

16- Final Walk-through- On or very close to the day of settlement, we will meet once again at the home to do a final walk-through. At this time, you will turn on all appliances, test all mechanics of the home, and check for final repairs, which sellers would have made as a result of the inspection. Once the house is declared fine and ready to go, we proceed to settlement.

17- At settlement, the documents will all be signed and deed will be transferred to you. You will get all keys, any garage door openers, etc.

Glossary of Terms for “Purchaser’s Estimated Settlement Expenses”/Good Faith Estimate from Lender

Settlement Fees: Lender

1- Credit Report- pulled for each applicant- cost of $60/ea

2- Appraisal Fee-$400-450

3- Loan origination fee- 1% of loan amount – charge by most lenders.

4- Discount Points- Offered as an option to buyers- in order to ‘buy down’ interest rates. Cost of 1% of loan amount for every 1% reduction in interest rate. For example, if borrowing $350K, paying $3500 cash at closing would take a fixed-interest rate of 6%- to 5%, for the life of the loan. A large monthly payment difference, and also a huge difference in interest money paid through the life of the loan.

5- Lender Fees- usually $800 or so for conventional, VA and FHA loans. **VA loan recipients- cannot by law- be charged these fees- sellers must pay this on their behalf** These fees include document prep, tax service fee, flood cert, commitment fee and underwriting.

6- Termite inspection- required for VA & FHA loans- optional also for conventional loans. Usually $75-100, depending on company

Escrow Account: This account is set up by lender, to include monthly taxes, homeowner’s insurance money and any assessment which transfer with property (ex: front-foot assessment, paying for public water and sewer).

1- Your chosen lender will escrow different months of amounts- depending on their own policy. In general, lenders will collect at closing- about 8 months of annual property taxes. Depending on your lender, they will also collect for:

2- Usually (14) months of hazard insurance is also collected (homeowner’s policy discussed earlier).

3- Usually (14)  months of any assessments will also be collected.

4- An administrative brokerage commission of $250 is also charged at closing- to cover the ‘back-end’ office dealings with regard to your closing.

Adjustments: To be fair, at settlement, any prepaid items already paid by sellers (taxes, assessments, HOA dues)- will be returned to them- charged to buyer. Vice-versa, any bills paid in arrears (pay for usage already incurred)- then sellers will owe buyers for future bill buyers will receive- to cover their days of usage.

Settlement Fees- Title- These fees will cover all dealings with regard to your chosen title company. The title company is the office who will handle the actual settlement documentation. A lot goes into preparing for closing- deeds ordered, payoffs handled, title insurance ordered, survey done- these fees cover those costs.

Title Insurance: Your lender will charge you to purchase what is called title insurance. This covers any future issues with regard to property lines, community easements (right of way) on properties, boundary line issues, etc-. This is not an option, and is vital for the loan to go through. You are allowed to choose, however, if you would like to be protected, yourself, as future owner- against the same threats to your house. (Your settlement officer will explain this further)- it is a good idea to purchase this insurance, for peace of mind that should something happen with regard to your boundaries, or deed- all expenses to rectify the situation will be covered.

Settlement Fees- Government

County transfer tax- The state and county will tax you on your new purchase. Each county has a different rate for these fees. County tax rates for Anne Arundel County are 1% of sales price. For example, a $350K house will have a county transfer tax of $3500. These taxes are normally split between buyers and sellers. So, buyer would be responsible for $1750 of this charge.

***GOOD NEWS*** First-time homebuyers are waived the state’s transfer tax.

State transfer tax- is ½% of the total sales price. Using the example again of $350K, this would be a $1750 tax- split between buyer and seller, leaving $875 paid by each.

Documentary stamps- each county has its own rate. In Anne Arundel County, for instance, the charge is $7/$1000 of sales price. Again, $350K, would yield $2450 total charge, split between buyers and sellers, at $1225 each.

**IF A VA LOAN (veterans)**- Your lender will discuss with you a VA funding fee. This will equate to about 2% of loan amount- which can be added to your loan. This program can be a fantastic value for hard-working, committed servicemen and women- talk to your lender about your options.

Finally, your lender will provide a monthly payment- which will be comprised of your principal, interest, homeowner’s monthly insurance, and your monthly property taxes (PITI). Many loan programs offer options to reduce monthly payments- talk with your chosen lender about which one is right for you.