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The following are frequently asked questions about the legal aspects of buying a home and general answers to those questions. The information given is intended for general informational purposes only. Answers to any specific problem may depend on particular facts at issue, and may change answers found here.
Why do I even need a lawyer for buying a home?
What are my legal obligations while I am working with my real estate agent?
What are my obligations once I sign a contract?
Once the seller signs the contract, what happens?
What are some of the protections for a buyer in the contract?
What is the “attorney review period” of a contract?
What is earnest money and what’s the purpose of it?
How does a home inspection fit into the process?
How does getting a mortgage fit into the process?
If the deal falls through for any reason, do I lose everything?
What documents does the lawyer review prior to the closing?
What happens at closing?
Q: Why do I even need a lawyer for buying a home?
A: Here’s some refreshing honesty: you don’t have to have a lawyer. No law says you have to hire a lawyer when you’re buying your home. However, it’s a good idea to have a lawyer, for several reasons.
First, you are entering into an intricate legal commitment when you’re buying a home – it is one of the most complicated purchases you can make; much more complicated than buying a car, for instance; having a lawyer who is representing your interests, as well as helping you understand your legal rights and obligations, in such an important transaction is vital.
Second, most attorneys charge a very reasonable flat fee for representing home buyers, so the fear of an uncertain legal bill need not inhibit you (also, most lawyers will take their fee with your closing costs, which is an added convenience to you).
Third, you will be called upon to sign and/or understand legal papers that will affect your finances for 30 years (i.e., your mortgage) and your property rights (for instance, the deed to your home), and this simply may not be the best time for home buyers to represent themselves legally. The fairly reasonable flat fee for this legal service, as well as these important legal protections, make having an attorney a wise decision for home buyers.
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Q: What are my legal obligations while I am working with my real estate agent?
A: Your agent will work with you in finding the right house or condo for you. Your agent will take you to see different homes, and will offer you advice as you decide what features you are looking for in your new home. Ultimately, your agent will help you find the home that’s right for you. When you find that home, your agent will get the contract process started for you. Once the contract comes into the picture, your legal obligations begin.
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Q: What are my obligations once I sign a contract?
A: Typically, a buyer’s agent will fill out a contract for you, and you will sign it, and then your agent will deliver it to the seller or the seller’s agent. This is a bid – an offer. The seller then can accept the offer or reject it or offer a counter offer. Several aspects of your offer will probably be negotiated – the most important of which is the sales price. At this point – that is, when you have signed, and certain aspects of your offer are being negotiated, and the seller has not yet signed – you have no obligation. You could, if you wanted to, withdraw your offer. Once all aspects of your offer are negotiated, the seller will sign the contract, making it a binding agreement.
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Q: Once the seller signs the contract, what happens?
A: Once the seller signs the contract, you have entered into an enforceable contract with the seller. This is the point where your attorney enters the equation – if he or she hasn’t been involved already. The date when both the buyer and the seller (or the last of these two, if on different dates) have signed the contract is referred to as the acceptance date. This is when the “attorney review period” begins, and your attorney swings into action.
The attorney review period is a very important protection for buyers, because it gives your attorney the opportunity to make modifications to the contract that protect your interests. Your attorney will work closely with you to let you know what modifications he or she will be proposing, and why the modifications are important to you. The “attorney review period” is discussed in greater detail below.
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Q: What are some of the protections for a buyer in the contract?
A: The three biggest protections for buyers are: 1) attorney review period, 2) home inspection, and 3) mortgage contingency period. Each of these are discussed in more detail below.
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Q: What is the “attorney review period” of a contract?
A: Your real estate contract should have a provision that allows your attorney to modify the contract for you (usually it’s a 5 day modification period) – before you sign, make sure your contract allows this. When both the buyer and the seller have signed the contract, your agent will send a copy of the contract to your attorney. Your attorney will read the contract, and will contact the seller’s attorney. Your attorney will propose modifications to the contract that favor you, and the seller’s attorney will do the same. The attorneys will have the time during the “attorney review period” to agree on what modifications both sides will agree to.
Your attorney should confer with you as this process is underway, so that you can agree with what your attorney is negotiating for you. If a problem arises, and the two sides cannot agree on modifications, the contract can be declared void, and any earnest money (see below) you’ve paid will be refunded to you – although this rarely happens, the fact that your earnest money is refunded to you and you have no further legal obligation in a deal gone sour is an important legal protection for you as a buyer. Once both sides have agreed on the modifications – as happens in most negotiations – the attorney review period ends.
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Q: What is earnest money and what’s the purpose of it?
A: Earnest money is a down payment. Typically, you will be required to pay a certain amount of earnest money when you submit your offer to the seller – or else, it will be due when the seller accepts. In some transactions that is all of the earnest money you will pay. However, it’s also quite common to pay additional earnest money (sometimes called “increasing” the earnest money) once the attorney review period ends. Paying earnest money is a way for the seller to know that the buyer is “earnest” about going through with the deal. Often, earnest money is used, as a practical matter, to pay the realtor’s commissions. Also, the amount of earnest money you can pay will affect your mortgage and how much you have to pay at closing – if you cannot pay 20% of the purchase price with your own cash (whether as earnest money or at closing), your mortgage company will require you to get private mortgage insurance (“pmi”), which will increase the amount of money you will borrow.
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Q: How does a home inspection fit into the process?
A: Often, it is a wise choice to hire a home inspector to look at the inside and outside of the home you plan to buy. The home inspector will identify anything about the property that may need to be repaired or corrected. Typically, the home inspection will be done during the attorney review period, and your attorney will negotiate to have any items “red-flagged” by your home inspector to be fixed. If the seller cannot or will not fix any of the items identified by the inspector, your attorney will negotiate a “credit” to you at closing for those items – that is, the amount of money that it will cost for you to fix the problem after the closing will come from the seller’s proceeds and be subtracted from the amount you will owe at closing. If the inspector uncovers a big problem with the property, your attorney can negotiate to get you out of the contract with your earnest money refunded, if that is your wish.
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Q: How does getting a mortgage fit into the process?
A: Often, you will have a “pre-approval letter” from a mortgage company before (or soon after) starting your relationship with your real estate agent. Once you have entered into a sales contract, however, the process of getting a mortgage begins in earnest. The contract will allow you a certain amount of time to get a mortgage (the amount of time is negotiated, and varies from deal to deal) – this is referred to as the “mortgage contingency deadline.” If you are not able to get a mortgage for any reason by the deadline, you will be able to walk away from the deal without any further obligation, as well as get your earnest money refunded.
Most contracts have a provision that would allow the seller to get a mortgage for you if you can’t get one for yourself – that provision, hopefully, can be deleted from the contract during the attorney review period negotiations. In any event, you will need to have a mortgage commitment by the mortgage contingency deadline – or, in the alternative, your attorney will need to notify the sellers of your inability to get a mortgage commitment by the deadline, and ask for an extension of the deadline, or for your earnest money to be refunded. The mortgage contingency deadline is another important protection for buyers – it allows them to get out of a deal if they cannot get the financing they expected to get.
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Q: If the deal falls through for any reason, do I lose everything?
A: The answer depends on why (and when) the deal is falling through. You will probably be able to get your earnest money back and get out of the contract if you discover anything truly bad about the house during the inspection or if you cannot get financing. If the seller cannot go through with the deal, you can agree to end the deal and get your earnest money back (or, alternatively, you can seek to force the seller to go through with the contract). If you cannot go through with the deal for any other reason, the question of your obligations under the contract depends on the particular circumstances. Obviously, having a professional to protect your interests is another important benefit from hiring a lawyer to represent you.
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Q: What documents does the lawyer review prior to the closing?
A: Your lawyer will review several documents prior to closing. He or she will review the deed and other legal papers prepared by the seller’s attorney, checking them for accuracy and making necessary changes. Your attorney will also review the title commitment provided by the seller – these documents show that the seller owns the property, and what other entities have an interest in the property (for instance, the seller’s mortgage company will have a lien on the property, which the seller will have to pay off at the closing). The title commitment shows what property rights the buyer will get, and the attorney will make sure that the correct property rights are conveyed to you, the buyer.
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Q: What happens at closing?
A: Most closings take place at the offices of a title insurance company. You will be called upon to sign a number of documents on your mortgage documents. Your attorney will walk you through the papers and explain what you are signing. Your attorney will also review the closing documents prepared by the seller’s attorney and the title company, and explain these to you. An employee of the title insurance company will serve as the “closer” – he or she coordinates with your lender (the entity who is ultimately providing the cash for your mortgage), as well as facilitates the closing among the parties present. The seller may or may not be at the closing, but the seller’s attorney will be. Your attorney will discuss several matters of importance with the seller’s attorney. Once you have signed all of the necessary papers and your lender provides the money, the closing will be done. If you haven’t gotten them already, you will get the keys to your new home. You will leave the closing table as a new home owner!
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