Buying Process[cite::98::cite]

Home Inspections and Home Appraisals

Your Home Inspection

Getting a home inspection when you buy a home is your right and one of the most important things you can do to protect yourself from repairs and other problems. Schedule an inspection as soon as the Real Estate Purchase Contract (REPC) is accepted.

About Your Home Inspection

A home inspector prepares a written report and should alert you to potential problems, giving you time to renegotiate the sales price if necessary. A good real estate agent should be able to recommend several well-qualified home inspectors.

An inspector should have some training in construction and building maintenance standards. Many good inspectors don’t belong to a national association, but these groups provide certification and continuing education.

Inspecting a home is very different from commercial buildings or a construction site and if you’re purchasing a unique property, such as a historic home, you may want to determine the inspector’s experience in that field.

Normally, inspectors don’t do repair services to avoid potential conflicts of interest.

Depending on the size of the home, the average cost of a home inspection is typically between $350 to $500. Most inspectors will have the report completed within 24 hours.

Although you aren’t required to, being at the inspection is an opportunity for you to gain knowledge about the property.

Ask about the inspector’s policy regarding any problems he/she may accidentally overlook.

Will your inspection meet recognized standards?

Ask for referrals from homebuyers who have been in their homes for a few months. If an inspector missed an issue, a homeowner may not become of aware of it immediately; it may take some time for the problem to surface.

Your Home Appraisal

Your home is the security collateral for the amount you're financing with your mortgage loan. Your lender needs to know the value of the home before making the loan.

About Your Appraisal

  • An appraiser will inspect the interior and exterior of the property and compare the qualities of your home with other homes that have recently sold in the same neighborhood. Based on industry standards, the appraiser will provide a written report detailing the home and assign a valuation.
  • Your lender will order your appraisal, and may require the fee paid up front. The average cost of an appraisal is $350 to $500. Be sure to follow up with your lender to confirm the report is completed before the Financing and Appraisal deadlines listed on your Real Estate Purchase Contract.

Quick Tip

A home inspector determines the condition of the home; a home appraiser determines the value of the home. An appraiser may find minor deficiencies with the property, but you should have the home inspected by a licensed inspector to find major problems.

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Understanding a Real Estate Purchase Contract (REPC)

A Real Estate Purchase Contract is a legal document. It details the price and terms of the property sale agreed to by the buyer and seller.

  • Page one specifies the date of the offer, property address, included and excluded items, purchase price and financing information.
  • Pages two through five outline and define seller and buyers obligations and responsibilities, including settlement and closing, possession, title insurance, buyer and seller due diligence and presettlement walk through inspection.
  • Page six discloses crucial deadlines and has the offer and acceptance signatures.

Quick Tip: Seller's Property Condition Disclosure

A home inspector determines the condition of the home; a home appraiser determines the value of the home. An appraiser may find minor deficiencies with the property, but you should have the home inspected by a licensed inspector to find major problems.

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What to Expect at Closing

Your closing will usually be at a nearby title company or settlement agent office. If you’re purchasing a new home, the seller may also be at the closing to transfer ownership to you. In some states, these 2 events happen separately.

During the closing, be sure to review these main items:

HUD-1 Settlement Statement

This document includes your final charges based on the terms of the contract and new mortgage. These fees should match your good faith estimate. Compare the 2 before your closing to prevent any delays.

Deed of Trust

This document pledges a property to a lender or trustee as security for the repayment of a debt. This is the instrument recorded at the County Register of Deed's office until your loan is paid in full.

Promissory Note

This written agreement signed by the borrower at closing contains your promise to repay the loan. It also contains the terms of the loan, such as interest rate, payment and term.

Funds for Closing

Once you have signed the closing documents, you may need to provide funds for closing. The following are acceptable methods of payment:

  • Wire transfer
  • Cashier’s check
  • Certified check
  • Check drawn on a Federal Reserve Bank or Federal Home Loan

With funding, the settlement agent returns the closing documents to the lender for approval. The lender may or may not request additional information. Funding occurs when the remaining funds are wire transferred from the lender to the settlement agent and disbursed to the interested parties.

Recording

Recording is the act of filing documents affecting the real property as a matter of public record. It takes place only after closing funding has occurred. It gives notice to future purchasers, creditors and other interested parties. It is most often handled by a title or escrow company or by an attorney. Recording usually requires the witnessing and notarizing of an instrument, such as a deed of trust or mortgage and is controlled by statute. This is when you get your keys to your new home.

Quick Tip: Closing Fees

By law, settlement agents can only accept certified funds for your closing fees and down payment. Give yourself extra time to secure those before your scheduled closing appointment.

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Moving

By the time you move, you’ll have closed on your loan and be the new homeowner. You’ll be able to move in very soon after closing, and if you're selling an existing home, you’ll likely need to move quickly. As you prepare to close your loan, think about how you’ll move.

Options to move in to your new home include:

Hiring a Moving Company

A moving company offers a wide range of services including, packing, unpacking and storage facilities. Some even clean your new home.

Using a Self-Service Moving Company

A self-service moving company brings an empty trailer to your home. You pack your items into as much or little of the trailer as you need. Price is typically computed by linear feet used.

Renting a Moving Truck

If you’re only moving across town, you might simply rent a truck. To ensure you make the right decision, it’s a good idea to weigh all your options. Whichever option you choose, be sure to keep all your receipts.

Switching Your Utilities

Switching utilities is another important step in the home buying process. Once you have a confirmed closing date, it’s a good idea to contact the utility companies to switch your services to or set them up in your new home. In addition to starting services at your new home, don’t forget to shut off your old services.

Change Your Address

Remember to change your address when moving to ensure uninterrupted mail service. Simply visit the  USPS’ Official Postal Service Change of Address page.

Quick Tip: Renting a Truck

A moving truck should be large enough to accommodate 10 to 15% more than you’re moving. General guidelines are:

  • 26’ truck for a 4+ bedroom home 
  • 24’ truck for a 3–4 bedroom home 
  • 17’ truck for a 2–3 bedroom home 
  • 14’ truck for a 1–2 bedroom home 
  • 10’ truck for an apartment

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Your Mortgage and Payment

Your monthly mortgage payment is the combination of a payment toward principal reduction and monthly interest. Property taxes, homeowners insurance and mortgage insurance may also be part of your monthly payment.

Principal

The principal balance (sometimes called the outstanding or unpaid principal balance) is the amount owed on the loan minus the amount you've already repaid. It doesn’t include the interest you pay to borrow the money.

Interest

Interest is the payment you make to a lender for the money it has loaned to you. It’s usually expressed as a percentage of the amount borrowed.

Property Taxes

A government levy based on the market value of privately owned property, sometimes referred to as real estate tax. Real estate tax rates will vary based on the area you live in. If your property taxes aren’t part of your monthly payment, you’ll have to pay them separately, typically annually.

Hazard Insurance

Hazard or homeowners insurance protects you and the lender from loss or damage to the property. It should cover at least the loan amount. Usually, the comprehensive hazard insurance policy will include general coverage for personal liability, personal property, some medical payments and even some expenses. Separate insurance policies may be required for natural disasters, such as flood.

Mortgage Insurance

Mortgage insurance (sometimes called private mortgage insurance or mortgage insurance premium) is provided by a private company. It protects the mortgage lender against losses that might be incurred if a loan defaults. It’s usually required if the loan amount is more than 80% of the home's value. The borrower usually pays the cost of the insurance.

Under federal law, mortgage insurance premiums are automatically terminated when the loan balance falls to 78% of the total property value, and may be terminated at the borrower’s initiative when the balance reaches 80% of the appreciated value. You'll need to call your lender or servicer to inquire about specific policies for cancellation. If your loan is with FHA or VA, these rules do not apply.

Flood Insurance

A hazard or homeowners insurance policy doesn’t cover flood damage during storms or other natural situations. If you obtain a mortgage from a federally regulated or insured lender and buy a home in a high-risk flood zone as determined by the Federal Emergency Management Agency, you’ll be required to buy flood insurance. While flood insurance can be purchased through many different companies, all policies are federally regulated.

Homeowners Association Fee

Homeowners association (HOA) fees are a monthly payment that assists with maintaining and improving certain types of residential property. If you purchase or own a condominium HOA fees are almost always assessed, however they may also apply in planned unit developments (PUDs) and single family residential neighborhoods.

Quick Tip: You Pay Interest First

Your monthly mortgage payment is first applied to the interest accrued, then the principal balance, next to your escrow account (taxes and insurance) and finally to any remaining fees, such as late charges.

You can choose to pay more and have all the extra applied directly to the principal. This pays off your loan faster and results in less interest paid over time.

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Mortgage Servicing

Mortgage servicing is the administration of a loan, including recordkeeping, payment collection, reporting payment history to credit reporting agencies, making certain taxes and insurances are paid, releasing liens and initiating foreclosure proceedings for loans in default.

Your loan servicer may or may not be the original lender. If your loan is sold, the law requires that your interest rates, loan terms, fees and payments stay the same.

Quick Tip: Alternate Payment Options

A home inspector determines the condition of the home; a home appraiser determines the value of the home. An appraiser may find minor deficiencies with the property, but you should have the home inspected by a licensed inspector to find major problems.

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