The Section of Real Property, Planning and Zoning and the Public Awareness Committee of the Maryland State Bar Association have prepared this information. It is intended to inform the public and not serve as legal advice.
Since a home ordinarily represents the single most valuable tangible asset owned by the American family, and its greatest financial commitment, the purchase or sale of a family’s residence is an event which should, but often does not, reflect careful planning and study. Too often, inadequate representation, study or planning results in disappointment and frustration.
The sale or purchase of a home is a highly complex transaction with numerous legal exposures. When purchasing a home, be sure that you fully understand and are satisfied with the meaning and terms of the contract and all other documents before signing anything. You may want to retain an attorney to advise you in the often-complicated process of purchasing a home.
Once you have found your dream home, you should submit an offer to purchase it. Generally, whatever you submit will be considered the contract if the seller accepts it. Once you and the seller sign the paper, you are agreeing to the contract conditions. Before you sign any contract, read it carefully and make sure that you understand every detail. Ask questions if you don’t understand anything in the contract. Oral agreements should also be written into the contract.
Sales contracts may differ depending upon the circumstances of the transaction. The real estate boards of Baltimore City and some counties in Maryland publish forms, which are used by many real estate agents, brokers, and attorneys; however the orientation of these forms may favor and omit a number of clauses necessary for the buyer’s protection. Here are several provisions you should include in a contract for the purchase of real estate:
Title insurance provides protection against claims of past actions, which might threaten the title to your property. Most lenders require mortgage title insurance to protect their interests. Additionally, you may want to purchase an “owner’s policy” to protect your interests. You may save money if you buy owner’s title insurance at the same time as mortgage title insurance, rather than buying it separately. You may also save money with a “reissue rate” for title insurance if the property changed hands within the last several years and a title policy was issued to a prior owner.
Although a title search will be done, it is impossible to eliminate all risks or hidden defects in the title to the property, which cannot be discovered by examining the record, such as forgeries, or voidable execution of a document. Title insurance will protect you against these risks. A title policy does not insure that the title is clear. It principally insures ownership of the property and against matters that are not disclosed. Therefore, it is important to examine all documents listed as exceptions to the title, which may influence your decision to purchase the property.
After you have agreed to purchase the property, you must make arrangements for financing the purchase. The most common method of financing residential real estate transactions is through lending institutions, such as banks or mortgage lending companies. Interest rates and settlement costs vary from lender to lender. Shop around for the best terms you can obtain.
Generally, mortgage acceptance requires 30 to 45 days from application to approval for conventional loans or 45 to 60 days for VA or FHA loans, which offer special incentives for first time homebuyers.
After your mortgage is approved, you will receive a “loan commitment letter” stating the mortgage amount, interest rate, and length of the loan’s term and other conditions. You should review it carefully and either return a signed copy to the lender or follow other specific instructions included in the commitment letter, a settlement date should scheduled with all parties required to be present at settlement, including you and your attorney (if you have retained one), the property owners, the listing and selling brokers (if applicable), the settlement representative or attorney, and any other parties involved in the transaction.
At settlement, you will be asked to sign a deed of trust or mortgage; a note; VA, FHA or lender forms; and a settlement sheet. You should review the documents carefully to ensure that you understand and are satisfied with their terms before signing anything. You will be asked to pay the balance of the purchase price and closing costs with a cashier’s check or certified check.
Closing costs vary widely depending upon the price and location of the property, as well as some other factors; but sometimes the seller may pay some of the closing costs. Check with your real estate agent, attorney or lender to determine the exact charges you will be required to pay.
Under the Real Estate Settlement Procedures Act (RESPA), a federal law, you are entitled to receive an estimate of closing costs from your lender in advance. Advance deposits, which the lender will place and hold in escrow for real property taxes and insurance, are not required to be listed in the estimate according to the law. The lender collects a portion of those costs every month and then pays the insurance and taxes when due.
Closing costs can mount up to a sizable sum, but some of the items are tax deductible. Speak with your tax advisor about the items that are deductible.
At the closing, you become the proud owner of your new home!
Buying a Home © 1986, MSBA, Inc. Revised 1997
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