Seven 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 have 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 homeownership 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.
1. 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.
2. Using A Real Estate Agent
Choosing the right real estate agent can directly contribute to a successful real estate transaction. Buying a home in New Jersey may be the largest financial investment that you make. So, it is crucial that you select a realtor who has the knowledge and experience to advocate for you. 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. The Seller typically pays a realtor a commission, 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.
3. 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 the terms of your offer such as the price, the nature of the property (i.e. one or two family home), a mortgage contingency, the contract deposit amounts, the targeted closing date, what is to be included with and excluded from the transaction, and home inspection contingencies. If the Seller accepts the offer, the Seller will sign the contract. After the contract is fully signed, the realtor will forward it to the Buyer and Seller’s attorneys to begin the attorney review process. Attorney review by the parties’ attorneys can take three business days or as the contract otherwise allows or as extended by the attorneys. 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 attorney review, either party may cancel the contract for any reason or no reason at all, so it is imperative that your attorney be immediately involved to ensure the deal is preserved and to protect your interests. 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. Familiarity with local real estate practice and customs is critical. You are officially considered “under contract” only when attorney review is deemed concluded.
4. 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. You should also arrange for radon testing, inspection for wood-destroying insects and, in many situations, conduct an underground oil tank sweep and investigate any potential environmental hazards. Depending upon the age of the Premises, it may be necessary to inspect for lead-based paint, or to arrange for a pool or septic tank inspection. Since no two properties are alike, you should ask your attorney, realtor and home inspector for input and the appropriateness of such inspections.
5. Obtaining Financing
Most homebuyers 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.
6. Title Insurance And Homeowner’s Insurance
The Buyer’s attorney will typically order a title search from an abstract of the 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. It 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, referred to sometimes as a “hazard” policy, in time for closing. Typically, a mortgage lender requires that the buyer/borrower purchase such coverage for one full year at or in advance of the closing.
7. The Closing
Once the mortgage lender has provided its mortgage commitment, title objections are cleared, and the Buyer and Sellers can 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 hours prior to closing. Generally, this walkthrough 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 or by calling our office in New Jersey at 877-808-9120.