Buying your first home can be daunting. It involves several moving parts, each requiring careful attention to ensure that you’re getting what you want. Additionally, COVID-19 has drastically impacted the real estate market across Long Island. With limited inventory, high prices, and increasing rates, it’s more important than ever to make sure you have a plan.
Here are the 6 things every first-time homebuyer should know before purchasing a property.
- DETERMINE YOUR BUDGET
Before you start looking, do the math. Know exactly how much you can afford to spend and how much of a loan you’ll need. Meet with a lender or mortgage broker and get pre-approved. Sellers will often require this document when reviewing offers.
The lender will look at your income, assets, debt, etc. to determine the amount of loan you qualify for. Note however that a pre-approval is not a mortgage commitment, and isn’t binding upon the lender. There still are several stages before they will determine if you’ll receive a loan.
Also determine what type of mortgage you’ll be taking out: conventional loan, FHA loan, VA loan, SONYMA loan, etc. Discuss this with your lender, as each program has different pros and cons, as well as different conditions for qualifying.
If you’re expecting financial assistance from family or other sources, make sure to notify your loan officer. Failure to disclose might result in being disqualified for the mortgage and wasted attorney and closing fees.
- ESTIMATE CLOSING COSTS
Determine in advance what the closing costs will be. These are separate from the purchase price and increase your total spending.
Aside from your down payment (which is part of your home cost), closing costs usually include title charges (recording fees, mortgage tax, insurance premiums, title searches, etc.), bank fees (loan processing fees, escrow for taxes, bank attorney fees, etc.), survey fees, and attorney fees. These can add up.
Many New York Title Abstract company websites have cost calculators that can help with estimating closing costs.
- INSPECT THE PROPERTY
Before going to contract, get a professional inspection or engineer’s report on the condition of the property.
A professional inspection will help reveal any problems or damages in the home that may not be apparent. It will allow you to determine any additional costs, if the purchase price needs to be adjusted, if the seller needs to complete repairs prior to closing (this should be in the contract), or if you’re even still interested in the property.
Note that once you sign the contract, unless specified otherwise, you’ll be buying the property “as-is,” meaning in its condition at the time of signing (with the exception of broken utilities or appliances). Skipping the inspection in a rush to “close the deal” can end up being very costly.
- KNOW THE PROCESS
Understanding the homebuying process will help you be prepared, reduce stress and frustration, and avoid unpleasant surprises.
As mentioned above, determine your budget and get a pre-approval letter from a loan officer before you start looking at homes.
Once you’ve found a property and your offer is accepted, have a professional inspection performed. This is also the ideal time to retain a real estate attorney; they’ll guide you from the onset to ensure a smooth and quick transaction.
If following the inspection you still want to move forward, the seller’s attorney will send a deal sheet with basic terms (purchase price, party names, etc.) to your attorney, followed by a contract.
Once a mutually agreeable contract is arrived at, you’ll review and sign it with your attorney and send it to the seller, along with your down payment check. Note that the down payment is normally 5–10% of the purchase price. This money is held in the seller’s attorney’s escrow account, and gets applied toward the price at closing. Once the contract returns to you signed by the seller, it’s binding.
This is when you should proceed with your mortgage application. Normally you’ll have 45 days from the date of your contract to get a mortgage commitment, but this changes from contract to contract. Check yours to know exactly how much time you have. Your attorney should also order a title report upon receipt of the fully executed contract.
Once you receive a mortgage commitment from your bank, the bank’s underwriter approves your loan as “clear to close,” and the title is cleared, you can schedule the official closing.
- KNOW THE TIMEFRAME
Know what timeframe to expect for the process.
If you’re applying for a mortgage, the contract will likely be contingent upon you getting a mortgage commitment, which normally takes 45 days from contract, as mentioned.
The contract will also include an anticipated closing date, usually “on or about” 60 days from the date of the contract. It can be adjusted as you get closer, but is usually within a month of the date.
If you need more time (or less), address it in the contract. Make sure to let your attorney know, including any availability issues like an extended trip.
- HOW WILL YOU TAKE TITLE?
How you’re listed on the deed will determine your rights to the property; are you married? Engaged? Purchasing with friends or other family members? This not only affects your ownership interest in the property, it’s also a factor in determining to whom your share of the property goes after your death. Make sure to discuss this with your attorney.
Phillip Hornberger is an associate in Vishnick McGovern Milizio LLP’s Real Estate and Business & Transactional Law practices, with a focus on residential real estate. He can be reached at [email protected] and 516.437.4385 x104.
