Buying a home involves wading through a sea of paperwork and legal jargon. All those little lines of fine print contain huge implications for your rights, finances, and future. So, don’t just skim through them.
The Purchase Contract
This Binding Agreement does just what it says and legally binds you to purchasing the property if all terms are met. The key areas to examine are the following:
Earnest Money Deposit
You will submit “earnest money” (a good-faith deposit of 1-3% of the purchase price) to show you are a serious buyer.
Inspection Contingencies
These let you request repairs or exit the deal based on findings from professional inspections for issues like termites, mold, roof condition, etc.
Appraisal Contingency
If the bank’s appraiser values the property below the contracted price, this contingency allows renegotiating or canceling the contract.
Loan Contingency
This protects you if you cannot secure financing by removing the penalty for backing out. Specify an end date when the contingency expires.
Closing Costs and Prepaid Items
These sections estimate lender fees, title insurance, prorated taxes/insurance, and other closing costs you’ll owe. Review fee descriptions carefully.
The Fine Print
Besides the main sections, pay close attention to other clauses scattered throughout the document:
Default Remedies
Specifies what happens if either party cannot meet their obligations, like losing the earnest money deposit or being forced to pay damages.
HOA Provisions
For properties with homeowners’ associations, know your voting rights, financial responsibilities, and other regulations.
Dispute Resolution
This clause explains the process for mediation or arbitration if conflicts arise, rather than going straight to court.
Loan Documentation
According to the people at Mortgage Maestro, based out of Colorado, mortgage lenders will provide a massive pile of disclosures explaining your loan’s terms, rates, and fees. Key ones:
The Loan Estimate
This standard form breaks down your projected loan amount, interest rate, estimated closing costs, taxes, and insurance.
The Closing Disclosure
Similar to the Loan Estimate but with final figures, this discloses all costs and amounts you’ll pay at closing.
Mortgage/Deed of Trust
These set the legal terms for your loan repayment, the lender’s rights to the collateral property, and your obligations as the borrower.
The Title Paperwork
You will receive reams of documentation from the title company too:
Title Commitment
This summarizes the property’s ownership history and reveals any claims like liens, taxes owed, easements, or restrictive covenants that affect the title’s status.
Deed
This officially transfers ownership to you by containing the legal property description and your vested rights. Ensure names are spelled correctly.
Homeowner’s Insurance
Proof of a homeowner’s policy must be provided, insuring the home for its replacement value against disasters.
Settlement Statement
This itemizes both buyer and seller charges/credits such as origination fees to your lender, insurance premiums, title company fees, and escrow deposits.
Don’t Go It Alone
Surrounded by this dizzying stack of paperwork, you don’t have to decipher everything solo. Your assembled team of professionals can clarify areas of confusion and highlight which details deserve your extra attention.
Real estate agents have reviewed purchase contracts hundreds of times, so lean on their expertise to ensure you understand all contingencies and responsibilities outlined. Mortgage lenders can translate any confusing lingo in the reams of loan disclosures. And title company closers are pros at explaining ownership documentation line-by-line.
Asking questions helps protect your interests, maximizes your investment’s value, and prevents future headaches. With your team’s insights, you can feel confident comprehending what you’re signing.
Conclusion
Let’s be honest – few home purchases ever achieve “fun read” status. But powering through every last word protects your interests. While tedious, studying the fine print positions you for a smoother closing and fewer surprises down the road.