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Springfield Business Journal Articles
Sarah Delano Pavlik and Tom Pavlik write a monthly column on legal and business issues for the Springfield Business Journal.


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If you're thinking of buying a home, you need to be prepared. A home will probably be the largest investment you will make in your lifetime. You will live in the home for years, and will pay for it for years. Take the time to ask questions and get the answers.

Your first step may be to talk to a bank or mortgage company even before you begin to look for a home. Your lender will check your credit for any problems. Credit reports can contain incorrect information, and you may need time to have the inaccuracies removed. In addition, the lender will tell you how much money you are qualified to borrow, which could keep you from falling in love with a home that is not within your budget. According to the FHA, monthly mortgage payments should be no more than 29% of gross income, while your mortgage payment and non-housing expenses combined should total no more than 41% of income.

Be wary when shopping for a home loan and be sure to work with a reputable company. Unfortunately, there are many lenders that do not comply with federal laws and charge exorbitant fees. As a consumer, you have the right (1) to be informed about the total cost of your loan including the interest rate, points and other fees, (2) to ask for a Good Faith Estimate of all loan and settlement charges before you agree to the loan and pay any fees, (3) to know what fees are not refundable if you decide to cancel the loan agreement, (4) to know how much the mortgage broker is getting paid by you and the lender for your loan, and (5) to know the reason if your loan is turned down. Your lender should be able to provide a list of its fees at your initial meeting. If the lender is reluctant to provide a list of fees, you should find another lender.

Your second step will often be selecting a realtor. Most homes are sold with the assistance of a realtor. The seller hires a realtor to list and show the home. At closing, the seller will pay the realtor a commission generally between 5.5% and 7.0%. Your use of a realtor will not increase your cost or decrease the seller's profit. If both the seller and the buyer are represented by realtors, then the realtors split the seller's commission. On the other hand, if you are buying a home directly from an owner, you may be able to negotiate a lower price because the seller is not paying the realtors.

A good realtor can guide you through the buying process and should be someone that you trust. Ask friends, family and colleagues for recommendations. Your realtor should be responsive and accessible. Springfield realtor Cheri Shadis says, "Buyers should be sure to find a professional realtor that they feel comfortable with as well as one who is knowledgeable about and in the areas they have interest. As far as I'm concerned, no question is a dumb one for buyers to ask. It is a great learning process for all, whether it is your first home, a new location or new construction. The better educated you become about your purchase, the better the buy becomes."

A realtor can represent you only or she can represent you and the seller. If the realtor will represent you and the seller, you will need to sign a consent form. If the realtor represents you and the seller, keep that in mind as you negotiate for the purchase of the home.

Once you have found a home, you will need to submit an offer to the seller. The offer is generally in the form of a contract. An agreement to sell real estate must be in writing and signed by the seller and the buyer. Once signed, the agreement is binding. Therefore, the terms are extremely important. Do not sign a real estate contract without reading it. If you do not understand the contract, you may wish to consult an attorney.

Your contract should contain several contingencies allowing you to terminate the contract under certain circumstances. Standard contingencies include: (1) attorney approval allowing you to terminate the contract if your attorney advises you to do so; (2) an inspection contingency allowing you to terminate the contract if inspection of the home reveals material problems; and (3) a financing contingency allowing you to terminate the contract if you are not able to qualify for the necessary financing.

Once you and the seller have agreed on the sales price (or sometimes before), you will need to arrange for an inspection of the home. Your inspector should be independent. You can obtain a referral for a home inspector from your realtor, the American Society of Home Inspectors or your friends and family. You may wish to hire specialized inspectors for significant items such as termites and the heating and cooling system. Treatment for termites or replacement of a furnace or air conditioning unit will likely cost thousands of dollars, and you will want to know of any damage before over paying for a home.

Another party to the transaction will be the title company. It is standard for the seller to provide title insurance to the buyer, and this matter is addressed in the contract. As the name implies, the title company provides insurance for the title of the property. Many title policies contain a standard exception for easements, covenants, reservations and restrictions of record. Your contract should provide that your title policy will not contain this exception, unless you have already researched title to the property. Otherwise, you may be obligated to purchase the property with easements or encroachments. Generally the seller selects the title company, however, your contract can provide for a specific title company. You should select the title company because the policy is for your benefit, and you will be the person making a claim if necessary, perhaps many years in the future.

As you look for a home, Cheri Shadis advises, "Be sure to give the correct weight to advice received. Family and friends are always eager to help, but remember to check with the professionals, and when still in doubt, get a second opinion." You should engage a team of professionals to assist you to help ensure that owning your own home is the American dream and not the American nightmare. For more information, see www.hud.gov.
Posted in: June, 2002
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