Home Buying 101 For The EMS Provider

Purchasing a first home is part of the American dream, but it can be a daunting task for the uninitiated, hard working, EMS provider. For most people, the purchase of a home is their largest financial transaction. A general familiarity with the process can help demystify this transaction and prevent misunderstandings from occurring.

Obviously, the first step in the process is finding a home to purchase. Assuming that there is an agreement between the buyer and seller, a contract of sale will be then created. The seller’s attorney will draft the contract of sale and forward it to the buyer’s attorney. Most contracts of sale are standard forms which are then customized by the attorneys to suit the needs of the particular purchase. For instance, the seller may agree to paint the exterior of the house or make certain repairs prior to the closing of the transaction. These “extra” terms are then added to the standard contract.

Since repairs may be needed yet not readily discernible to the first time home buyer, it may be wise to hire a professional home inspector to examine the home. Areas that are commonly examined include the presence of termites, significant leaks such as from a roof, the presence of radon gas, or structural deformities which may cause substantial damage to the home in the future. The money spent on a qualified home inspector generally pays for itself by virtue of the fact that the buyer can sleep better at night knowing he has not purchased a “lemon.”

Pre-contract inspections are important for another reason. This has to do with the well-known Latin phrase “caveat emptor,” or “buyer beware.” Generally speaking, the seller does not have a duty to disclose to the buyer any quirks, minor defects, or idiosyncracies within the home. For instance, the seller need not tell the buyer that every April the basement gets wet from water seepage from melting snow. The seller is obligated to answer questions raised about the home truthfully and the seller cannot commit outright fraud in terms of lying about deficiencies or serious defects in the home. Having a qualified expert inspect the home prior to entering into the contract will increase the chance of uncovering defects or idiosyncracies within the residence. As a result, the buyer can be protected by including provisions within the contract of sale to remedy the discovered defects. Furthermore, a buyer should be suspicious when a seller will not permit a pre-contract inspection or engages in dilatory tactics to postpone or prevent the inspection. More often than not, there is something significantly wrong and the buyer is best to walk away from the deal.

The portion of the contract of sale which addresses the customized aspects of the deal is known as a rider, since it rides along with the contract. Thus, the buyer must execute both the contract of sale and the rider. After doing so, the buyer generally returns these documents with a check representing ten percent of the purchase price. Typically, the check is made payable to the seller’s attorney. In turn, the attorney deposits these funds in an escrow account until the closing of the transaction.

The buyer must be aware of one very important fact during the period commensurate with the contract signing: there is no valid contract until both the buyer and the seller sign the document. Thus, it is entirely possible that the buyer may sign the contract and return it to the seller’s attorney along with the downpayment and still not have a deal. A third party may suddenly appear, offer more money for the property and persuade the seller to sell the property to him. This presents the original buyer with two options: matching the higher price or finding a different property. The end result is oftentimes an extremely upset buyer, especially when dealing with “the house of his dreams.”

After the contracts are signed, the second phase of the purchase begins. This phase involves securing the financing for the new home purchase. Most homebuyers do not pay cash for the entire purchase price of the home: they borrow money from a bank. The money borrowed from a bank is known as a mortgage. In exchange for the money from the bank, the buyer uses the home as collateral for the loan. The buyer/borrower becomes known as the mortgagor, and the bank/lender becomes the mortgagee. The buyer in turn executes a Note which is essentially a promise to pay back the money borrowed along with interest over a fixed period of time.

Looking back to the contract of sale for a moment, it is imperative that the contract contain a mortgage contingency provision. This provision gives the buyer a fixed period of time (anywhere from thirty to ninety days) after the execution of the contract to secure financing in the form of a mortgage. If the buyer cannot qualify for a mortgage within this time period, he can rescind the contract, cancel the transaction, and have the downpayment returned. However, it is not enough for the buyer to simply say he could not obtain a mortgage: the seller is entitled to review any applications submitted to the bank and any correspondence received from the bank to verify that the buyer made a bona fide attempt to secure financing. Without the mortgage contingency provision, the buyer must conclude the deal even if he cannot obtain a mortgage.

While the buyer is completing the mortgage approval process, the buyer’s attorney is ordering a title report for the premises. A title report is ordered from a title company. This process involves a thorough search of the chain of ownership of the property to make certain that the present owner/seller lawfully owns the property and can provide “good title” to the premises. The title search also looks for any mortgages held on the property as well as any judgments against the buyer or seller (such as bankruptcy filings). Furthermore, the title search looks for any easements or covenants over the property. An easement is a right of access to the property by an individual who is not the owner of the premises. Most easements found involve rights of utility companies to run power lines across the property. Without them, no one would have electricity to their homes. Occasionally, however, the search may reveal an easement given to an adjacent land owner to enter across the property. Importantly, the buyer must realize that he cannot simply void a properly given easement by, for instance, erecting a wall which prevents access through the easement. Such an action would certainly bring a law suit by the easement holder. Finally, the title report checks with the local municipality for any building violations, for the presence of a certificate of occupancy, and for any open building permits. Any violations found must be addressed immediately. Typically, the onus is on the seller to correct the situation prior to closing. A common example is the seller who puts an addition on his home, such as a new deck, but fails to obtain a building permit or a certificate of occupancy for the deck. When this situation arises, the buyer must insist that the seller obtain the necessary permit and certificate. Oftentimes, this will involve a significant delay in closing the transaction. Sometimes, the seller may not even be able to obtain the necessary permit or certificate. This will inevitably break the deal.

Assuming the title report process is completed without difficulty, the buyer is now prepared to enter the final phase of the home buying process: the closing. Part two of this article will discuss and demystify this quintessential element of the real estate business.