The Law Office of Patricia S. Nelson
Articles
Buying a Single Family Home in Massachusetts
Patricia S. Nelson, Esq
February, 2014
Buying a single family home is a major purchase which requires homework and the advice of professionals. Before starting the search for a home, a buyer needs to understand the overall process and the role that attorneys, brokers and lenders play at each stage. This article is intended to help buyers understand the overall process.
How Much House Can I Afford
The first step is to figure out how much house you can afford. While there are calculators available online, there is no substitute for sitting down with two or three lenders who can educate you not only on what you can afford but about the mortgage approval process generally. The mortgage approval process under current regulations can be difficult and frustrating and you’ll need good advice and patience to get final approval.
Pre-Approval
Few Sellers will accept an Offer without a written pre-approval letter from a lender in the amount you are seeking to finance. While you normally aren’t obligated to stick with the lender providing the pre-approval, it makes sense to start with a lender you are likely to use throughout the transaction.
Choosing a Lender
Lenders include banks (large and small), credit unions and mortgage brokers. I recommend you talk with several lenders to find out what they can offer. Beware of lenders offering rates or other terms that far exceed what other lenders are offering. While rates, charges and terms are important, first and foremost, you want a reputable lender familiar with lending in Massachusetts. The best rate is useless if the lender won’t commit the loan or worse is unable or unwilling to close the loan on a timely basis. Seek recommendations from your real estate broker, your attorney and from friends and acquaintances who have recently been through the lending process.
Real Estate Brokers
A good local real estate broker is your source for information on the current market and especially pricing. Most buyers work with a buyer’s broker who will represent their interests in the negotiation process. Normally, the buyer’s broker’s fees are paid by the Seller, in a sharing arrangement with the Listing (Seller’s) agent.
Making An Offer
In Eastern Massachusetts, purchasing a home is a two-step process. First, the buyer submits an Offer to Purchase which contains the key business terms of the deal – price, deposit, closing date, broker information. Your Offer should also contain: all contingencies such as inspection and financing contingencies, a description of all fixtures and appliances included in the purchase, a description of any work or repairs Seller has agreed to undertake and any other special terms of the deal.
An Offer is a legally binding document. Many buyers work only with their broker at this stage of the transaction, however it makes sense to retain and consult an attorney before you make an Offer, especially if you are giving any thought to waiving standard contingencies such as inspections and financing.
After the Offer is accepted, the buyer conducts inspections and researches the property (see, for example, Search of Public Records below). It is also in this period that the parties negotiate the terms of the Purchase and Sale Agreement, together with resolution of any issues that are brought to Buyer’s attention as a result of the inspection.
Inspections
Inspections typically take place between the acceptance of your Offer and the signing of the Purchase and Sale Agreement. Your home inspection serves two purposes: 1) to help you make a decision about whether you want to proceed with purchase and/or negotiate necessary repairs with the Seller; and 2) to provide you with information for future repair and upkeep of your new home. The second purpose is as important as the first. You should attend the closing to see any problems first-hand and ask questions.
Home Inspectors in Massachusetts are licensed by the Commonwealth. Your broker should give you a list of licensed inspectors. Only Buyer’s brokers may recommend specific inspectors. Your attorney or friends and acquaintances are other sources for the names of local inspectors.
In addition to a thorough home inspection, it is also customary to do radon, pest and lead inspections.
While it is sometimes tempting in a “hot” real estate market to waive customary inspections, you should consult with your attorney about the risks of doing so before making an Offer waiving inspection contingencies.
Search Public Records
Go to the City or Town Hall where the property is located and research information on your new home. Building departments have records, often going back many years, where you can find applications for building permits, verify that permits were pulled – and approved – for major work done on the property, and obtain copies of building plans for the property.
You can also search Assessors and other City or Town Records for ownership of the parcels in the neighborhood of your new home. This could be especially important if the property abuts undeveloped land, conservation land or other land that appears to have potential for future use or development.
I Have a Broker – Why Do I need An Attorney?
The Purchase and Sale Agreement is a legally binding document, with legal terms outlining the rights and responsibilities of the parties. Brokers are not trained or licensed to provide legal advice. While many brokers will fill in the blanks on a standard form such as the Greater Boston Real Estate Board (GREB) form, the GREB form omits a number of important buyer protections. One example – the GREB form does not require that your home, structures and improvements be located on your property.
Secondly, there may be facts and circumstances that take your purchase outside the “standard” form. Such issues need to be addressed before you sign the Purchase and Sale Agreement and put down the bulk of your deposit. An example of this would be where you are planning to build on an addition or other structure. If the addition is critical to your decision to purchase, you should discuss this with your attorney as early in the process as possible – and definitely before you sign the Purchase and Sale Agreement.
Finally, a good real estate attorney will explain the “legalese” of your Purchase and Sale Agreement to you. Know your legal rights and obligations before you commit to purchase.
Purchase and Sale Agreement
If you have not already done so, it is important that you now retain the services of an experienced real estate attorney. The Purchase and Sale Agreement is a multi-page document outlining the rights, responsibilities and risks of Buyer and Seller, before, during and even after closing. It is critical that you understand its details before you sign - and risk - the bulk of your deposit.
Now is also your last chance to make sure you have done your homework on the property, including all inspections, review of City or Town building records and records for underground oil tanks.
Mortgage Commitment
Typically, the mortgage contingency in your Purchase and Sale Agreement will allow you to terminate the agreement by written notice if you have not received a written commitment by the mortgage commitment date. After that date, your right to terminate expires – even if your lender subsequently informs you that you are not approved.
Keep track of your mortgage commitment date and inform your attorney a couple of business days ahead of that date if you have not received a written commitment. If the lender is still processing your loan - a frequent occurrence in today’s difficult lending environment - you will need to request an extension from the Seller BEFORE the written commitment expires. Failure to act to protect your rights will result in the extinguishing of your contingency and put your deposit at risk if you are not ultimately approved.
Once you have received a written approval or commitment letter, send it immediately to your attorney for review. Many “approvals” are only partial approvals, with remaining contingencies. You don’t want your mortgage contingency to expire unless you are sure that any remaining contingencies are ones that you can satisfy without question or review. You should also review any remaining contingencies with the person processing your loan.
Getting Ready for Your Closing
The closing will be conducted by the lender’s attorney (or your attorney, if the lender allows your attorney to close the loan). Make sure you find out what you need to do prior to closing.
Aside from satisfying your mortgage lender, your main obligations prior to closing will be to obtain homeowner’s insurance on your property (your lender will also require you to pay the first year’s premium in advance and name them on the insurance binder) and to bring to closing “good funds” (NOT a personal check) to cover any additional downpayment you are making (beyond the deposits paid with the Offer and Purchase and Sale Agreement) and closing costs. Your lender is obligated to provide you with a good faith estimate of closing costs so you can estimate what you will need to bring to closing.
Final numbers will likely not be available until a day or two prior to closing. The final numbers will be in the form of a HUD settlement statement. This will not only detail your expenses and closing adjustments, but also give you a comparison of closing costs with the estimates provided in your Good Faith Estimate. In order to provide “good funds” you either need to wire the funds to the closing attorney for receipt in advance of closing, or bring a bank or cashier’s check – drawn on a Massachusetts bank – to the closing.
Beware of moving funds around in the final weeks of the mortgage approval or closing process as this may trigger some “red flags” with the lender that may delay the closing. Talk with your lender at the time of application about the source of funding and how you intend to access the funds. If you need to move funds, move them right at the beginning of the application process and only after discussing this with the lender.
Leading up to the closing, schedule a final “walkthrough” inspection of the house: 1) to make sure that the home has been maintained and has not suffered any damage since your initial inspection; 2) to verify repairs required by the Purchas and Sale Agreement; and 3) to make sure the Seller has moved out and left the property “broom clean” and free of Seller’s furnishings, personal property and debris.
Closing
Many lenders now require that you bring two forms of official ID such as a driver’s license and passport. Also bring your checkbook for any last minute adjustments (eg payment for a full tank of oil) or monies to be paid outside closing (eg for furnishings being purchased by the Buyer).
The HUD Settlement Statement is the most important document of the closing. You’ll receive this form whenever you buy, sell or refinance your home – be sure to keep a copy from each such transaction, even for several years after you sell the home. The HUD Settlement Statement will be important for future tax returns, provide you with information on the name of the attorney conducting the closing, provide proof of purchase of title insurance and (in the case of a refinance) provide proof of payoff of prior mortgages.
Post Closing
Most closings today take place in the office of the closing attorney rather than at the registry of deeds. Remember you won’t own the home and be able to move in or start work until the deed has been delivered to the registry of deeds and recorded. Depending on how late in the day you close, this may not happen until the next business day. All moneys – and sometimes the keys – will be held in escrow until the deed is recorded. If you need to move in or start work before the deed is likely to be recorded, this is an issue that needs to be negotiated between the parties.
Once the deed is recorded, you’ll own the home and you can move in. Congratulations and enjoy your new home!
(C) Patricia S. Nelson February, 2014.
February, 2014
Buying a single family home is a major purchase which requires homework and the advice of professionals. Before starting the search for a home, a buyer needs to understand the overall process and the role that attorneys, brokers and lenders play at each stage. This article is intended to help buyers understand the overall process.
How Much House Can I Afford
The first step is to figure out how much house you can afford. While there are calculators available online, there is no substitute for sitting down with two or three lenders who can educate you not only on what you can afford but about the mortgage approval process generally. The mortgage approval process under current regulations can be difficult and frustrating and you’ll need good advice and patience to get final approval.
Pre-Approval
Few Sellers will accept an Offer without a written pre-approval letter from a lender in the amount you are seeking to finance. While you normally aren’t obligated to stick with the lender providing the pre-approval, it makes sense to start with a lender you are likely to use throughout the transaction.
Choosing a Lender
Lenders include banks (large and small), credit unions and mortgage brokers. I recommend you talk with several lenders to find out what they can offer. Beware of lenders offering rates or other terms that far exceed what other lenders are offering. While rates, charges and terms are important, first and foremost, you want a reputable lender familiar with lending in Massachusetts. The best rate is useless if the lender won’t commit the loan or worse is unable or unwilling to close the loan on a timely basis. Seek recommendations from your real estate broker, your attorney and from friends and acquaintances who have recently been through the lending process.
Real Estate Brokers
A good local real estate broker is your source for information on the current market and especially pricing. Most buyers work with a buyer’s broker who will represent their interests in the negotiation process. Normally, the buyer’s broker’s fees are paid by the Seller, in a sharing arrangement with the Listing (Seller’s) agent.
Making An Offer
In Eastern Massachusetts, purchasing a home is a two-step process. First, the buyer submits an Offer to Purchase which contains the key business terms of the deal – price, deposit, closing date, broker information. Your Offer should also contain: all contingencies such as inspection and financing contingencies, a description of all fixtures and appliances included in the purchase, a description of any work or repairs Seller has agreed to undertake and any other special terms of the deal.
An Offer is a legally binding document. Many buyers work only with their broker at this stage of the transaction, however it makes sense to retain and consult an attorney before you make an Offer, especially if you are giving any thought to waiving standard contingencies such as inspections and financing.
After the Offer is accepted, the buyer conducts inspections and researches the property (see, for example, Search of Public Records below). It is also in this period that the parties negotiate the terms of the Purchase and Sale Agreement, together with resolution of any issues that are brought to Buyer’s attention as a result of the inspection.
Inspections
Inspections typically take place between the acceptance of your Offer and the signing of the Purchase and Sale Agreement. Your home inspection serves two purposes: 1) to help you make a decision about whether you want to proceed with purchase and/or negotiate necessary repairs with the Seller; and 2) to provide you with information for future repair and upkeep of your new home. The second purpose is as important as the first. You should attend the closing to see any problems first-hand and ask questions.
Home Inspectors in Massachusetts are licensed by the Commonwealth. Your broker should give you a list of licensed inspectors. Only Buyer’s brokers may recommend specific inspectors. Your attorney or friends and acquaintances are other sources for the names of local inspectors.
In addition to a thorough home inspection, it is also customary to do radon, pest and lead inspections.
While it is sometimes tempting in a “hot” real estate market to waive customary inspections, you should consult with your attorney about the risks of doing so before making an Offer waiving inspection contingencies.
Search Public Records
Go to the City or Town Hall where the property is located and research information on your new home. Building departments have records, often going back many years, where you can find applications for building permits, verify that permits were pulled – and approved – for major work done on the property, and obtain copies of building plans for the property.
You can also search Assessors and other City or Town Records for ownership of the parcels in the neighborhood of your new home. This could be especially important if the property abuts undeveloped land, conservation land or other land that appears to have potential for future use or development.
I Have a Broker – Why Do I need An Attorney?
The Purchase and Sale Agreement is a legally binding document, with legal terms outlining the rights and responsibilities of the parties. Brokers are not trained or licensed to provide legal advice. While many brokers will fill in the blanks on a standard form such as the Greater Boston Real Estate Board (GREB) form, the GREB form omits a number of important buyer protections. One example – the GREB form does not require that your home, structures and improvements be located on your property.
Secondly, there may be facts and circumstances that take your purchase outside the “standard” form. Such issues need to be addressed before you sign the Purchase and Sale Agreement and put down the bulk of your deposit. An example of this would be where you are planning to build on an addition or other structure. If the addition is critical to your decision to purchase, you should discuss this with your attorney as early in the process as possible – and definitely before you sign the Purchase and Sale Agreement.
Finally, a good real estate attorney will explain the “legalese” of your Purchase and Sale Agreement to you. Know your legal rights and obligations before you commit to purchase.
Purchase and Sale Agreement
If you have not already done so, it is important that you now retain the services of an experienced real estate attorney. The Purchase and Sale Agreement is a multi-page document outlining the rights, responsibilities and risks of Buyer and Seller, before, during and even after closing. It is critical that you understand its details before you sign - and risk - the bulk of your deposit.
Now is also your last chance to make sure you have done your homework on the property, including all inspections, review of City or Town building records and records for underground oil tanks.
Mortgage Commitment
Typically, the mortgage contingency in your Purchase and Sale Agreement will allow you to terminate the agreement by written notice if you have not received a written commitment by the mortgage commitment date. After that date, your right to terminate expires – even if your lender subsequently informs you that you are not approved.
Keep track of your mortgage commitment date and inform your attorney a couple of business days ahead of that date if you have not received a written commitment. If the lender is still processing your loan - a frequent occurrence in today’s difficult lending environment - you will need to request an extension from the Seller BEFORE the written commitment expires. Failure to act to protect your rights will result in the extinguishing of your contingency and put your deposit at risk if you are not ultimately approved.
Once you have received a written approval or commitment letter, send it immediately to your attorney for review. Many “approvals” are only partial approvals, with remaining contingencies. You don’t want your mortgage contingency to expire unless you are sure that any remaining contingencies are ones that you can satisfy without question or review. You should also review any remaining contingencies with the person processing your loan.
Getting Ready for Your Closing
The closing will be conducted by the lender’s attorney (or your attorney, if the lender allows your attorney to close the loan). Make sure you find out what you need to do prior to closing.
Aside from satisfying your mortgage lender, your main obligations prior to closing will be to obtain homeowner’s insurance on your property (your lender will also require you to pay the first year’s premium in advance and name them on the insurance binder) and to bring to closing “good funds” (NOT a personal check) to cover any additional downpayment you are making (beyond the deposits paid with the Offer and Purchase and Sale Agreement) and closing costs. Your lender is obligated to provide you with a good faith estimate of closing costs so you can estimate what you will need to bring to closing.
Final numbers will likely not be available until a day or two prior to closing. The final numbers will be in the form of a HUD settlement statement. This will not only detail your expenses and closing adjustments, but also give you a comparison of closing costs with the estimates provided in your Good Faith Estimate. In order to provide “good funds” you either need to wire the funds to the closing attorney for receipt in advance of closing, or bring a bank or cashier’s check – drawn on a Massachusetts bank – to the closing.
Beware of moving funds around in the final weeks of the mortgage approval or closing process as this may trigger some “red flags” with the lender that may delay the closing. Talk with your lender at the time of application about the source of funding and how you intend to access the funds. If you need to move funds, move them right at the beginning of the application process and only after discussing this with the lender.
Leading up to the closing, schedule a final “walkthrough” inspection of the house: 1) to make sure that the home has been maintained and has not suffered any damage since your initial inspection; 2) to verify repairs required by the Purchas and Sale Agreement; and 3) to make sure the Seller has moved out and left the property “broom clean” and free of Seller’s furnishings, personal property and debris.
Closing
Many lenders now require that you bring two forms of official ID such as a driver’s license and passport. Also bring your checkbook for any last minute adjustments (eg payment for a full tank of oil) or monies to be paid outside closing (eg for furnishings being purchased by the Buyer).
The HUD Settlement Statement is the most important document of the closing. You’ll receive this form whenever you buy, sell or refinance your home – be sure to keep a copy from each such transaction, even for several years after you sell the home. The HUD Settlement Statement will be important for future tax returns, provide you with information on the name of the attorney conducting the closing, provide proof of purchase of title insurance and (in the case of a refinance) provide proof of payoff of prior mortgages.
Post Closing
Most closings today take place in the office of the closing attorney rather than at the registry of deeds. Remember you won’t own the home and be able to move in or start work until the deed has been delivered to the registry of deeds and recorded. Depending on how late in the day you close, this may not happen until the next business day. All moneys – and sometimes the keys – will be held in escrow until the deed is recorded. If you need to move in or start work before the deed is likely to be recorded, this is an issue that needs to be negotiated between the parties.
Once the deed is recorded, you’ll own the home and you can move in. Congratulations and enjoy your new home!
(C) Patricia S. Nelson February, 2014.
Copyright © 2018 Patricia S. Nelson