Resident's Guide to Buying a Home and Using the Doctor's Loan
Signing the Contract
Now that you have been pre-approved and have picked out a house, it's time to sign the contract. The following is a typical timeline for a new home purchase. Be aware that things may not happen in this exact order as the builder's realtor may try to get you to sign a contract before you have actually gotten pre-approved. It really doesn't matter which comes first. Basically you will sit down with the builder's realtor and your own realtor and sign a standard set of paperwork. There is really not much to tell here because most contracts are standard when you are working with a realtor. However, please take the time to read the entire contract before you sign anything. I feel that the best way to handle the situation is to review the contract with the seller's agent, then take the contract home to re-read it with your own realtor. It is important to realize that your realtor is not a lawyer so it is up to you to question any aspect of the contract that you don't understand. Realtors, even buyers' agents, have the tendency to simply summarize, skip over, or incorrectly paraphrase parts that they may not understand.
In certain situations you may be asked to sign the contract on the spot. No matter how excited you are about the potential of buying a new home, try to avoid this situation at all costs. At worst, review the contract with the seller's agent then take the contract home or to another place to review it privately with your realtor. Many times the seller's agent will make comments such as, "I don't know how long this will last" or, "There have been several people looking at this place." Do not let this distract you from your focus or diligence in reviewing and signing the contract.
Don't be surprised when the Realtor asks you for Earnest Money. This is a deposit, typically around 1% of the purchase price, that you submit to the Realtor's company to be held in escrow so that the seller knows you are serious. This money is returned to you at closing or applied toward the loan principal (however you specify). The only way to lose this money is to not fulfill the contingencies you specify in the contract or to just pull out of the deal. In that case, the seller receives the Earnest Money. You can sign a promissory note for the Earnest Money and then send a check once the final version of the contract (with everyone's modifications) is agreed upon.
The most important aspect of the contract is the contingencies portion. This is an area where buyers need to be extremely proactive. This portion is where you write in certain conditions that must be met in order for you to buy the house. Most contracts have a designated space for this, but if there is no space, make one! There are several things that you can and should ask for in this portion. This list includes appliances like a refrigerator, washer or dryer. You could also ask for monetary compensation to go towards closing costs or decorating your new home. There is no real science to this aspect of the contract, as it depends on how the homes in the area are selling as well as what the seller is willing to agree to. In my opinion, you can be reasonably aggressive on your first submission because you never quite know what you are going to get. For the most part, your realtor should be able to give you appropriate advice. However, the realtor wants nothing more than to have the contract accepted, so be weary of any overt or subtle effort to significantly short change your contingencies. It is only natural to say, "What do you think we should ask for?" It is important to think of the answer to that question as advice and not as the limit. In my case, I was easily able to get a high-end refrigerator as well as $3,000 towards my closing costs.
As far as any other contingencies, just write in whatever it is that you need. Be persistant and don't let the Realtor say "that's not a usual thing to do" and then omit something that is important to you. This is your contract and your decision. You make the choices! For example, if you wish for the contract to be null and void if your parents do not approve of the home, then write that in. There are common things that should be written in that your realtor should know about, such as a financing contingency or an inspection contingency. I think that once you submit a contract the seller has three days to accept or counter your offer. You then have three days to accept their counter offer or provide another offer, which will restart the process. Remember to look out for your own best interest. No realtor wants to continually resubmit a contract because that increases their chances of not making the deal and not getting their money. But expect the contract to go back and forth a few times before being finally agreed upon.
Example contingencies:
Note: we are not attornies and don't provide any warranty or assurance of legal accuracy for the following statements.
- The following items are to remain in their "AS IS" condition: kitchen refrigerator, dishwasher, kitchen range and oven, washer, dryer, window treatments
- The seller pays up to $3,000 towards Buyer's closing costs and prepaids
- (If your city conducts mandatory "point of sale" inspections): The house must be (City) point of sale violation free at the time of transfer and any violations must be proved remedied with a Certificate of Compliance
- This Agreement IS CONTINGENT upon the appraised value either equaling or exceeding the agreed upon Purchase Price. If the appraised value is equal or exceeds the Purchase Price, this contingency is satisfied. If the appraised value of the Property does not equal or exceed the Purchase Price, the Buyer may terminate this Agreement by providing written notice to the Seller and providing written proof of the same (e.g., copy of appraisal, signed letter from Lender). Upon termination, Buyer is entitled to refuned of the Earnest Money.
- The Buyer's Earnest Money shall be returned to the Buyer at closing and not applied towards the loan principal
- Buyer shall have professionals perform, at Buyer's expense, the following inspections within the number of Days following the date of Acceptance: (choose your inspections), and any other inspections as suggested by the general home inspector
- The Seller is to pay for a Home Warranty Plan to cover the property for one year after sale, through XXX home warranty company
Written by: Randon T. Hall & Ben Rosenbaum, Copyright © 2008