We started this month talking about the professionals that you will work with that will get you to the closing table. It’s important to understand all of the different people you will need to coordinate to close on a property. It’s also important to know what some of the most important provisions are that will be set forth in the contract of sale. The provisions that we want to focus on today are: 1) Mortgage Contingency Clause; 2) Home Inspection; 3) Closing Date; and 4) Closing Costs.
Real estate contracts are governed by state law so for purposes of today, we will be discussing what is standard in New York. One of the most important provisions in a real estate contract is the provision regarding financing: the Mortgage Contingency Clause. Although we have seen a lot more cash transactions over the past six months or so, the majority of people that we have come across require financing in the form of a mortgage to purchase a home. When you enter into a contract to purchase a home, there will be a contingency clause in the contract that gives you a certain amount of time to obtain a mortgage commitment. In New York, it’s common to allow 30 to 45 days for a buyer to obtain their mortgage commitment. As soon as the contract is signed by all parties, the buyer should begin the process immediately to apply for their mortgage. If you are applying for a specific kind of loan, such as a FHA loan, it’s important that the contract allows you to do so and does not exclude the type of loan that you are seeking. Towards this end, if you are purchasing a condominium in New York, certain condominiums do not permit buyers to obtain FHA loans – it’s important to know before you put an offer in whether the condominium you are seeking to purchase permits the loan that you will need. The deadline to obtain a mortgage commitment must be tracked and if an extension of time is needed, it’s important to timely make that request.
The Home Inspection Clause. If you are buying an existing home, it’s important to allow yourself a period of time to conduct a home inspection. A home inspector will walk through the property and examine it for structural problems or other potential issues. If there is a certain issue that requires an inspector with a particular area of expertise, they may recommend an inspector who specializes in that field. If there are issues that are discovered during the home inspection, you can either negotiate for the repair of those issues with the seller, or for a reduction in the price, or walk away all together if the repairs are significant. Many times, these issues can be negotiated before the contract of sale is executed and whatever is agreed upon can be incorporated into the contract. If not, it’s important as a buyer to give yourself an opportunity to have the property inspected so that, if necessary, you have the option to negotiate for repairs or walk away.
The Closing Date. How much time do you need to close? The standard time frame in New York is within 30, 45 or 60 days. It’s important to set an “on or about” date because that will give you some leeway if you run into delays with your mortgage application process, or the length of time that it takes to obtain a complete title report. Both of these items can be completely out of your control. The parties should be on the same page in terms of the time frame and if the buyer has a contingency, such as the sale of another home, that should be incorporated into the contract of sale, as well.
Closing Costs. Who will pay for specific closing costs? Whether the seller or buyer pays for certain costs depends on the state you live in and sometimes, the location within that state. The buyer, for example, will pay for the cost of obtaining title insurance. If you are purchasing a condominium, and there are costs associated with obtaining certain documents from the condominium association, such as a right of first refusal, those costs might be paid by the seller, depending on where you are. It’s important to specify the costs that each party will pay for in the contract so that there is no ambiguity.
Real estate contracts can be complicated and nuanced. It’s important to be aware of the contingencies, understand what your obligations are as the buyer or seller, and to make sure you are working with professionals who are well versed in real estate transactions. For most people, purchasing a home will be the greatest investment they make in their lifetime, so if you have questions, don’t be afraid to ask the professionals you are working with!
Disclaimer: The information contained in this post is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls and communications. Contacting us, however, does not create an attorney-client relationship.
