Signing Real Estate Purchase Contract
The first step in buying a new home is signing a real estate purchase contract. Before you sign a real estate purchase contract, you need to think things through so that nothing comes back to bite you at the end and your earnest money is not in jeapardy. There are many things you need to consider when you are putting in an offer on your new home such as your mortgage contingency, things you want repaired before you close on your home, and things you expect from the seller.
A mortgage loan contingency is probably the single most important item you need to address in the real estate purchase contract. Just because you have a pre-approval does not guarantee that your mortgage loan is going to go through if you cannot provide the proper documents to your mortgage lender or you end up losing your job prior to closing on your mortgage loan. What a mortgage contingency does it provides that the real estate purchase contract is only valid if you are able to secure a mortgage commitment within a certain amount of time and makes the transaction only valid dependent on you getting a mortgage approval. It will enable you to cancel your real estate purchase contract if you are not able to obtain a residential mortgage loan.
Contingencies On Real Estate Purchase Contract
The normal mortgage contingency period is between 14 and 25 days from the real estate purchase contract date. The earnest money you deposit with your real estate purchase contract will be in jeapardy once the mortgage commitment period has expired. Depending on how the real estate purchase contract is written, you can lose your earnest money deposit once your mortgage contingency period has expired and you fail to close on your home. Your mortgage lender will require the real estate purchase contract and will monitor your mortgage contingency date and will ask you to ask the sellers for an extension if he or she is experiencing getting a delay in obtaining a formal mortgage commitment.
Real Estate Purchase Contract Due Diligence Period
Your real estate purchase contract will contain a due diligence period where you have a certain amount of time to due your due diligence on the property you are buying. During this period, you will be working on your mortgage loan approval, order the home appraisal, order property inspection, order well and septic inspections, and order termite inspection reports. Most real estate purchase contracts are drawn up for 30 to 45 day periods. Sometimes it may be as long as 60 days or longer especially homes that are being purchased by a home builder and not yet built or currently under construction.
A home inspection is strongly recommended for all home buyers and should be part of your real estate purchase contract that the purchase contract is only valid if the house passes a third party home inspection. There probably will be a home inspection period in the contract that you are allowed to have a home inspector inspect the home and get you a report. If you do not utilize a home inspector during that period, your home inspection contingency will expire. A home inspector will reveal any major flaws with the home you are buying. If there are extensive foundation, structural, and/or mechanical defects on the subject property, it might be wise to pass on the home and move on. In the event if there are many flaws on the home inspection report, you can negotiate the subject items with the seller where they can you give you monetary credit or do the repairs prior to closing or you can ask for a reduction of the original purchase price.
Depending on which area you are buying your home, your mortgage lender might request a termite inspection if it is listed on your real estate purchase contract. The mortgage lender might also require a termite inspection if the appraiser notates on his appraisal report that there are signs of termites or termite damage on a part of the home. FHA mortgage lending guidelines state that a termite inspection is required only if there is evidence of active infestation or if it is required by either the local, county, or state buidling code departments, or if it is customary for the region, or at the mortgage lender’s discretion.
In the event if there are termites present at the subject property. it is up to both the seller and buyer to negotiate who will correct the damage caused by termites and the termite abatement program.
Request Sellers Concession Towards Closing Costs
Have your realtor request a sellers concession towards closing costs. FHA loans allow up to a maximum of 6% sellers concessions towards a buyers closing costs and prepaid items which are tax escrows, insurance escrows, title charges, and other closing costs that the buyer would otherwise have to come up with besides the down payment. Do not ask for too much sellers concessions because if you waste it, it goes back directly to the seller and it does not come to you in any other form as a cash back. You cannot use sellers concessions towards your down payment. Sellers concessions towards buyers closing costs need to be stated and disclosed on the real estate purchase contract. The maximum amount 3% sellers concession is allowed on conventional and jumbo loans.