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Residential Real Estate - Buying Information
The information contained in this section is designed to help guide you through the purchase of your property and prepare you for the process of closing the transaction, giving you ownership of your new home.
As a result of patience and cooperation, most closings go smoothly. Although the process can be cumbersome, it is well worth the time and effort to be prepared and have knowledge of the process to ensure a problem-free closing.
Prior to your appointment with Maselli Warren. P.C. please print the Real Estate Buyer Information Form (in pdf format). Fill in the information requested and bring it with you when you visit our office.
There are many participants in a residential real estate closing. Typically there are real estate agents involved in the sale. A mortgage company usually is involved in loaning money to the Buyer. A title company searches the land records and insures that the Buyer will receive good title (ownership) to the property. In addition, surveyors, home inspectors, pest infestation inspectors, and other inspectors frequently are involved in real estate closings.
The attorney has three major functions: (1) to review (and sometimes to prepare) the Contract of Sale and to advise you as to its meaning and to negotiate its terms; (2) to negotiate issues that may arise during the home inspections and the title searches; and (3) to represent you at the closing at the sale of the property.
You will be responsible for applying for a mortgage loan and providing information to the mortgage company and for arranging for the various inspections. In addition, you will need to purchase homeowner's insurance and provide proof of homeowners insurance before or during the closing.
In addition to the costs of the inspections, the title insurance, the survey and the homeowner's insurance, you can expect to pay other fees associated with the mortgage. Your mortgage company is required by law to give you a good faith estimate of these fees and other closing costs within a few days from the date of your application. The Good Faith Estimate is just an estimate. The actual closing costs are a function of many different factors, including the day of the month on which the closing takes place. The actual costs may differ significantly from the Good Faith Estimate. Many mortgage companies conduct business throughout the United States, and, as closing costs vary widely from state-to-state, the good faith estimates sometimes do not include all New Jersey closing costs.
1. Mortgage-Related Costs
Most of your closing costs are mortgage loan-related costs and vary widely among lenders. Such costs may include a mortgage application fee, origination fees, points, credit report fee, flood certification fee, tax authorization fee and possibly other miscellaneous fees. We encourage you to consider all of the mortgage company costs, and not just the interest rate or application fee, in selecting a mortgage loan.
2. Tax and Insurance Escrows
At the closing, the mortgage company usually also will require that you post funds that will be held in escrow by the lender. The funds will be designated for the purpose of paying your real estate taxes as they become due and your homeowner's insurance premiums when the policy comes up for renewal. While these are not technically 'costs', since those funds are still your money, they do represent funds that will be needed at the time of settlement. You should ask the mortgage company how many months of taxes and insurance will be required to be paid in advance at closing. While the mortgage company will give you an estimate, we will not know the exact closing costs until the closing date.
3. Prepaid Real Estate Taxes
You also will pay real estate taxes at closing. Real estate taxes in New Jersey are paid quarterly. Many mortgage companies will require you to pay at closing the remaining amount due for the Quarter during which the closing occurs and the full amount of the taxes for the following Quarter. Those payments are made directly from closing to the municipality in which the property is located and are in addition to the tax escrows required by the mortgage company.
4. Homeowners Associations
If the home is part of a homeowner's association, then, at closing, you also will pay costs related to the homeowner's association. Usually, you will be required to pay one to three months of homeowners association dues in advance. In addition, you may be required to pay a nonrefundable 'capital contribution', a transfer or membership fee and a processing fee. We usually will not have the exact amounts until the date of closing. Homeowners association charges required to be at closing may be as much as $700 or more.
5. Title Insurance Costs
At closing you will pay for title insurance and other costs. After the mortgage loan-related costs, title insurance is often the second highest closing cost. Title insurance is required by all mortgage companies -- and is essential even if you are not obtaining a mortgage loan. The title insurance is ordered from an outside company in which we have no business interest (in contrast to some other states, in which attorneys sometimes own title insurance companies). We work with several title insurance companies, and we seek to choose a company that will provide the best service in each particular transaction. Title insurance costs approximately $200 for a title search, approximately $250 for certain policy endorsements required by the lender, a closing fee of approximately $250, and approximately $5.25 per $1000 of purchase price for the title insurance premium. In some cases, we are able to negotiate a discounted 'reissue' rate if the Sellers have recently purchased or refinanced the property and are able to provide copies of their existing title and survey information.
6. Survey
The attorney, or, more frequently, the title insurance company, will order a survey of the property. A survey is usually required by the mortgage company. The cost of a survey usually ranges from $300 to $700 depending on the nature of the property and the extent to which the service must be expedited. You have the option of having the surveyor set corner markers, or not. The additional cost of setting corner markers usually runs about $75- $100 per marker. Most buyers choose not to have the markers set, but, if you are planning to install a pool or fence, or to build an outbuilding, then it might be a good idea to do so. If you want the corner markers set, then please let us know. If not, then you will need to sign a waiver of corner marker form. If you are undecided, then it is best to discuss the matter with the surveyor. It is very rare that a home buyer wishes that corner markers be set. However, New Jersey State law requires that home buyers affirmatively waive the setting of corner markers by signing a 'Waiver and Direction Not to Set Corner Markers' form. We will provide the form to you. Assuming you do not want corner markers, you must sign and return the form. The placing of the corner markers is usually done after the closing.
7. Recording Fees
Further, you will pay approximately $400 for the costs of recording the Deed, Mortgage and Notice of Settlement with the County Clerk. If you obtain more than one mortgage loan, then these costs will be higher, as each mortgage will have to be separately recorded. The recording costs usually include a modest service charge, paid either to the attorney or to the title company, for the service of forwarding and filing the documents with the County Clerk.
8. Attorney's Fees and Costs: Additional Services
Finally, you will pay our firms attorneys fee at closing. In addition to the attorney's fee, we will charge for costs incurred, such as the cost for overnight and certified mail, fax, photocopy, postage and courier expenses. If there is more than one mortgage loan, then we will charge an additional fee for closing and processing of a second or third mortgage. We also will charge an additional fee for services outside the scope of the usual services, such as the preparation and negotiation of a Use and Occupancy Agreement, the clearance of child support judgments or other liens or judgments, the preparation of a Power of Attorney, preparation or review of any decedent's estate-related documents and other services not included in the Scope of Services. Further, if there are multiple contracts, we will charge a fee for services performed for cancelled contracts.
If the sale does not close, then you will only be responsible for some of these costs. If the home inspection has been done, for example, you still have to pay the home inspector. If the title company has conducted its title search, then you will be responsible for the title search fee, but not for the title insurance. Our attorney's fees will be an amount proportionate to the amount of work actually performed.
The Contract of Sale has many contingency dates between the day the Contract is signed and the day of closing.
1. The Attorney Review Period
The first contingency period is the three-day attorney review period. After a Contract is signed by the Buyer and the Seller, it is promptly sent to the attorneys for both parties. Either attorney has three (3) business days from the date that the Contract is signed by and delivered to both Buyer and Seller to cancel the contract for any reason. Typically, the attorneys for Buyer and Seller then negotiate the terms of the Contract. Please be aware, though, that, if we ask for any changes, then the Seller can consider the contract to be cancelled. The Seller does not have to accept our proposed changes and, in fact, can refuse to honor the contract even on its original terms. Upon our receipt of the Contract, we will review the Contract, discuss it with you, and, if appropriate, prepare a letter to the Seller’s attorney. In addition, if we receive a letter from the Seller’s attorney, we will discuss it with you.
In order for us to best serve your needs, we must examine a number of critical issues pertaining to the purchase property. Among these issues are:(1) the existence of an underground oil tank, (2) that the sellers obtained the appropriate permits for any additions or improvements made on the property such as a deck, swimming pool, or finished basement (3) if buying your new property requires that you sell your old property first (4) review of the rules and regulations of any Associations connected with the new property. Please notify us if any of these or other issues are pertinent.
The attorney review period ends after three business days only if neither attorney has sent a letter. If either attorney has sent an attorney review letter, then the attorney review period remains open (and, either party can cancel the contract), until all contractual issues are resolved.
2. The Home Inspection Contingency
The inspection contingency generally provides that you can have a home inspector inspect the house and can conduct termite inspections and a radon gas inspection. Usually, the realtor can recommend qualified professionals to the Buyers for the making of the inspections. If a home inspector or pest infestation inspector detects major damage to the home, then the Buyer may ask the Seller to perform any appropriate repairs. If the Seller elects not to perform the requested repairs, then the Buyer may cancel the Contract. The Seller is not required to make the repairs. The Seller can refuse, and the Buyer is left with the choice of buying the home "as is" or canceling the Contract. Contracts typically require that the Buyers pay the costs of any inspections. You should contact a home inspector immediately, since Contracts of Sale usually provide only a short time period (approximately 10 days) for you to notify the Sellers’ attorney of any complications.
If the property is serviced by a well or other private water source, then the Private Well Testing Act requires that the water be tested by a certified laboratory. The Act does not specify whether the Buyer or the Seller bears the cost, which is estimated to be $300-$1,000. We will discuss the Act in further detail if the property is serviced by a private well.
3. The Mortgage Contingency
According to most Contracts of Sale, the Contract is subject to the Buyer’s ability to obtain a mortgage by a certain date. The Contract will provide a deadline by which you must apply for a mortgage and a deadline by which a "mortgage commitment" is issued. A mortgage commitment is a letter from the lender promising to make a loan as long as certain conditions are met. A mortgage loan "pre-approval" is not a mortgage commitment. If you fail to qualify for the mortgage commitment within the deadline in the Contract, then most contracts provide that either you or the Seller may cancel the Contract.
Mortgage rates, terms and fees vary considerably. The lowest rate may not necessarily be the best deal. Some people prefer to pay a higher interest rate in exchange for lower fees; others will pay higher fees, and may even pay "points," in exchange for a lower interest rate. In addition, mortgage companies provide different levels of service and attention during the mortgage application process. It has been our recent experience that many small banks and mortgage brokers have been unreliable. The attorney is not involved in the negotiation of the mortgage rates, terms and fees.
Both you and your attorney will receive a copy of the mortgage commitment. You should review the mortgage commitment to make sure that you have met the various requirements. For example, the mortgage commitment will require title insurance, a survey and a homeowner’s insurance policy. In most instances, the lawyer orders the title insurance and survey, and the Buyers arrange for homeowner’s insurance. The mortgage commitment may also require you to provide proof of employment, proof of income, copies of income tax returns, etc. You should provide all requested information to your mortgage company immediately.
4. House Sale Contingency
In some cases, a home buyer has to sell another house before buying a new home. The home buyer may request that the Contract include a "house sale contingency." We must address that issue before the attorney review period ends. If you need to sell your existing home before you purchase your new home, then we need to explore whether the mortgage company will require the sale of your existing home before making a loan and whether the seller will accept a house sale contingency. If you decide to proceed without a house sale contingency, then you are legally required to buy the new home, even if you do not sell your existing home and even if you cannot get a mortgage loan.
A closing date will be scheduled by the parties. At the closing, the title to the property changes hands, and you will become the owner of your new home. Be aware that the closing date listed in the contract is only a target date. It is not a fixed deadline. Many closings do not take place on the scheduled closing date. You should keep this in mind when scheduling movers and making other arrangements.
At the closing, you will sign a lot of papers, including the mortgage and mortgage loan note and a number of other papers required by the mortgage company. You will review the search of Judgments and Liens provided by the Title Insurance Company and will identify any of the judgments or liens against you. If any judgments or liens are against you, then you will have to clear them up before or during closing. If the judgments or liens are not against you, then you will sign an Affidavit stating that fact. The Sellers also will review the search of judgments and liens that may exist against them. They are also required to clear up any existing judgments and liens. On extremely rare occasions, the judgments and liens recorded against a seller may be so high that the Seller cannot "clear title" and cannot sell the home. Even on those extremely rare occasions, there is typically some advance warning that the seller has title problems.
Finally, you will review and sign a Settlement Statement (also called a HUD-1), which will show all of the costs and expenses incurred in the transaction and will also show how much is paid to each person or company involved in the transaction.
Normally, the Buyer must bring money for the down payment and/or closing costs to closing. This usually involves bringing just one check to the Closing. All of the money is disbursed out of the funds comprised of the deposit, the mortgage proceeds and the funds brought to closing by the Buyer. All funds brought to closing must be in cash, cashier’s check, money order or certified checks. New Jersey Court Rules and Statutes do not permit closing agents to accept personal checks or any other checks not designated as "cashier’s" or "certified" checks.
We will not know the exact amount that you will need to bring to closing until the closing date. Most closing costs are mortgage-related, and we rarely have the final figures from the mortgage company before the actual closing date. Unfortunately, the final amount is almost always calculated on the closing date. We will call you as soon as we know the exact amount that you are to bring to closing.
