1. How do I buy a house?
Be an informed consumer; buying a house or condominium is one of the most complicated and expensive purchases you will ever make. As with most other things, you get what you pay for. Look at and compare many houses in different areas, both new and used. Before you make a written offer, know exactly what you are buying and what the costs will be after you own it.
For example, in addition to the monthly principal and interest payments that you will have to finance the purchase of the home, you need to budget for utility bills, property taxes, insurance and maintenance costs. If you buy a home that is part of a homeowner's association, you also will have to pay monthly association fees. Many homeowners may be charged special assessments by their city or municipality for such things as sewers, street lights and garbage collection. Make sure you ask the seller to show you the bills for all these charges for the last year; find out if these assessments are scheduled to be placed on the property in the future.
Also, check the condition of the house and of any appliances that are included in the sale. If you buy a "fixer-upper," make sure you know what you are getting into.
2. Do I need a real estate agent or an attorney?
Real estate agents can help you find a suitable house. Most used homes are listed for sale by a real estate broker who represents the seller. Usually you will not have to pay your agent a fee because your agent will receive commission from the seller once the home is sold.
Real estate agents also can help you with other necessary matters such as obtaining a loan and getting through all the procedures involved in buying a home. In most real estate transactions, the real estate agent is required to disclose whether he or she represents the buyer, the seller or both.
If you don't know a good agent, ask friends and co-workers to recommend one. Or talk to several agents until you find one that you believe will do the best job for you. You should seek a real estate agent to represent you exclusively.
To be sure you understand all your rights and responsibilities, it is advisable to see an attorney who has experience in real estate law before you sign anything.
A lawyer also can help you with the legal and tax questions that come up during the purchase. For more information on how to locate an attorney, order a free copy of the State Bar's pamphlet, How Can I Find and Hire the Right Lawyer?, by sending a stamped, self- addressed envelope with your request to: State Bar Pamphlets, 555 Franklin Street, San Francisco, California, 94102.
3. What information must the seller provide me?
In most cases, when you are preparing to buy a home, the seller must provide you with a Real Estate Transfer Disclosure Statement. This is a printed form that lists all features and structural defects such as roof, foundation or wiring problems. The seller also must include possible troubles he or she is aware of - such a easements, environmental hazards, landfill, flooding, the right of other people to come on the property; zoning violations or noise problems. It is also the duty of the seller's agent to conduct a visual inspection of the home for a prospective buyer and report all facts materially affecting the value or desirability of the property.
If you want information that is not covered by the disclosure form, put your questions in writing and ask the seller for written answers.
If you and/or the seller are using a real estate agent, they also must fill out sections of the disclosure form. However, the agents are required only to make a visual inspection of the property and list any problems they see or suspect. The seller's obligation is to honestly disclose such information, but the seller's and agent's disclosure is not part of the contract between the seller and buyer, and is not a warranty by the seller.
If you buy a condominium, the seller must give you copies of the homeowners' association bylaws, financial statements and other documents and must tell you about any assessments that are unpaid. You also should ask to see the minutes of association board meetings. Perhaps, for example, there are lawsuits that have been discussed that might affect the value of the condominium.
4. Should the house be inspected?
Before buying used property, it is advisable to have it inspected by trained specialists who might find problems that no one suspects.
The kinds of inspections you need depend on the location and condition of the property. For example, in a hillside area, you might want a soil stability inspection.
Most buyers should have at least a general home inspection to find out if the house is structurally sound; a pest control inspection to see if the house has been infected by termites or dry rot; and, an asbestos inspection. A real estate agent can advise you about additional inspections.
5. How do I make an offer on a house?
Most homes are sold through real estate agents who have expertise in valuing homes. Once you have found the home of your choice and determine how much you are willing to pay, you need to make a deposit (called earnest money), to show the seller that you are serious about the house. The deposit goes toward the down payment on the price you are offering for the house. With the deposit, which is made in cash or by check to be cashed by the seller upon acceptance of your offer, you submit a written offer on a form known as the Real Estate Purchase Contract and Receipt for Deposit. Usually, however, this pre-printed form is simply called a deposit receipt.
6. What is a deposit receipt?
The deposit receipt is an offer which, upon acceptance by the seller, results in a binding contract with serious and lasting affects. It should cover all the important terms of the sale. For example, it should include a complete description of the property and of any personal property sold with the house, such as kitchen appliances. It should include the exact purchase price broken down into the amount of your deposit, the down payment, and the amount of the loan you will need.
Make sure that the deposit receipt lists the conditions that allow you to get out of the contract. You will want to be able to cancel the contract if you cannot get a loan or if an inspection shows that the house has substantial defects or problems, or if you need to sell the home you now own before buying a new one. The deposit receipt should also say whether you will get back part or all of your deposit if any of these things happen. Usually, you cannot back out because you find another home which you prefer, or otherwise change your mind, without losing your deposit.
Suppose you sign a deposit receipt before you get the disclosure form (see # 3) that the seller and/or real estate agents must provide. You may be able to cancel the contract if you act quickly. If the disclosure statement was delivered to you personally, you have three days to cancel. If it was received by mail, you have five days from the postmark. But if you received a completed disclosure statement form before you made an offer, you will not be able to cancel the contract.
7. Can I change my offer?
You should not make an offer to purchase a house unless you are serious about buying it. You can, however, revoke your offer before it is accepted by the seller. If your offer is accepted by the seller, you may be able to terminate the contract if the conditions of your offer do not occur. Otherwise, if you terminate the contract you will probably lose your deposit. Most deposit receipt forms contain a "liquidated damage" provision which may result in the loss of the buyer's deposit (up to 3% of the purchase price) in the event of a default by the buyer. Once an offer has been accepted, it cannot be changed without the consent of all parties (i.e., the buyer and the seller).
8. How can I get a loan?
Most home loans are made by financial institutions, such as banks, savings and loan associations, insurance companies, credit unions, mortgage brokers and mortgage bankers. They may charge different fees and offer different interest rates so it pays to shop around.
When you apply for a home loan, the lender will conduct certain investigations. It checks your credit record to be sure you are able to repay the loan in monthly installments. It obtains an appraisal or estimate of the "fair market value," or worth, of the house. The lender also usually checks the title or ownership, and records of the house to make sure that the seller is the real owner and that, if it makes the loan to you, there will be no claims which will be superior to its loan.
There are fees involved for these procedures. You usually will have to pay a loan application fee, document preparation charges, mortgage and title insurance fees, notary public costs and fees to record documents to settle or close the sale.
9. What types of home loans are available?
In exchange for cash from the lender, you agree to pay interest and to make payments over a period of time. The property is security for the loan.
Sometimes a seller will offer you a seller-financed or take back loan. The terms of the loan are worked out between the buyer and seller. You should see a lawyer to be sure that your interests are protected and that this type of loan meets all the legal requirements.
Occasionally, you can "assume" a loan or take over a loan that the seller is still paying off. However, most loans have an acceleration or due-on-sale clause. This means that the lender can demand that the seller's entire loan be paid in full when the property is sold. If you wish to assume a loan, this should be made a condition of your offer. To protect yourself, make sure to get the written consent of all lenders before assuming a loan.
Most home loans that are available to Californians offer one of two interest rate structures. A fixed rate loan offers a set interest rate, so your interest rate and monthly payment never change. Some fixed rate loans are federally insured or guaranteed, such as a Veteran's loan or an FHA loan. These loans usually have a lower interest rate but can be hard to get. For more information, get in touch with a local office of the California Department of Veterans Affairs, the U.S. Veterans Administration or the U.S. Department of Housing and Urban Development. Fixed rate loans that are not federally issued or guaranteed are called conventional loans.
An adjustable rate mortgage loan — ARM — features an interest rate and monthly payment which may change from time to time based upon the financial market. Usually, the interest is lower at the beginning of the loan schedule. ARMs can be complicated. In some circumstances, the principal amount of the loan can actually increase in amount because of the way the payments are structured. Again, make sure that you understand all the terms of the loan before you sign any papers.
Occasionally, new mortgage plans before available such as the federal loan program for first- time home buyers, etc. Check with the consumer affairs offices and housing departments of local, state and federal governments for up-to-date information on the choices. Many real estate agents also are aware of current mortgage programs. Before committing yourself to one of these plans, it is advisable to have a lawyer help you analyze the good and bad points of various problems.
10. What occurs when I "close" on a home?
For the protection of the seller and the buyer, a person or company that has no connection with you or the seller holds all money and papers involved in the purchase. This procedure is called escrow. The escrow holder delivers the seller's deed to the buyer when it can pay the buyer's (or lender's) money to the seller. Escrow services can be provided by title companies, banks, savings and loan associations, licensed escrow companies, realtors or lawyers.
The escrow holder also can cover some of the paperwork involved in buying a home, such as ordering a preliminary title report or ownership reports, recording the deed with the county recorder and paying the seller. Escrow service also includes giving you a closing or settlement statement listing all your costs and charges.
Before you sign escrow instructions, be sure they reflect all agreements you have made with the seller or the seller's agent. (See #6). The written instructions are evidence of the final terms agreed to by the parties, and any errors need to be corrected before you sign the agreement.
11. How should title to the home be held?
You can own or "hold title to" a home by yourself as separate property, with your spouse as community property, or with your spouse or someone else as joint tenant or tenant-in- common. Since the way you hold title may affect the taxes you pay and what happens to the home in the event that you die, you should speak with a lawyer or tax specialist when making this decision.
For more information on the different forms of ownership, see the State Bar's pamphlet, Do I Need Estate Planning?
12. Do I need title insurance?
Title insurance is necessary for your protection when you buy a home. Lenders require you to have title insurance before they will give you a loan. When you make an offer to buy a home, one of the conditions should be that title will be clear when it is conveyed to you. "Clear title" means that when the sale to you is completed, the title is free from easements, judgments, and other claims against the property, except the loan made to you to purchase the house.
Before a title company issues an insurance policy, it makes a preliminary investigation to find out if anyone besides the seller claims to own the property and whether any claims are recorded against the property. After you make an offer, you will usually be provided a preliminary title report which informs you which items must be removed for you to receive clear title.
You should review the report carefully to determine if there are easements claims or restrictions on the property. You can obtain more information from the title company or from county records about items that appear in the report.
There are different kinds of title insurance, and you can work out the terms just as you can with any kind of insurance policy. You can also negotiate with the seller at the time of making your offer to purchase as to who will pay for the policy.
13. Can I lose my home if I fail to make my loan payments?
California law says that you can be charged a fee if your payment is more than ten days late. The fee cannot be more than the greater of $5 or six percent of the amount due. You cannot be charged, however, unless the papers you signed with the lender told you about the fee.
If you miss a payment or fail to do something else that you agreed to, such as pay for fire insurance, the lender can foreclose. This means that the lender can force your property to be sold in order to pay off the loan. You must be notified of the sale and given a change to make the payments you missed. But you also would have to pay the lender any late fees and costs incurred in foreclosing. A lawyer can help you make sure that all the rules are followed.