Frequently Questions From First Time Home Buyers:
1. Why do I need a real estate attorney?
2. What is a mortgage?
3. How big of a down payment should I put down on a house?
4. What other costs should I expect?
5. What is the attorney’s role?
Are you a first time home buyer searching for your dream home? I’m sure you’re probably wondering…”how do we do this the right way?” Oftentimes, people who are looking to purchase their first home miss a lot of the important things needed to successfully go through the process. While we know the stress of buying a home can be a lot, our attorneys here at Apple Payne Law want to make sure it is an enjoyable experience for you! Here are 5 helpful frequently asked questions from first time home buyers we often get regarding purchasing a home for the first time. First, let’s start with the big question…
1. Why do I need a real estate attorney to close on a house? In the state of North Carolina it is required to have a real estate attorney present when handling the purchase and closing on a house. Your real estate attorney can essentially be seen as your “safety net” throughout this process. They’re there to help protect you! Your attorney will ensure that you are receiving the property clear of any legal circumstances that could prevent you from having full rights to the home, and that all the terms of the contract are met giving you complete ownership. In other words, your attorney makes sure there are no skeletons in the closet that could seriously hurt you when legally taking ownership of a home or property that may affect you long term.
2. What is a mortgage? A mortgage is an agreement between you and a lender (usually your bank) to repay the money you’ve borrowed from them plus interest. When you get a mortgage, the lender will give you a set amount of money to loan out in order for you to buy your home. When you receive this loan money, you are agreeing to pay back your lender/pay off your loan with interest that accumulates over a period of years. So, while you DO officially own the property, until your loan is paid off/lender completely paid back the lender has the right to ask the Court to take back or “foreclose” on your property if you don’t make your payments on time. So make sure that your mortgage is paid first!
3. How big of a down payment should I put down on a house? It is recommended that you put 20% down when buying a home but the average amount people usually put down is equal to about 6%, while the lowest you can put down is actually 3%, depending on your lender, credit score and the loan type! Typically, the lender wants 20% because it lowers their lending risk. If your credit score is on the lower end (below 700 or so), a larger down payment can increase your chances of being approved!
So, if you’re concerned about your budget for a down payment and realize it’s holding you back on your house hunting…don’t worry! There are ways to become a homeowner without a huge down payment. The other reason to go larger, if possible, is to avoid private mortgage insurance (called “PMI”). If you have under 20% down (aka equity) in the home, the lender will require PMI, which protects the lender in case of potential foreclosure. Unfortunately for the buyer, the cost of PMI is added to your monthly payment due to the lender. Once you have at least 20% equity in the home, you can request the PMI to be taken off of your monthly payment (unless you fronted the PMI costs at closing).
4. What other costs should I expect? Other than the down payment toward your new home, you should be aware of the extra expenses that come along with purchasing your first house, such as appraisals, inspections, closing and loan costs. Closing costs are the fees paid at the closing of a real estate transaction. The total closing costs depend on the price and location of your home, but as a starting point, you can expect to spend between two and five percent of your mortgage loan in closing costs. Your loan costs (i.e. bank charges for handling the loan) are included in your closing costs as well.
Title insurance is a way to protect yourself from financial loss and related legal expenses if there was to be a defect in title to your property that is covered by the policy. Title insurance differs from other types of insurance simply because it focuses on risk prevention, rather than risk assumption. You can generally expect to pay a few hundred to $2,000 on title insurance, while larger loan amounts, smaller down payments, and lower credit scores can all be a risk of increasing this amount as well.
Home warranty is a contract that agrees to provide a homeowner with discounted repair and replacement services. Simply, it provides financial protection against disasters, theft, and accidents. Your home warranty costs depend on the size of your property, and how many appliances you’d like to cover in your home, and which applications. This range typically falls between $350-$600 a year to be protected.
5. What is the attorney’s role? The state of North Carolina requires a closing attorney in all real estate transactions, including cash closings. Your attorney will act as the “go between” for the lender, real estate agent, buyer, and seller (or seller’s attorney).
Your real estate attorney will begin by conducting a title search on the property you’re trying to purchase, which protects you from any hidden issues that you don’t want attached to you when taking ownership of the property! Such as: a possible second owner that the seller (or real estate listing agent) may not know about, unpaid mortgages, lines of credit (home equity loans), or unpaid taxes; outstanding lawsuits, liens, or judgements on the property.
Once the title search is complete, your attorney will then submit a title opinion to obtain title insurance. There are two kinds of title insurance: the lender policy (to make sure that if there are any issues later, the lender can still get the mortgage $$ back) and the owner policy (to protect the buyer’s ownership just in case). The lender’s title insurance is almost always required; they will not lend you the money without it. The owner’s policy is highly recommended – it is usually low cost and while you PROBABLY won’t need it, the peace of mind and protecting your new home is worth it.
The closing attorney wil also balance the closing disclosure (formerly called a “HUD Statement” a “HUD 1”, but basically a ledger showing where all the money at closing is going) to make sure all the right folks get paid, and more importantly get paid the correct amount!
Your real estate attorney will finally conduct the closing by reviewing lender documents to ensure they’re correct, make sure all documents are executed properly, record the deed and/or deed of trust, hold and distribute money (i.e. property taxes, homeowner’s insurance, commission, proceeds, attorneys fees, etc.).
How a client and agent can help their real estate attorney:
So after learning all of that, you may be wondering…”How can I as a first time home buyer make my real estate attorney’s life easier”? The simple answer is, be responsive! There is a lot of information attorneys typically need from both the buyer and the seller to complete a closing. Additionally, receiving this information and submitting it to all of the appropriate places (such as title insurance, lender, etc.) is time sensitive. As always, ask questions! Whether it is your first time buying a house or you bought one over ten years ago, it’s perfectly fine to have questions. This is one of the biggest decisions and purchases you can make and you probably have questions about it ranging from the timeline, to costs and fees, to procedure.
What can agents do to help? Once again, be responsive! Agents are sometimes the only line of communication we have, especially at the beginning when both the buyer and seller have agents – the buyer and seller contact information is not usually listed on the offer to purchase or contract. Just like real estate agents want the closing attorney to be responsive, we need the real estate agents to be responsive to us as well to help make sure everything closes on time (or as close to on time as is possible within our control).
Are you looking to be a first time home buyer? Schedule a FREE consultation today or give us a call to speak with one of our real estate staff to answer any additional questions you may have! Set the legal work aside for us to handle, Apple Payne Law is here to help you fulfil your dream…the dream of becoming a homeowner! We hope these answers to the frequently asked questions from our first time home buyers was helpful, and if you’d like to read more you can find our previous blog posts on our website!