Home Buying FAQ’s
WHAT DOES THE MORTGAGE CONTINGENCY MEAN?
When home buying, you may see that many Real Estate Contracts are “contingent” on the Buyer’s ability to get a mortgage loan in the desired amount. They provide that the Buyer has until a certain date to obtain a mortgage commitment, and if the Buyer fails, or is simply unable, to obtain a mortgage commitment, the Buyer can terminate the contract and receive the return of any deposit they paid. It is important for the Buyer to keep track of this date, because if the Buyer fails to give the Seller written notice of any decision to terminate the contract on or before the specified date (or any extension that has been previously agreed to by the parties in writing), the Buyer may be required to forfeit the deposit.
WHAT IS A TITLE SEARCH AND WHY DO I NEED ONE?
When home buying, you will need a title search. Searching a title involves the professional title searcher visiting the town hall where the property is located and personally checking all relevant public records relating to the property. Your paralegal at Kane, Hartley & Kane, P.C. will arrange a title search of the property you are buying or refinancing. The purpose of the title search is to verify the present ownership of the home you are buying or refinancing, and to determine the existence of any mortgages, liens, or other matters that affect the rights of ownership to the property. Your attorney at Kane, Hartley & Kane, P.C. will review the title search report in detail. If the title search report reveals a defect or problem, your attorney will advise you and discuss your alternatives.
WHAT IS A TITLE INSURANCE POLICY AND WHY DO I NEED ONE?
When home buying, you will be offered title insurance. Title insurance insures that you’re getting what is called “Clean Title”. This means that you own the property without any prior mortgages, liens or adverse claims against it. Most prior mortgages and liens are discovered by the title search, and are dealt with at Closing. But some liens or other rights might not be apparent to, or discoverable by, the title searcher. For example, Mechanic’s Liens can be filed by a contractor who provided services or materials to the house up to 90 days after the work was completed, even if the seller sold the house to you in the meantime! Other defects covered by title insurance include the effects of lost or misfiled deeds, liens for unpaid estate taxes, deeds signed by minors, and a number of other irregularities that sometimes occur. With title insurance, if anything like this arises, you simply contact the title company and they do what it takes to resolve the matter.
All Mortgage Lenders require a Lender’s Title Insurance Policy to protect their interest in the event of a title problem. The premium is paid by you, the Borrower/Buyer, and is paid at the Closing.
WHAT DO YOU MEAN BY A “CLOSING”?
For a home buying transaction, the “Closing” is a meeting between the Buyer and the Seller, their Attorneys and possibly the Real Estate Agents and Brokers. At the Closing, the Buyer will receive the Warranty Deed to the property, and the Seller will receive the purchase price, after deducting any mortgages and other expenses the Seller owes. The Closing usually takes place at the office of the Buyer’s Attorney. At the Closing, your Attorney will be present to discuss any last-minute issues and to conduct the Closing. In most cases the Buyer’s Attorney will also be representing the Mortgage Lender, and will guide the Buyer through the many documents that Lenders require. For a Refinance, the “Closing” is a meeting with the borrower and the closer, in which the borrower signs the necessary loan documents.
WHY DO YOU ALSO REPRESENT THE MORTGAGE LENDER?
Banks, Credit Unions and other mortgage lending companies require legal representation in connection with home buying closings, at the expense of the Borrower, and they will only use attorneys that have qualified to represent them and are on their “approved attorney list”. Kane, Hartley & Kane, P.C., is on the “approved attorney list” of virtually all area lenders. When you’re home buying and you hire us, you’re also hiring Kane, Hartley & Kane, P.C. to represent the lender’s interest.
Since you also need legal representation in connection with your transaction, it is customary in this area for the same attorney to represent the lender and the borrower. This cuts down on costs and is more efficient. The fees we quote you include this dual representation.
WHAT ARE THE TYPICAL CLOSING EXPENSES FOR A BUYER AT THE CLOSING?
Bank expenses fees including, but not limited to, processing fees, application fees, credit reports, tax service fees, document preparation fees, etc. are less than $1,000.00 in a typical transaction. Above and beyond that, there may be points. A point equals 1% of the mortgage loan amount. This may well be the biggest expense of the Buyer. A Buyer typically pays a title search fee that is approximately $100.00 to $200.00. Title Insurance costs approximately $4.00 per $1,000.00 of coverage. Attorney’s fees for representing a bank are typically in the $450.00 to $550.00 range and for personal representation $150.00 to $250.00 range. Recording fees are typically less than $1,000.00.
In addition, many banks now require that there be an escrow for taxes and property insurance and this typically can be as much as 5 months’ worth of taxes, depending on when the transaction occurs. In addition to the tax escrow, the Buyer reimburses the Seller for the taxes prepaid by the Seller. It generally works out that between the tax reserve and the amount reimbursable to the Seller, that a Buyer pays between 7 and 8 months of taxes at time of closing.
The Buyer also reimburses the Seller at closing for fuel oil, and most fuel oil tanks are 275 gallons. The tank is usually topped off at time of closing and the Buyer reimburses the Seller for a full tank of oil. Last, but not least, the Buyer may have to pay for private mortgage insurance which is sometimes paid for one year in advance. The amount of the mortgage insurance varies.
WHAT IS PRIVATE MORTGAGE INSURANCE AND DO I NEED IT?
This type of insurance protects the Lender against lawsuit due to default by the Borrower. This is generally required whenever the loan amount exceeds 80% of the fair market value of the property being purchased. It may also be required in other instances. The requirement for this insurance is usually waived after the loan has been reduced to a specific level but typically there is a mandatory three-year requirement even when the loan-to-value ratio is less than 80%. It may last for 10 years.