The 5 Questions First-Time Homebuyers are Too Embarrassed to Ask – ANSWERED!
Is one of your goals for 2017 to buy a home? Maybe you spend inordinate amounts of time trolling Zillow and it is time to pull the plug, but you have questions you are too embarrassed to ask. Having successfully represented many first-time homebuyers for their transactions across all price points, I notice the same questions come up over and over again. Here are my answers to the five most common:
1.) What is “Earnest Money”?
When you submit your offer to the seller, you will be required to write a check for some portion of the purchase price to show good faith that you intend to proceed with the deal and to give the seller comfort in taking their property off the market. It may be $1,000, $20,000 or more and sometimes you pay a smaller amount up front and then after completion of inspection you will deposit a second, larger amount. Every deal is a little bit different, so ask your attorney or realtor to explain how yours will work.
If the transaction does not close because, for example, you decide at the last minute that you want to purchase a similar property that came on the market for less money, you may have to forfeit your earnest money to the seller as compensation to them for holding their property off the market for a period of time. Speak with your attorney about your options if you want to get out of the deal; in some cases, the earnest money can be saved.
If the deal goes through, the earnest money will be applied to your purchase price at closing.
2.) What is “Attorney Review”?
After you and the seller hammer out your deal, most Illinois form real estate contracts contain language that allows both sides’ attorneys to review the terms and re-negotiate the deal to some extent. Typically the re-negotiations are related to issues that arise during inspection or during the attorney’s review of condominium documents if you are buying a condo.
For example, if the inspection reveals major problems with the roof that the seller did not initially disclose, your attorney may be able to negotiate a repair credit. Or, if your attorney discovers that the condominium association intends to make a special assessment for damages from a storm that happened while the seller occupied the unit, that may provide an opportunity for the attorney to negotiate down your purchase price.
After attorney review is complete and the final deal is agreed upon, you can proceed toward closing.
3.) What is “Closing”?
The “closing” will typically take place at a title company or attorneys’ office. Buyer must be present; seller may or may not be there. Buyer’s attorney will review all closing documents with him or her – for example, the mortgage, deed, and other loan paperwork that, once signed, will mean you own the home. A closing typically lasts about 2 hours, but may be shorter or longer. Bring your identification and be ready to sign a lot of paperwork. The process called a “closing” because it means the contract between the party “closes,” funds are disbursed by your lender to the seller, and you will receive your deed and keys to the property. The seller will no longer have any rights to the property.
4.) What is “Title Insurance”?
In Illinois, title insurance is purchased by the seller and provides assurance to you that you actually own the property you think you own. The seller’s attorney or title company will search the property records to make sure there are no clerical errors, unknown liens, undisclosed heirs or other possible problems lurking in the past of your property. For example, if an owner many years ago passed away and the estate was not handled properly, there could be a long lost relative that has claim to your property. Title insurance will pay to defend you in court if anyone challenges your rights to the property and compensate you if you lose. Like any insurance policy, title insurance has exclusions so speak with your attorney about the coverage you will receive.
5.) Where does my mortgage lender fit into all of this?
When you make your offer on the property, you should already have a “pre-approval” from your lender. This means the lender will loan you the money for the property, subject to a more detailed review of your background, employment, income, assets and liabilities. So, during the same time that the property is being inspected and your attorney is reviewing the contract, your lender will be asking you for various documents like bank statements and pay-stubs to confirm your ability to repay the loan. Once your lender confirms that they can give you the loan, they will alert you that you have a “clear to close” meaning the closing can go forward and they will transmit the money to the title company to be given to the seller.
As assurance that you will pay back the loan, the lender will have a mortgage on your property. If you do not pay your loan payments or violate other terms of your agreement with your lender (which will be explained to you at closing), the lender will be able to go to court and take the property in foreclosure proceedings.
If you have any questions, feel free to send them to me, attorney Junilla Sledziewski. Rest assured that there is no silly question, and every deal is a little bit different.
If you need a real estate attorney in the Chicago area to guide you through the closing process, give us a call today:
Statman, Harris & Eyrich, LLC
30 S Wacker Dr #2200
Chicago, IL 60606