New Jersey Lawyers BlogNew Jersey Home Purchase Closings
Finding a home you want to buy and making an offer which is accepted by the seller is only the beginning of the process to purchase a home in New Jersey. The next step is signing a contract to purchase the home. The contract is a written agreement outlining the parties’ rights and responsibilities. If your contract was prepared by a realtor, it will be subject to a three day attorney review period which allows three business days for the contract to be reviewed by the parties’ respective attorneys. Either attorney may invalidate the contract for any reason whatsoever within the three day period or either attorney may request amendments to the original contract. The amendments will be in the form of a letter addendum or rider to the contract and will require both the sellers’ and the buyers’ signatures which signify their agreement to the amendments.
After attorney review of the contract has been completed, you now have a valid and binding contract to purchase the home. The next step is to make arrangements for a home inspection as soon as possible and within the time period specified in the contract. Contracts are usually subject to home inspections (structural, water, septic, termite, etc.) and mortgage contingencies. Most purchasers prefer to have a licensed home inspector inspect the premises for defects. This is highly recommended since purchasing a house is a substantial investment. You should select the inspection company and have the realtor arrange for an appropriate time to inspect the house. The attorney will not usually be involved with the selection of the inspection firm nor the scheduling of the inspection. However, if the inspection discloses any problems which need to be addressed, the lawyer will negotiate a resolution with the seller’s attorney.
While the inspection process is proceeding, you should select a lender and begin the mortgage application process as soon as possible since the contract only provides for a certain number of days to arrange for a mortgage. If you do not obtain a written mortgage commitment from your lender within the time specified in the contract, the transaction could be placed in jeopardy because you would need to either cancel the contract or proceed knowing that you risk being forced to go through with the purchase even if you cannot get a mortgage loan. A representative of your lender should be able to inform you at the time the application is made how long you can expect the lender to take in issuing a mortgage commitment. You can expect the lender to require at least 30 days from submission of the loan application to issue a commitment.
When you receive your mortgage commitment, read it carefully and in its entirety before signing. Your signature indicates your acceptance of the terms of the commitment. This is a contract made between you and the lender. It outlines the terms of your mortgage; consequently, be sure you understand it before you sign. The mortgage commitment will state a time period or a date after which the commitment is no longer valid. This is a most important date, particularly if you are “locked-in” at an interest rate during a period of rapid interest changes, since your purchase and financing must have taken place by that time.
Ordinarily when you receive a mortgage commitment, the lender will forward a copy of the mortgage commitment to your attorney with a set of instructions for the attorney to follow. However, sometimes the lender only provides the commitment to the borrower. You should check with your attorney to ensure that she has received a copy of the commitment.
The commitment will list conditions that you must meet in order to receive the loan. One of those conditions is usually that you provide a current survey of the property. The survey is a drawing prepared by a licensed land surveyor which locates the boundary lines and structures on the property. The surveyor may be selected by you so you may negotiate the price directly with the surveyor and the length of time the surveyor will require to prepare the survey. The surveyor must work with the title company and the attorney.
If the sellers have a survey, it may save you time and be less expensive to return to the original surveyor. Ask the surveyor to update that survey and contact our office for the certifications. Updating a survey is usually less expensive than having a new survey prepared.
You may also be able to use the seller’s survey with a survey affidavit of no change if your lender and your title company will accept the survey and survey affidavit instead of a new survey. Please check with our office before ordering the survey.
Another condition of the commitment will be that you must obtain title insurance. All lenders require title insurance. Typically, your attorney will order title insurance on your behalf. Title insurance fees are regulated by the State and are based on the purchase price. In most cases the title insurance company will insure the boundaries of the land in accordance with the survey provided and your title to the property. Typically, a title insurance policy will be issued approximately two months following the closing. A mortgagee’s policy will be forwarded to your lender, and an owner’s policy will be forwarded to you. It is important for you to keep your policy in a safe place.
Your owner’s title insurance policy will be paid for by you in full at the closing and will be in force for as long as you own the property. However, if you refinance, you will have to purchase a title insurance policy at a possibly reduced rate to insure the amount of the new mortgage with the lending institution only.
The title insurance company will do a preliminary search of the property and issue a title insurance “binder” prior to closing which will reveal any defects in title, such as judgments, mortgages, rights of heirs, etc. The attorney will review the title binder for potential title problems and require the seller’s attorney to resolve any issues so that you will take free and clear title to the property.
The lender will also require that you obtain hazard insurance (also known as homeowners insurance) in at least the amount of the mortgage naming the mortgagee (the lender) as loss payee. However, you may want to obtain a “replacement value” policy. You should discuss the options with your insurance agent. It will be your responsibility to select an insurance agent and purchase the policy. Lenders usually require that the first year’s premium be paid in full in advance.
Once the title to the property has been cleared and all conditions required by the lender have been satisfied, a closing may be scheduled. The closing will usually take place at the buyer’s attorney’s office. At the closing, you will review the closing statement, known at the HUD-1 Settlement Statement with your attorney. This statement lists all fees, including mortgage costs, survey costs, title insurance, escrows for real estate taxes and insurance, bank fees, attorneys fees, hazard insurance, real estate commissions and recording fees. There can also be other expenses, such as homeowner’s associations fees, oil tank adjustments, and others. These numbers cannot be calculated with accuracy until the lender has provided their numbers and the closing date is confirmed.