QUESTION: We are about to purchase our first house, and would like some general advice from you. While we understand that you cannot give us complete "how to do it" guidance in this article, are there some tips and some suggestions you might have for the first-time buyer?
ANSWER: There should be no difference whether you are buying your first house or whether you have bought numerous houses in the past. Here are some suggestions to make your home buying more enjoyable and less expensive:
* Select your own settlement attorney or title company. As a buyer, you have the right to select the location of settlement, expecially if you are paying the settlement costs. When you sign a contract for your house, indicate in writing in the contract that "buyer will determine location of settlement." Also, it is advisable to shop around. You should be surprised at the variations in cost among the various providers of settlement services. Ask a title company and a title lawyer what the cost is for a title search, for example. Just because you are buying a house in one state does not mean that you must settle in that state. This is a metropolitan area, and you can -- and should -- take advantage of comparative shopping.
* Shop for your loan. Do not accept the first loan that is offered. Call around; compare the costs, and ask for an explanation of all of the charges, including points, appraisal fees, lawyers' fees and the like. You are entitled to obtain a complete itemization of costs before you enter into a contract with your lender. Insist on obtaining this statement and use it as the basis for comparision shipping.
* Title Insurance. Do you need it? Normally your lender will insist that you purchase title insurance to protect his interests; this is known as a mortgagee policy. You also are given an opportunity to purchase owner's title insurance as well -- but is is not mandatory. Purchasing such insurance is like gambling; there is a chance of risk but in some cases the risk may not be worth the additional cost. Ask your title lawyer (or company) what the title policy covers and what it does not cover.Read your policy carefully at settlement before you make the decision. The exemptions from coverage are listed in a Schedule B to the title insurance policy. Examine these exemptions carefully, so that you can decide whether it is worth purchasing the full owner's policy. Additionally, if you do purchase the owners' policy, you should make sure that it contains an escalator clause, so that the value of the policy keeps up with the inflation and the appreciation of your property.
* Warranties. When you buy an older home, it usually is on an "as is" basis unless your contract specifies otherwise. You should provide in the contract for the right to have an independent housing inspection, and for the right to void the contract (with full refund of your deposit and the interest) if serious problems are found. You should be able to back out of the contract if you are dissatisfied with the inspection reports. Additionally, include in your contract a provision stating that "all plumbing, heating, electrical appliances are to be in working order at time of settlement."
If you are buying a new house, you probably will receive at least a one-year warranty. But before you settle, insist on a walk-through with your builder and further insist that all problem areas be corrected prior to settlement.
* Deposit. How much money should you put down when you sign a contract? This is known as the "good faith earnest money deposit." There is no easy answer to this question. Needless to say, the seller wants you to put down as much money as possible so that, if you do not buy the house (are in default of your contract), the seller will keep your deposit.From your point of view, you want to put down as little as possible to protect against the potential loss of these funds. A good rule of thumb suggests that the deposit should be somewhere between 5 and 10 percent of the total purchase price of the property.
In any event, make sure that the deposit is held by a real estate broker (or your attorney) and is placed in an interest-bearing account, with interest going to you, the buyer, at settlement.