Buying a home in New Jersey
From Offer to Closing:
A Guide to Buying a Home in N.J.
So, you’ve finally found a house! Congratulations! For those whom have never purchased property, the road that lies ahead may seem like a stressful and complicated one, paved with lenders, lawyers and a lot of information that you may not be familiar with. But it doesn’t have to be. The choice of experienced professionals to assist you can make the road ahead more of a pleasure than a pain.
Once your offer has been accepted by the seller, you will sign contracts with your realtor. Those contracts will immediately be sent to each party’s attorney. In New Jersey, there is an attorney review period during which you are permitted to have your contract review by an attorney of your choice. This period typically lasts three days, but may be extended if need be. It is important that you have an attorney to whom you can quickly direct these contracts so that this review period is not unreasonably delayed. During the attorney review period you and your attorney will discuss any special circumstances that may affect your transaction. Your attorney will then send an attorney review letter to the seller’s attorney and work out any issues that may exist between yourself and the sellers. Once this period is concluded your attorney will inform you than it is now time to move on to the next step, the home inspection.
It is imperative that you have a home inspection of the property performed, even if you are familiar with the property. The typical residential contract will allow for approximately ten (10) days during which you can have this inspection done. An experienced, qualified home inspector will perform a comprehensive examination of the property shedding light on the condition of the property that may not be visible to the naked eye. The inspector will check plumbing, heating, electrical systems, etc and give you an overview of the property’s condition so that you are made more fully aware of what you are purchasing.
The inspector will prepare a report and provide copies for yourself and your attorney. Together with your attorney you will discuss any concerns that may exist after the inspection. Your attorney will then send a letter of theseconcerns to the seller’s attorney and attempt to resolve these issues in short order.
Throughout this entire process you will have been working with a lender in order to secure the mortgage financing necessary to complete the transaction. Like most people the average homebuyer requires financing in order to make a purchase as substantial as a house. In this case the typical contract provides for a period of time during which you may secure a mortgage commitment from a lender. This time period is usually thirty (30) to forty-five (45) days from the contract date. This time period is referred to as the mortgage contingency period. What this means for you, the homebuyer, is that provided you have made a good faith effort to work with a lender towards obtaining a commitment to lend you the amount of money necessary to purchase the property during this period, if through no fault of your own, the lender rejects your mortgage application your attorney may inform the seller’s attorney that you are unable to secure the necessary financing and will have to withdraw from the transaction.
A critical factor in being able to secure mortgage financing is having an appraisal conducted, the findings of which support a value of at least the amount of the contract purchase price. Your lender will coordinate the performance of the appraisal with your realtor, in most cases, without your presence. The appraiser, not to be confused with the home inspector, will provide your lender with a detailed analysis of the property’s value, by comparing it to a number of similar properties recently sold in the area so that the lender can be confident that the property is not over-valued.
Cooperating with your lender throughout this process may be the single most important thing a homebuyer can do in moving the transaction to closing. It is the lender, after all, who will have the final say as to when a transaction can actually close!
While all of this is going on your attorney will be working on a number of additional matters on your behalf. Your attorney will order what is called a title search of the property. A title search, performed by a title insurance company, will search public records to discover, among other things: the legal owner of the property that you are buying, the number of liens and the lien holders, status of the property taxes and whether there are any judgments against any of the parties. Ultimately, the title company will issue a title insurance policy which will insure you against losses that result as a consequence of defects of title that existed at the time that insurance coverage was issued.
In most cases, your lender will also require that a survey of the property be completed and made part of the title. A survey is essentially a map of the property showing the property’s boundary lines and whether any portions of the property you are buying or structures on that property are within the boundary lines. The survey will be ordered by your attorney through the title company. You will receive original prints of the survey, if one is done, at closing. Surveys can be very helpful when deciding to put up fencing, erecting structures or expanding decks.
As closing draws near, you should begin shopping for homeowner’s insurance. A good place to start is with the company that provides your car insurance. Many insurance companies offer discounts to people who insure both their car and home with the same company. In some cases, a property may be located in a flood hazard area, requiring flood insurance, as well. If the property you are buying is a cooperative apartment or a condominium unit, the development’s association will provide blanket insurance that provides coverage for the structure but not the contents of the unit. In the case of a coop or a condo it is always a good idea to secure an insurance policy for the contents since the association’s blanket coverage only covers the physical structure of the property. Your lender will have specific requirements for the type of insurance coverage you will require and this is usually found on your mortgage commitment. Every lender will require insurance coverage of some sort in order to clear your loan for closing.
Another item to consider is municipal documentation. Every municipality in the State of New Jersey requires a certificate of carbon monoxide detector and smoke detector compliance in order to sell a property, which is the responsibility of the seller to provide at closing. Some municipalities also require a Certificate of Occupancy, as well. This matter is usually handled by the seller’s realtor.
With all these activities going on, many of them simultaneously, the day of closing is not far ahead. Once the lender clears your file for closing, your attorney will coordinate with the other parties and you to fix a date for closing. Your lender will usually provide closing figures to your attorney a day or two prior to closing. Using those figures your attorney will be able to draft a HUD-1 Settlement Statement which will be a full and complete summary of all the money involved in the transaction on all sides. Once the settlement statement has been completed your attorney will be able to tell you exactly how much money will be needed for closing.
Finally, closing!!! The day of closing should not be a stressful one. You will typically meet your realtor for a walk-through at the property shortly before closing, to make sure that the property is in substantially the same condition it was in when you have your home inspection done. Then you’ll meet your attorney and the other parties at the closing location and prepare yourself to sign a lot of paperwork. At the end of the day, you will be a new homeowner and the trip from offer to closing will not have been as bumpy as you may have previously thought, because you had the right people on your side!