LossReal

Writing The Offer To Purchase

When you are serious about pursuing the purchase of a specific property, this is the time to think carefully about what you want and what you can realistically afford. If your offer is accepted, it becomes a legally binding contract. You need to make certain you do not include anything in the offer that you are not totally comfortable with completing – your agent will guide you through the entire process and prepare the offer. Offers usually include items such as:

PROPOSED PURCHASE PRICE: Remember, the seller may counter-offer with a higher price – consider that when you decide on your proposed purchase price.

CONCESSIONS: This includes things you would like the seller to help pay for – such as closing costs.

CONVEYANCES: This covers any personal property to be included with the sale – like the washer and dryer, or the refrigerator, or the patio furniture.

EARNEST MONEY DEPOSIT: The “earnest money” is a deposit you offer to show that you are serious about purchasing the home. The earnest money is usually held in your agent’s company’s trust account (which is a non-interest bearing account) and deposited into that account upon full acceptance of the offer by all parties. This deposit is part of your settlement costs at closing. If you fail to meet the terms of the contract, your agent cannot return the money to you without a full release by both buyer and seller or other legal direction. In some instances, if you fail to perform, you may lose this deposit.

HOME INSPECTION CONTINGENCIES: Be prepared if the home inspection report shows major problems (which sometimes happens). Know what you will ask the seller repair or replace in order to purchase the home or what type of reduction in price to account for the repairs and/or replacements who will do yourself after you purchase the home.

ACCEPTANCE: This refers to the period of time (usually how many days) the seller has to respond to your offer before it is no longer binding.

MEDIATION AND ARBITRATION: These are legal methods for handling contract disagreements between you and the seller. Realtors are not attorneys, so we do not provide legal advice.

WHEN THE OFFER BECOMES A CONTRACT: Once the seller accepts your offer, the offer becomes a contract. Your contract will include the following:

LEGAL DESCRIPTION: This would include the address of the property, the tax identification number and parcel number, the subdivision, city, county, and state, along with any additional information that may be a part of the county record for the property.

SELLING PRICE AND DEPOSIT: This is the price that both seller and purchaser have agreed upon, as well as the amount of earnest money the buyer will deposit when the offer is executed and agreed to by all parties.

MORTGAGE CONTINGENCY: This contingency protects you by stating that the sale depends on a lender approving you for a specific mortgage, rate, and term.

CLOSING DATE: The closing date can be several weeks to several months from the acceptance date to meet the needs of both seller, buyer, and the lender preparing the settlement package.

HOME INSPECTION: If you have the contract contingent upon the completion of a home inspection (which can include a pest inspection and/or radon inspection), this will include a date by which the inspection must be completed and what will happen if the inspection report identifies any problems.

POSSESSION DATE: This is the day you are given occupancy of the property. In many cases, it is the date of closing. If it is not at closing, it can be any number of days after the closing (usually no more than thirty).

PROPERTY INSURANCE: This details the home insurance policy that will cover the property until the closing date. This is usually the seller’s policy with the buyer’s policy taking effect upon the date of closing.

PROPERTY DISCLOSURES / LEAD BASE PAINT DISCLOSURES (if applicable): This relates to State-mandated forms that includes legal notification of any information regarding the property or any issues that a seller may have (or currently has) must be disclosed. The lead base paint disclosure form relates to homes constructed prior to 1978 and lead was used in interior paint.

Your Loss Realty Group agent will explain any and all of these items as you work through the home-buying and/or home-selling process.

How Much Can I Afford?

There are two major factors that will determine how much of a house you can afford:

• The amount you are qualified to borrow; and,
• The size of your down payment.

Lenders take into consideration your gross monthly income and your existing debt payments when determining how much you can afford to pay each month. This number is called your “debt-to-ratio income” (DTI).

If you have an existing home, also factor in these considerations into your new home purchase:

• The equity in your current home.
• Selling costs (Example: Repairs or updating your current home may need)
• Closing costs (Example: Title Work; Conveyance Fees – costs associated with the actual closing of the property and transfer to the new Homeowner).
• The savings you can spend – applied to the new home purchase.

The best way to begin the home-buying process is to get pre-qualified (or pre-approved) with the lender of your choice. It’s quick, convenient, and you can complete the process on-line. Sellers in today’s market always want to see that a prospective Buyer of their home is pre-qualified or pre-approved (this shows them that you have the financial ability to purchase their home and that ability has been verified by a lender).

The following are the basic items a lender may require at the time you make a formal application for a mortgage loan:

• A copy of your Contract of Sale / Purchase Agreement or Building Agreement (complete with the address and legal description of the property).
• W-2 forms for the past two (2) years an original pay stubs for at least the last thirty (30) days showing year-to-date income or a statement from your employer confirming your earnings for the previous two (2) years.
• If self-employed, business and personal Federal Tax Returns for the past two (2) years plus a current financial statement.
• A ninety (90) day history of savings; checking; and/or brokerage accounts.
• Verification of twelve (12) months of rental; mortgage; or land contract payments.

If you are a new home buyer, be sure to ask your lender about FHA or VA payment assistance programs and as well as conventional loan mortgages. Again, getting pre-approved for a home loan is highly recommended so that you are searching for a property in the appropriate price range. Most Sellers will require a pre-approval letter from the Buyer’s lender before they will accept an Offer and sign a Purchase Agreement.