The birds are chirping, flowers are blooming, and a “for sale” sign is being hammered on the lawn of your dream home. Spring is the beginning of moving season! Realtors are hard at work finding the perfect home for their clients. Are you ready to make the move to your forever home? Did you know that in addition to hiring a realtor, it’s recommended to also hire a real estate attorney for the home buying process?
You are not the only family ready to find your forever home – you will have to be ready to place your first bid asap! This will help ensure the process goes quickly and in your favor. It’s wise to hire an experience attorney in your corner to help you through this exciting process. Real estate attorneys help with all presale and closing documents. A real estate lawyer can also protect your interests when it comes to financing. Real estate law varies from state to state, so it’s important to work with someone who is an expert in the area you live. In this blog, Attorney Ben Weaver is here to guide you through some reasons you’ll want to find a lawyer during this process. For additional information, read “Home Buying Basics in Illinois“!
“My wife and I bought our first home around this time last year and Ben was very helpful throughout the whole process. He was really swift with his responses, on top of his very fair rates. I highly recommend him to anyone looking to purchase a home.” – Teoh W.P.
What Kind of First Time Home Buyer Are You?
Moving from an apartment to a home: You’ve been renting apartments for years now. Every month, pouring money into a property that does not belong to you. Wouldn’t you like to own the property you’ve invested in? It’s time to buy your starter home! A frequent question that renters have during the process of transitioning from renter to homeowner is the logistics of the move. How long does it take to close? When do I have to give notice to my landlord about ending my lease? Will I get stuck paying for rent and a mortgage in the same month? It can be extremely overwhelming. It takes between 30 to 50 days to close on a home. Having a trustworthy real estate attorney will be beneficial when mapping out the timeline with your current landlord and your closing date. Your attorney can also guide you through the process of your mortgage payments and roll over rent.
“Ben handled all our legal questions and requirements in a professional manner. He was a great benefit to us as first time buyers.” – Tom S.
Newlyweds: Congratulations! You and your partner are ready to enter the next phase of your life and purchase your first home! You’ve recently combined all of your finances and have done all the prep work in establishing a strong escrow. You’ve narrowed down your potential home to your top three favorites. All you need now are the fine details on each home that can only come from a proper appraisal. Your real estate attorney will take a deeper dive into the history of the homes you are interested in. A real estate attorney can request documents on home improvements, flooding, previous owners, and even what the current owner bought the home for. This way you know everything you need to before making a decision!
“Illinois law requires a seller, to tell a prospective buyer, in writing, what you know about the quality, healthfulness, and safety of your property. This includes things like past flooding and flood risk, unsafe conditions, municipal code violations, environmental issues, boundary line disputes, and material defects in specified structures, components, and systems. You must make these disclosures prior to signing the sales contract, on a standard form that’s discussed below. The disclosure is not meant to serve as a warranty or substitute for inspections, but to put the buyer on an equal footing with the seller during contract negotiations.” – NOLO
Real Estate Investment: You’ve been saving money and you’re ready to invest in a property you’ve had your eye on for quite some time now. This home is definitely a fixer upper and will require you investing time and money. Your plan is to bring life back to this property! Due to all the maintenance needed on this home, you may feel like your loan options are limited or won’t meet the requirements of the type of loan you desire. This is where your real estate attorney steps in with the knowledgeable perspective and you’ll benefit from their strong relationships with local realtors & mortgage brokers.
“We bought our first home with Ben Weaver, obviously as a first time buyer we had very little to less idea on legal procedures and follow up . Our realtor recommended us to go with Ben and we agreed with his suggestion and I would say, we were quiet satisfied! We had a great experience working with Ben. He would respond to your queries by phone/email very promptly. He made the legal procedures so smooth and easy. In regards to any conflict in deal with sellers, he quickly connects with their legal attorney and finds a solution to it in your favor.” – Roma A.W.
The Prep Work Before Choosing Your New Home…
Before buying your first home, there are a few thing you need to figure out.
What is your credit score and credit history: A credit report is a detailed breakdown of an individual’s credit history prepared by a credit bureau. Credit bureaus collect financial information about individuals and create thorough credit reports, and lenders use the report along with other details to determine loan applicant’s creditworthiness. Your credit score is EXTREMELY important when applying for a home loan. Your real estate attorney will help you determine what type of loan to apply for based on your credit score and income.
“The minimum FICO credit score for an FHA loan is 500 or higher. If your score is at least 580, you also need at least a 3.5% down payment. You can still get approved for an FHA loan with a credit score lower than 580 and down to 500, but you’ll need a larger down payment of at least 10%.” – Credit.com
How much money do you have to spend on your new home? As a buyer you need to determine how much money you are bringing to the table for the whole process of purchasing your first home. “For example, let’s say you bring home $5,000 a month. Multiply that by 25% to establish your maximum monthly house payment of $1,250. Based on a 15-year mortgage with a 4% fixed interest rate, here are the home options you can afford (not including taxes and insurance):
- $187,767 home with a 10% down payment ($18,777)
- $211,238 home with a 20% down payment ($42,248)
- $241,415 home with a 30% down payment ($72,424)
- $281,650 home with a 40% down payment ($112,660)
That’s an easy way to find a number in your ballpark. But don’t forget that property taxes and homeowner’s insurance will affect your monthly payment. You’ll also need to factor those numbers in before settling on a maximum home price.” – Dave Ramsey Financial Adviser
Here are some common types of loans in Illinois:
Fixed-Rate Loan:The most common type of conventional loan, a fixed-rate loan prescribes a single interest rate—and monthly payment—for the life of the loan, which is typically 15 or 30 years.
Adjustable-Rate Mortgage: Adjustable-rate mortgages (ARM) offer mortgage interest rates typically lower than you’d get with a fixed-rate mortgage for a period of time—such as five or 10 years, rather than the life of a loan. But after that, your interest rates (and monthly payments) will adjust, typically once a year corresponding to current interest rates.If interest rates go up exponentially, so will your monthly payments; if they decrease, you’ll pay less on mortgage.
FHA Loan: If you’ve served (or are currently serving)in the United States Military, a Veterans Affairs or VA loan can be an excellent alternative to a conventional loan. If you qualify for a VA loan, you can score a home with no down payment and no mortgage insurance requirements. *Thank you for your service to our country, see if you qualify for a VA loan here.
USDA Loan: A government-sponsored home loan the USDA Rural Development loan, which is designed for families in rural areas. The government finances 100% of the home price for USDA-eligible homes—basically, no down payment necessary—and offers discounted mortgage interest rates!
Common Mistakes First Time Home Buyers Make…
Hire a reputable, trustworthy attorney: People often make the mistake of hiring a friend who is a lawyer but not an actual real estate attorney. All areas of law aren’t the same and each state has its own complex law. It’s best to find someone who specializes in this type of law in the area you live. When you have the right real estate attorney on your side, they will accommodate your questions and will be very willing to guide you through the entire purchasing process!
“Far too often, home buyers will go with attorneys they know or are recommended by friends, regardless of said attorney’s specific area of expertise. Real estate law is complex—and getting more so—and laws and customs can vary widely from state to state, so it’s critical to go with an attorney who has experience with real estate law in the area in which you’re looking to buy.“ – Realtor.com
Speak up about how much money you really want to spend: It’s okay to want to put less money down on your loan. Some first time owners find their funds completely depleted after acquiring their home. By not requesting counsel on loan options from a real estate attorney, it’s easy to sell yourself short and miss out on potential money saving choices when you do not have an attorney.
“As a first-time home buyer, you probably don’t have a ton of money saved up for the down payment and closing costs. But don’t make the error of assuming that you have to delay homeownership while saving for a huge down payment. There are plenty of low-down-payment loan programs out there, including state programs that offer down payment assistance and competitive mortgage rates for first-time home buyers. Yes, 11% of millennial homeowners say they regret not making a bigger down payment. But the vast majority don’t express such a regret.” – NerdWallet.com
What You Can Expect During the Closing Process…
Closing: Also referred to as completion or settlement, this is the final step in executing a real estate transaction. The closing date is set during the negotiation phase, and is usually several weeks after the offer is formally accepted. On the closing date, the ownership of the property is transferred to the buyer.
Here’s what usually happens at closing:
- The home buyer will bring a cashier’s check to cover all remaining closing costs and fees.
- The property title will be signed over from the homeowner to the buyer, thus transferring ownership.
- The closing agent (your attorney) will register the new deed with the appropriate government office. After that, the home buyer will be listed as the official owner of the property.
- The real estate agent(s) involved in the transaction will receive their commission fees.
- The seller will receive any proceeds they earned from the sale, once their mortgage balance and closing costs have been paid off
“Ben has been a great help in understanding the legal matters as well as very helpful during the entire closing process. It was nice to work with him.” – Surabhi A.
Closing Costs: Along with your down payment, you’ll also need to pay for closing costs. If you’re a first-time home buyer, you may be wondering how much it costs to close on a house. On average, closing costs are about 3–4% of the purchase price of your home. Your lender will give you a specific number so you know exactly what to bring on closing day. These fees pay for important steps in the home-buying process, including:
- Appraisal
- Home inspection
- Credit report
- Attorney
- Homeowner’s insurance
Let’s see how this plays out with our example of a $172,600 home. If you multiply $172,600 by the higher 4% closing cost average, you’ll find that you need $6,904 for closing costs. Now, let’s add that to your 20% down payment of $34,520. Together, the two equal $41,424, which is about what you’ll need to save to pay for the down payment and the closing costs on your first house.
The closing process can be confusing and complex to the buyer and seller. “In addition to the usual legal documents to go over, there may also be last-minute disputes about delivering possession and personal property or the adjustment of various costs, such as fuel and taxes. If you want peace of mind when making one of the biggest purchases of your lifetime, you should consider speaking with an experienced real estate attorney.” The moment the seller accepts your offer, you might feel like you can finally let out a breath you didn’t know you were holding. The home is (almost) yours! From there, though, it does take some time to get the keys in your hand — anywhere from 30-50 days, usually. The closing period is agreed upon once you go under contract, but it can be delayed and the period extended due to unforeseen circumstances, like a failed inspection, appraisal issues or a problem with the title.
Important Definitions for Home Buyers:
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- Appraisal: a licensed appraiser’s opinion of a home’s market value based on comparable recent sales of homes in the neighborhood. Appraisals are usually ordered on behalf of a buyer’s lender to protect the interests of the lender.
- Down Payment: is the amount of money that a buyer has saved to help fund the purchase of a home. This amount is usually given as a percentage of the total of the home’s purchase price. This amount is usually paid in the form of a cashier’s check during the closing process.
- Escrow: is a term that home buyers, sellers and real estate agents should be very familiar with and have a complete understanding of before buying or selling a home. Escrow is a term that refers to a third party hired to handle the property transaction, the exchange of money and any related documents.
- Home Inspection: is a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. The home inspector describes the condition of the home at the time of inspection but does not guarantee future condition, efficiency, or life expectancy of systems or components.
- Homeowner’s Insurance: is a form of property insurance that covers losses and damages to an individual’s residence, along with furnishings and other assets in the home. Homeowners insurance also provides liability coverage against accidents in the home or on the property.
- Mortgage: a legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.
- Property Tax: charged on immovable property – land and structures that are permanently attached to the ground such as a house, building, or land. If you own a home, you pay property (real estate) tax directly to your local tax assessor or indirectly with your monthly mortgage payment.
