What to Expect When Purchasing a Home

Purchasing a home is a major event in one's life with a great deal of both financial and emotional consequences from a mortgage. For most people, buying a home the single largest purchase that they will ever make. A purchaser must not only determine the type of home that he or she wants (e.g., private house, multi-family house, condominium apartment or cooperative apartment). Other things to consider, of course, are neighborhood, schools, length of commute to work and proximity to friends and family.

If this is your first home purchase (or perhaps even if it isn't) it may be easy to become overwhelmed by the process. There are so many decisions to make, not only about the home but about things like mortgage finance, insurance, home inspections and legal representation. Generally, by choosing an experienced real estate attorney you will have an available resource to answer your questions and "hold your
hand" during the maze that lies ahead.

Topics on this Page

• Types of Homes
• Tax Benefits of Home Ownership
• Steps in Buying a Home
• Typical Closing Costs
• The Closing

Types of Home Ownership

For most people, there are three basic types of home ownership:

Private House

This is the typical house prevalent in the New York area. It can be a one-family structure (most are) and can be either totally unattached, semi-attached (i.e., connected to one other house on one side), or fully attached (i.e., many houses are attached to each other in a row. An owner usually purchases the entire structure and receives a property deed at closing indicating that he or she is the only owner of the property. Some private houses are built or modified to contain more than one family – usually two, three or four families. An owner also receives a deed to the property and has the ability to lease some or all of the apartments to others in exchange for rental income. In order for this to be legal, the building department of the municipality in which the property is located must have approved the building for use as a two, three or four family dwelling. The owner of this type of home usually is responsible to pay property taxes to the municipality.

Condominium

A condominium unit (usually an apartment but sometimes more of the townhouse variety) is similar to ownership of a private house. The purchaser receives a deed indicating that he or she owns the condominium unit as well as a certain percentage of the common areas (e.g., hallways, laundry rooms, etc.). In addition to paying the monthly residential mortgage payment, the owner usually has to pay a monthly maintenance charge to the Board of Managers of the Condominium to maintain the building and the common areas. The unit owner is also responsible for the payment of the property taxes assessed by the municipality.

Cooperative Apartment

An owner of a cooperative apartment does not receive a deed to the premises like is the case with a private home or a condominium unit. The purchaser receives shares of stock in the cooperative corporation that actually owns the building. The cooperative corporation actually runs the day to day affairs of the building, collects a monthly common charge fee to doing so, and pays the real estate taxes assessed against the building from the common charges collected from the apartment owners. A prospective purchaser of a cooperative apartment must receive approval from the Board of Directors of the cooperative corporation before they can actually purchase an apartment.

More Info: Apartment Laws

Tax Advantages of Home Ownership

It should be noted that the interest paid according to the current mortgage loan rates by the purchaser to his or her mortgage lender as part of the monthly mortgage payment may be tax deductible on the owner's income tax return. Additionally, the amount paid in real estate taxes may also be deductible by the owner. Both of these deductions can lead to very large tax savings to the owner – savings that are not available to renters.

Steps in Buying a Home

Make an Offer

Once the purchaser sees a home that she wants, she makes an offer to purchase with the seller (usually with the assistance of a real estate broker). If the offer is accepted then both the purchaser and the seller inform the real estate broker and their respective real estate lawyers. The seller's attorney prepares a Contract of Sale and forwards it to the purchaser's attorney for review. It is at this point that the purchaser should seriously consider retaining the services of a building inspector. (Referrals can usually be obtained from the purchaser's attorney.) While not required, an inspection by a qualified building inspector can help the purchaser to better understand the condition of the home and what the purchaser should expect with regard to repairs. They may also conduct an inspection for termite infestation or damage.

Downpayment

When the purchaser signs the Contract of Sale they usually make a downpayment which is held in the escrow account of the seller's lawyer. The downpayment is usually ten (10) percent of the purchase price but can often be reduced upon request. The main purpose of the downpayment is to ensure that the purchaser is serious about the transaction and will not attempt to back out once the contracts are signed. Provided all of the parties comply with the terms of the contract, the only way that the purchaser can get the downpayment back is if they do not obtain home mortgage loans (in accordance with the terms of the contract of sale), if the cooperative corporation does not approve the purchase of a cooperative apartment, or if the seller cannot transfer good title of the property to the purchaser.

Obtain the Necessary Financing

After the seller also signs the contract of sale, the purchaser needs to make best efforts to obtain financing. If the purchaser is not sure how to go about this they should ask for advice from their real estate lawyer. As the mortgage process progresses, the purchaser's attorney will probably order a title report which will indicate if the seller actually owns the property, if there are any judgments against the seller or the purchaser, if there are any building violations issued by the municipality, if the seller has a mortgage or mortgages to satisfy at closing, and if the Certificate of Occupancy covering the premises matches the dwelling. For example, if the purchaser believes that she is purchasing a two family house, then the Certificate of Occupancy, as issued by the municipality, should state this.

Schedule Closing

Once the title report has been received (and any objections cleared by the seller's attorney) and, additionally, once the purchaser's mortgage lender is ready to give the purchaser the money to purchase the home, a closing can be scheduled.

Expenses of the Purchase/Typical Closing Costs

The purchase of a home can be costly however, if a purchaser is aware of what it is likely to cost to complete the transaction in advance then they will be prepared when the closing approaches and will not have to panic. In order to have a good faith estimate of what these closing costs might be, a purchaser should ask their attorney for a breakdown of estimated charges based upon their particular transaction.

Customary Costs of Home Buyer

1. Homeowner's Insurance
2. Legal fee for purchaser's attorney
3. Legal fee for lender's attorney
4. Appraisal fee (est. $450.00)
5. Application and/or Processing fee for mortgage (est. $400-800)
6. Title Insurance (rates set by the state, but generally several thousand dollars)
7. Mortgage Recording Tax. (Varies by county and mortgage amount – generally, in NYC 1.80% for mortgages under $500,000.00, outside of NYC .80% of the mortgage amount. There are many variations to this so discuss it with your attorney.)
8. Moving Costs
9. Establishment of tax escrow account with mortgage lender. (Amount varies but can be several thousand dollars depending upon the property taxes on the property.)

Note that the purchaser of a cooperative apartment can ignore any expenses related to real estate taxes. It should also be noted that when a purchaser is seeking to purchase a newly constructed house or condominium unit directly from a builder or Sponsor, there may be substantial additional fees – often the builder requires that the purchaser pay the seller's NYC (1-1.425%) and NYS (.04%) transfer taxes along with attorney's fees, survey fees, etc.

The Closing

Finally, when all of the parties are ready (mortgage company, title company, purchaser, seller, attorneys), a closing is scheduled. All of the parties meet in an agreed upon location (usually at the office of the lender's attorney or, if a cooperative apartment purchase, at the office of the attorney for the cooperative corporation). The purchaser's attorney will advise the purchaser how much money to bring to the closing in certified for title expenses, other charges and the balance of the purchase price. The purchaser will also need to bring government issued, valid photo identification (e.g., unexpired passport, driver's license). Additionally, the purchaser should visit the premises before the closing to make sure that the premises are in good condition. The purchaser will sign mountains of documents, including the mortgage documents and, in the end, receive the keys to the new home.

As the purchaser, you are not expected to know everything there is to know about your duties and obligations as a purchaser. If you are unsure about any aspect of the transaction, ask you real estate attorney – they work for you!

• The content of this article is provided for informational purposes only, and should not be construed as legal advice. Click here to talk to Richard Lovell or a Real Estate Lawyer in your area

Copyright © 2007 Richard H. Lovell