Attorney can help explain lender terms
Before you begin to shop for a home, you should discuss your financial situation in detail with a mortgage lender. By enlisting this critical member of your real estate team in advance, you will benefit by having a realistic assessment of your price range before you shop. Part of the process may involve submitting a formal application for written loan pre-approval.
Lender terminology can be confusing, so it may be wise, when speaking with prospective lenders, to ask your real estate attorney to explain the various terms. The attorney can also help determine whether a prospective lender can realistically meet your closing time frame and that of any financing contingency you may have. Once you have selected a lender:
- Prior to making your loan application, ask your lender what documentation you will need to supply and take it to the application meeting.
- Make sure you do not lock in a rate that will expire before your contract closing date.
- If your lender suggests a co-signer, or a particular method of holding title, consult with your attorney before agreeing.
- Find out whether your lender will require escrows (reserves) for property taxes, insurance or private mortgage insurance.
- To avoid delays, resist the urge to continue shopping with other lenders for a better rate once you have applied.
- If you are told your loan is approved, expect to see a written commitment and scrutinize it for conditions to be fulfilled (e.g., appraisal, explanation letters, copies of checks) before the commitment is binding on your lender.
- At the closing, review the “good faith estimate” of closing costs supplied by the lender to verify that the various fees charged by the lender are consistent with those you were quoted at application.
Once you have selected the home you wish to buy, and have arranged for a loan, you must make a written offer to purchase. If your offer is accepted, you will then have a legally binding contract. The contract will govern the transaction, setting forth the rights and obligations of both the buyer and seller.
Other than possibly the deed, the contract is the single most important document involved in the purchase of a home. The contract will include all the terms of your purchase, such as purchase price, amount of earnest money deposit, financing terms, closing date, possession date, personal property to be included in the sale, tax pro-rations, right of inspection, and possible contingencies, such as attorney’s approval, inspection, financing, or the sale of your present home. Other concerns that may need to be addressed include existing leases, well and septic issues, and whether the property is being conveyed “as is.”
It is essential that you understand the terms of your offer before you enter into a binding contract. Your real estate attorney should assist you in preparing and presenting your offer. If your offer is presented to the seller prior to you consulting your attorney, make sure the contract will allow your attorney to review it and modify its provisions, if necessary.
Once the contract is signed by both parties – unless the contract contains an attorney approval contingency – your interests may not be adequately protected, and you may be legally obligated to complete the transaction.
A variety of special circumstances – new construction, condominium purchases, cooperatives, homeowner and other associations, installment sale (often called land sale contracts or articles of agreement), seller financing, lease-option, by-owner sale, senior/retirement housing, tax-deferred exchange, multifamily buildings, land trusts, estate planning trusts, planned unit development, condominium conversions, even cash transactions – require additional considerations.
The “standard” forms used in your community may not be appropriate for all of these situations and may not sufficiently protect you. Your real estate attorney can explain the distinctions, considerations and risks of these types of transactions, and tailor your contract to suit your needs and afford you the protection you need.
Note: This information was prepared as a public service by the Illinois State Bar Association and is a joint project with the Illinois Press Association. Its purpose is to inform citizens of their legal rights and obligations.