A Brief Introduction to Buying a Home in New Jersey
Please note: This brochure applies to the purchase of a house or a condominium in New Jersey, but not of a Coop apartment. Also, please keep in mind that this brochure covers closing procedures only. What is meant by closing procedures is the process which begins once a Buyer and a Seller are prepar
The Contract of SaleYou have reached an agreement to buy at a particular price. In most cases, there is a real estate
agent involved, and the agent prepares a contract for signature by both parties. If there is no real estate agent involved, we urge you to consult an attorney before you sign any document. The reason for this is that in New Jersey, broker-prepared contracts are still subject to review by an attorney. Other
contracts may not be, and once they are signed, they may not be changed to properly protect the parties.
After the broker-prepared contract is signed by all the parties, each party then retains an attorney to
review it and ensure that it adequately protects their interests. The attorney has three business days,
beginning from the date of the last signature on the contract, to either accept the contract, reject it, or try to agree with the other attorney to modify it. This three day period is called the attorney review period. If three days are not enough to review the contract, the attorneys may agree among themselves to extend the attorney review period. The attorney does not have to give a reason in order to reject a contract during the attorney review period. Thus, if after having received the benefit of legal counsel a client decides to change his or her mind and cancel the contract, he or she may do so by instructing the attorney to cancel it on his or her behalf.
Once the attorney review period expires, the Buyer and Seller are now legally obligated to be
bound by the terms of the contract. Typically, these terms include conditions that must be met before
closing occurs, such as a satisfactory inspection of the property, and the Buyer being able to obtain a
mortgage for a specific amount. If these conditions are not met, then the contract may be canceled even after the expiration of the attorney review period. Your attorney and your real estate agent can provide you with more details on this subject.
After the Contracts are SignedAt this point, the Buyer should immediately begin the process of choosing a lender and applying
for a mortgage. At the same time, the Buyer's attorney will be arranging for searches to be performed to ensure that the Seller has good title to the property being sold. Those searches will be part of what is known as a "Title Binder". The title binder includes a search on the title to the property, a search on both the Buyer and the Seller as to possible judgments against them, and a commitment for title insurance. Title insurance protects the Buyer in the event title is ever found defective during the Buyer's ownership of the property. In that case, the title insurance company will indemnify the Buyer, up to the amount of the purchase price.
At the same time, the Buyer's attorney will be waiting for the Buyer's lender to issue what is called
a "Mortgage Commitment", as well as instructions for the attorney to close the loan. A mortgage
commitment is a promise by the lender that the borrower will receive a loan to finance his or her purchase, subject to certain conditions being met. These conditions are rarely difficult to satisfy. Usually, obtaining a mortgage commitment takes six weeks from the date of the application for the loan.
Applying for a MortgageMost often, the Buyer is interested in obtaining the lowest rate possible on the loan and considers
other factors such as reputation and service to be secondary. Again, however, the more information the Buyer has at his or her disposal, the better. For example, the rate a particular lender charges may be low, but the closing costs the lender requires the Buyer to pay may be higher than another lender's. Thus, the Buyer should seek the opinion of others more knowledgeable in the field, beginning with the real estate agent, the attorney, and others, such as mortgage brokers and loan officers.
Comparing Mortgages on Cost; The Interest RateThe monthly mortgage payment will of course depend on the interest rate, and the typical borrower
will be looking for the lowest possible rate to finance the purchase. Once the borrower knows the rate, the actual monthly payment for that mortgage can be calculated. One method of doing so is by looking up the monthly payment in a mortgage table, and such a table is provided at the end of this brochure. To use it, simply find the number indicated for your interest rate and the length of your mortgage (15 or 30 years), and multiply it by the amount of your loan. The result is the monthly payment of principal and interest that will be required to repay your loan.
Comparing Mortgages on Cost: PointsEven if the rate were the only thing of importance to a Buyer, comparing rates is not all that straightforward. Most mortgages nowadays require a Buyer to pay "points" in connection with the loan.
A point is equal to one (1) percent of the amount of the mortgage. Thus, if a loan is quoted as requiring
the payment of two points, this means that the Buyer will be required to pay a sum equal to two percent of the amount of the mortgage.
When mortgages come with points, it is possible to combine the rate offered and the points and
calculate an equivalent rate with no points. Once this calculation is made, then comparing loans becomes easy again. All one needs to find is the lowest number. However, the mathematics can sometimes become a bit overwhelming, so we have attempted to provide in this brochure an easier way of converting mortgages. You will find in the back of this brochure two tables labeled "Rate / Points Conversion Table", applicable to 30 year and 15 year mortgages respectively. To use either table, look up the loan rate on the left and the number of points for that loan on top. The corresponding square contains the equivalent rate for that loan if the loan required no points.
One final note on mortgage points. Please keep in mind that you can always simply ask for the
opinion of one who is familiar with these matters. Nevertheless, at the risk of inundating you with
numbers, we hope you will find the tables useful during your search for the loan that is right for you.
Comparing Mortgages on Cost: Other CostsThere are other costs involved in obtaining a mortgage. One very common cost is the application
fee. Other costs are credit report fees, appraisal fees , and other fees that a lender may charge the borrower in connection with a loan. Except for the application fee, these costs are normally paid at closing.
The lender will, in advance of closing, estimate all the costs involved and give the prospective
borrower a disclosure form that sets forth these estimates. This gives the borrower advance notice of what costs he or she might be expected to pay. Yet since the lender usually cannot prepare these estimates before the borrower actually submits an application for a mortgage, this notice may come after the borrower has already paid an application fee. Once the borrower has paid that fee, he or she may be reluctant to go to another lender afterwards. There are also other costs that are not within the control of the lender, such as title search fees and attorneys fees. As such, it should be stressed again here that the prospective borrower should try to gain as much information as possible regarding a proposed loan. Most loan officers and others involved in the closing process, including of course the attorneys, can also provide some estimates. It is always a good idea to ask.
The Mortgage CommitmentAfter the Buyer has applied and has submitted to the lender all the documentation the lender
requires, and if the lender has approved the loan, the lender will issue the mortgage commitment. At this
point, the Buyer's attorney will begin complying with all the conditions of the mortgage commitment, and
will begin scheduling a closing date. A closing usually occurs approximately within 2-3 weeks after
obtaining the mortgage commitment.
Preparing for ClosingAt this juncture, the attorneys will arrange for a closing time and date with all parties concerned.
Everything is usually prepared in advance, so, one or two days prior to the closing date, each party will be
informed by his or her attorney as to the costs and other things to be expected at closing.
ClosingThe closing is usually held at the offices of the Buyer's attorney. This is because the Buyer's
attorney usually will be acting as the "settlement agent", meaning that he or she will be responsible for
seeing to the application of the proceeds of the sale to all the proper parties. In other words, the settlement agent will collect all the monies from the Buyer and the lender, and then use these monies to pay the Seller, the broker, the title insurance company, and all others that are entitled to be paid. All these payments are itemized and reflected in a document known as a Closing Information Statement or CIS, as well as a RESPA (it is a form required by the Real Estate Settlement Procedures Act, hence the acronym name of RESPA). At closing, the CIS and RESPA are normally the first documents that are presented for the signature of the Buyer and the Seller, so that both can see exactly how the finances of the transaction work out. Other documents that need to be signed are, in the case of the Seller, the deed that the Seller is delivering as well as an affidavit of title, and in the case of the Buyer, all the documentation required to be signed by the lender, such as the mortgage and the note. A Buyer who is getting a mortgage can expect to be going through and signing many more documents than the Seller.
Post ClosingAfter the closing is concluded, the attorneys must satisfy certain additional conditions, such as
forwarding appropriate documents for filing. Although the Buyer is given possession of the property on
the date of closing, and ownership of the property begins on that date, all the paperwork is usually not
completed until a few weeks after closing.