Publication : Brochures
Buying a Home
The Section of Real Property, Planning and Zoning
and the Public Awareness Committee of the Maryland State Bar Association
have prepared this information. It is intended to inform the public and not
serve as legal advice.
Since a home ordinarily represents the single
most valuable tangible asset owned by the American family, and its greatest
financial commitment, the purchase or sale of a family’s residence
is an event which should, but often does not, reflect careful planning and
study. Too often, inadequate representation, study or planning results in
disappointment and frustration.
The sale or purchase of a home is a highly complex
transaction with numerous legal exposures. When purchasing a home, be sure
that you fully understand and are satisfied with the meaning and terms of
the contract and all other documents before signing anything. You may want
to retain an attorney to advise you in the often-complicated process of purchasing
Once you have found your dream home, you should
submit an offer to purchase it. Generally, whatever you submit will be considered
the contract if the seller accepts it. Once you and the seller sign the paper,
you are agreeing to the contract conditions. Before you sign any contract,
read it carefully and make sure that you understand every detail. Ask questions
if you don’t understand anything in the contract. Oral agreements should
also be written into the contract.
Sales contracts may differ depending upon the
circumstances of the transaction. The real estate boards of Baltimore City
and some counties in Maryland publish forms, which are used by many real
estate agents, brokers, and attorneys; however the orientation of these forms
may favor and omit a number of clauses necessary for the buyer's protection.
Here are several provisions you should include in a contract for the purchase
of real estate:
- Deposit – In
addition to the amount of "earnest money" you plan to offer as
a deposit, the contract should state the amount of money you will be paying
at settlement and your means of financing the purchase. The typical deposit
in Maryland metropolitan areas is five percent of the purchase price, which
will be deposited into an escrow account and returned to you if the sale
does not go through. However, most brokers will not return this deposit
without an agreement signed by the buyer and seller instructing the broker
to release the deposit.
- Contingency for Financing – Your
contract should specifically state the total loan amount and the exact
financing terms that you require. For example, you may agree to purchase
the residence with a loan in a specified dollar amount to be repaid at
an interest rate not to exceed 10.5 percent per year, amortized for not
less than 25 years, with a term of 30 years. Many contracts have an "alternative
financing clause" that allows buyers to accept different financing
than written in the contract, as long as it does not affect the seller’s
- Contingency for Inspection – Unless
you are fully aware of the physical condition of the property at the time
you sign the contract, your contract should be contingent upon a home inspection
report that is satisfactory to you. You will usually have to pay for the
inspection, but knowing in advance that problems exist or that the property
is trouble free is worth the cost of inspection.
- Termites – You
contract should also require a termite inspection. Although, the buyer
will probably have to bear the expense of a termite inspection, the seller
should be held responsible for removing the infestation and repairing any
resulting damage. When you appear at settlement to close the transaction,
you lender will ask see a written report indicating that the property is
free and clear of any active termite infestation.
- Personal Property – If
you want to purchase light fixtures, drapery rods, chandeliers, washers,
dryers, refrigerators, heating oil in the tank, storm windows and doors,
firewood, swimming pool chemicals, or any other items not permanently attached
to the house, you should write the specific items into the contract. Misunderstandings
based on oral agreements can delay settlement, as well as cause friction
- Repair Work – Unless
you agree to accept the property in
"as is" condition, you should stipulate in the contract that the
seller is responsible for repairs if the plumbing, heating, mechanical or
electrical systems are not in good working order at the time of settlement.
It is wise to conduct a "pre-settlement walk-through inspection" to
be sure that the property is in satisfactory condition prior to closing the
deal at settlement. Try to schedule the walk-through several days before,
but not later than the time of settlement.
- Title Attorney or Insurance Company – As
the buyer, you have the right to select your own title attorney or insurance
company to conduct the title search. Shop and compare prices before choosing
an attorney or title company. You may have to clear the firm or company
that will conduct the settlement with the lender.
- Settlement Date – The
contract should state that
"settlement shall occur on or before" a particular date. This date
is negotiable. Don’t allow a real estate agent or broker to pressure
you into a fast settlement. Most title attorney or insurance companies can
rush the paperwork for quick settlement, however you will usually have to
pay a premium for rush service. Allow 60 to 90 days in the contract. If you
have financing and the title attorney or insurance company is ready to proceed
sooner, most contracts allow for a quicker settlement if agreed to by both
the buyer and seller.
Title insurance provides protection against claims
of past actions, which might threaten the title to your property. Most lenders
require mortgage title insurance to protect their interests. Additionally,
you may want to purchase an "owner’s policy" to protect your
interests. You may save money if you buy owner’s title insurance at
the same time as mortgage title insurance, rather than buying it separately.
You may also save money with a "reissue rate" for title insurance
if the property changed hands within the last several years and a title policy
was issued to a prior owner.
Although a title search will be done, it is impossible
to eliminate all risks or hidden defects in the title to the property, which
cannot be discovered by examining the record, such as forgeries, or voidable
execution of a document. Title insurance will protect you against these risks.
A title policy does not insure that the title is clear. It principally insures
ownership of the property and against matters that are not disclosed. Therefore,
it is important to examine all documents listed as exceptions to the title,
which may influence your decision to purchase the property.
After you have agreed to purchase the property,
you must make arrangements for financing the purchase. The most common method
of financing residential real estate transactions is through lending institutions,
such as banks or mortgage lending companies. Interest rates and settlement
costs vary from lender to lender. Shop around for the best terms you can
Generally, mortgage acceptance requires 30 to
45 days from application to approval for conventional loans or 45 to 60 days
for VA or FHA loans, which offer special incentives for first time homebuyers.
After your mortgage is approved, you will receive
a "loan commitment letter" stating the mortgage amount, interest
rate, and length of the loan’s term and other conditions. You should
review it carefully and either return a signed copy to the lender or follow
other specific instructions included in the commitment letter, a settlement
date should scheduled with all parties required to be present at settlement,
including you and your attorney (if you have retained one), the property
owners, the listing and selling brokers (if applicable), the settlement representative
or attorney, and any other parties involved in the transaction.
At settlement, you will be asked to sign a deed
of trust or mortgage; a note; VA, FHA or lender forms; and a settlement sheet.
You should review the documents carefully to ensure that you understand and
are satisfied with their terms before signing anything. You will be asked
to pay the balance of the purchase price and closing costs with a cashier’s
check or certified check.
Closing costs vary widely depending upon the price
and location of the property, as well as some other factors; but sometimes
the seller may pay some of the closing costs. Check with your real estate
agent, attorney or lender to determine the exact charges you will be required
Under the Real Estate Settlement Procedures Act
(RESPA), a federal law, you are entitled to receive an estimate of closing
costs from your lender in advance. Advance deposits, which the lender will
place and hold in escrow for real property taxes and insurance, are not required
to be listed in the estimate according to the law. The lender collects a
portion of those costs every month and then pays the insurance and taxes
Closing costs can mount up to a sizable sum, but
some of the items are tax deductible. Speak with your tax advisor about the
items that are deductible.
At the closing, you become the proud owner of
your new home!
Buying a Home © 1986, MSBA, Inc. Revised 1997
All rights reserved. No part of this work may be reproduced in any form without
written permission from the Maryland State Bar Association.