11 important legal considerations when buying a home

Real estate purchases are the most expensive transactions most people are involved with. From before you find your desired house to the day you’re handed the keys, it’s important to know the legal requirements involved with real estate, as well as your rights when buying a house.

Follow these 11 steps to simplify the home buying process. Completing each step will allow you to move from home buyer to homeowner with less stress and more excitement. Consider whether you need a real estate attorney or if a notary is sufficient before proceeding.

1. Mortgage preapproval

Before you start looking for a home, you need to get preapproved for a mortgage. This will make it much easier for a seller to accept your offer, since they’ll know you have been approved for the financing you need.

The preapproval process is not very complex. The lender will take your personal information, proof of income, information about your assets and will run a credit report. You’ll need to know how much money you’re willing to use toward a cash down payment. The lender will provide you with a letter stating you’re preapproved for a specific time period and a specific amount.

To be clear, preapproval does not mean you’re guaranteed a loan; it just means that you initially qualify for one. The lender will need more documentation to formally approve your loan. How much more depends on what’s collected up front.

2. Purchase offer

The next step is to find the house of your dreams and put in a home purchase offer. Your real estate agent can help you complete this document, which is an offer to buy the home.

Carefully consider how much you want to offer. You may want to offer less than what the seller is asking, but in some hot markets you might have to offer more. The purchase offer is really a contract waiting for the seller’s signature, so it’s a complex document.

You may want to have a lawyer who specializes in real estate law to review the purchase offer and give legal advice. In most instances, your agent will have used a standard form approved in your county, but your attorney to make sure it includes everything necessary.

3. Negotiating the offer and signing the purchase agreement

After you’ve submitted an offer, the seller may counter it, reject it or accept it. If the seller counters and changes any of the conditions of the contract, your agent or attorney should review the revisions.

Once both parties come to an agreement on terms for the sale they sign purchase agreement. This document will start your official approval process for a mortgage Along with the purchase price, a purchase agreement also defines the following:

• Earnest money: This is a good faith deposit a buyer commits to when signing a purchase agreement, indicating the buyer is serious about completing the sale. An earnest money deposit is typically 1% – 2% of the purchase price. More earnest money can make your offer more appealing to a seller in a competitive market. In the event that your loan closes, this money is used toward your down payment.
  
  
• Contingencies: These protect the buyer and the seller, allowing them to back out of the deal if something goes wrong. For the buyer, contingencies usually let them cancel the contract and retain the earnest money deposit. Some examples of contingencies include those for inspection, appraisal, and financing.
  
  
• Settlement date: This is the date of closing the sale. Appraisals and inspections must be completed in advance of this date. The new mortgage must be secured and the home insurance put in place. All moving parts line up on this day.
  
  
• Date of possession: This is when you get to move into your new home. The date of possession allows you to purchase the home and gives the seller time to move out. It’s worth noting that if you’re buying a primary residence, most mortgage investors require you to occupy the property within 60 days of close.

4. Mortgage approval

With your fully executed purchase agreement in hand, you'll need to contact your mortgage lender with the details so the mortgage approval process can begin. you’ll need to contact your mortgage lender with the details so that the mortgage approval process can begin. The lender will likely ask you for additional or updated documentation and information than what you provided for preapproval depending on how long the home search and negotiations take.

Getting a mortgage approval can be intimidating, especially if it's your first time. Work closely with your mortgage lender, along with completing and returning all paperwork in a timely manner so you don't hold up your mortgage loan.

5. Home inspection

Nearly every contract for the sale of a home includes a provision for a home inspection before the contract is considered binding. Make sure your agent or attorney inserts a clause about this in your contract. This allows you, the buyer, the right to hire a home inspector to view and inspect the home (inside and out) to look for potential problems.

If your inspector finds problems, your attorney or agent can then ask the sellers to make the needed repairs for the sale to go forward. There may need to be further negotiation at this point. If the seller does not want to make repairs, you could counter with a lower purchase price.

In extremely hot housing markets, some buyers have been known to waive the inspection to try and outflank competitors. While this might better position you with the seller, this can be a risky strategy for the buyer who might be responsible for costly repairs or safety concerns as a result, particularly when purchasing an older home.

6. Meeting contingencies

Once the home inspection is over and the contract is final, you’ll need to meet other contingencies listed in the contract. The biggest one often is the sale of your current home. If you’re already a homeowner, you’ll probably want to sell your current home to be able to afford the second one, so the contract will state that the purchase is contingent on that sale.

Contingent offers may put you at a disadvantage in a competitive market as the seller may have other buyers who don't have to sell an existing home before buying a new one. Of course, the alternative isn’t terribly appealing: You can sell your home in advance, but you’d have to find somewhere to live in the meantime or make two mortgage payments, but not everyone can afford to do this.

7. Title insurance

Next, you’ll need to purchase title insurance for the property, as required by the mortgage company. A title search will need to be done to assess any outstanding mortgages, judgements, unpaid liens, unpaid homeowners association (HOA) dues, easements and leases. Title insurance ensures that the title (ownership rights) you receive is valid and free of any claims. It protects the lender from issues that could occur down the line that could lead to a property dispute.

8. Mortgage closing

Once all the contingencies have been met and you’ve provided your mortgage lender with the appropriate documentation, your closing (also known as a settlement) will take place. During this meeting, you’ll close on the home and the mortgage.

Your lawyer or real estate agent will accompany you to the closing. At the closing you’ll sign the legal documents and review all financials in detail.

9. Deed

As part of the closing, you’ll receive the deed to the home, which is your legal ownership. This deed will contain a description of the property, including property lines or deed restrictions.

You may want to consult with your attorney about how to take ownership if you’re married or buying the home with someone else (some options include joint tenants, joint tenants by the entirety, joint tenants with right of survivorship).

10. Filing

Once all the paperwork is done, your purchase is still not complete until the documents have been filed with the county. Coordinate with your agent or real estate lawyer to determine how the paperwork will be filed.

11. Other legal issues

Your lender likely discussed an escrow account with you early on in the process. Your mortgage lender will set a portion of your mortgage payment aside to pay for property taxes and homeowners insurance. This goes into the escrow account.

If you chose an escrow waiver, some other considerations are necessary. You must determine when homeowners insurance and tax payments are due once closed.

What are your rights as a home buyer?

Aside from understanding the steps to buying a house, it’s important to have a firm grasp of your legal rights as the buyer in the exchange.

These rights may vary depending on the state or region you live, but typically include:

• The right to choose your own mortgage lender, real estate broker and/or home inspector
  
  
• The right to receive copies of any legal documents associated with the purchase, and have them assessed and explained by a legal professional
  
  
• The right to be informed of any liens or encumbrances on the title
  
  
• The right to do a final walkthrough of the home before closing
  
  
• The right to obtain property tax information about the property from previous years
  
  
• The right to be free of discriminatory practices, as outlined in the Fair Housing Act

Again, this list of buyer’s rights is by no means exhaustive, and rights may vary by region. Consulting a real estate lawyer can help ensure you fully understand your rights as a buyer.

The bottom line: Learn the rules for buying a house

While there are many steps involved with becoming a homeowner, it’s important to educate yourself so you understand and know what to expect. Follow the above 11 legal considerations step-by-step and you'll be on your way to completing your real estate transaction and becoming a responsible homeowner.

If you’re ready to buy a home, apply for a mortgage today.