Trying to understand home buying process

[Scallywag]

Trying to understand the home buying process:

When you sign a contract to buy a house (purchase contract) when do you give the seller your down payment?

Also what is a reasonable escrow amount? I was told this money can be forfeit it we change our mind about buying the house? What if the lender cannot fund the loan at the last minute - are we out of luck? Is 3% "escrow" too much?

What are some things that I should be aware of when buying my first home? Thanks for your advice / alerts!

[Jluke]

You don’t give the seller the downpayment.

a few thousand is good for the earnest money and that goes to the agent/settlement company.

never give money directly to the seller.

[disneysteve]

You pay the down payment at closing. You may pay a deposit when you sign the contract.

[Bluebird]

The earnest money deposit should be deposited with the title company within a couple days of signing the contract. You can choose your own title company to handle the transaction. That way, you have some control with moving the process forward, etc. Never give your earnest money deposit to the seller or broker/real estate agent. With regard to the earnest money deposit amount, it could be $1,000 - $3,000, depending on the sale price of the home. I've purchased property in the $300,000+ range with a $2,000 deposit. During the inspection/feasibility period, you will get your various inspections completed and get approved for your loan. Your contract should state that during this period (maybe 45 - 60 days) if for ANY reason you choose to terminate the contract prior to the expiration of the inspection period, your earnest money deposit is 100% refundable. It's extremely important that you watch all dates in the contract...inspections need to be completed by a certain date, financing needs to be secured by a certain date, inspection review period (end of inspection period), title commitment review, etc. If you don't complete items by dates specified in the contract, the contract could become null and void and you lose your deposit. If any changes are made to the contract, make sure it's a written Addendum signed by Buyer and Seller, not an email or phone call. If you have a real estate agent representing you, they should write up the contract for you. Additionally, there are certain things the Buyer should pay for at closing and the Seller should pay for at closing. Some of these items can be negotiated, but sometimes it's dictated by what is customary in your state and these should all be addressed in the contract. For instance, the Seller should pay the transfer tax. The Buyer should pay for the deed recording. Again, all negotiable. Some states are dual agent meaning the same agent can represent the buyer and seller. If that is the case, you need to be aware that anything you say in negotiations can be relayed to the seller. In other words, get your own Buyer's agent that has a fiduciary responsibility to represent you. Also, if you aren't familiar reviewing the Closing Disclosure (settlement statement for closing) please have your attorney review it with you. Title companies make mistakes. These points are the basics. I'm happy to try to answer any other questions you have.

[kork13]

Expert-level info from Bluebird, couldn't say it any better. In VERY brief terms, the title company will handle all of the escrow & money transfers between buyer & seller.

[Scallywag]

The earnest money deposit should be deposited with the title company within a couple days of signing the contract. You can choose your own title company to handle the transaction. That way, you have some control with moving the process forward, etc. Never give your earnest money deposit to the seller or broker/real estate agent. With regard to the earnest money deposit amount, it could be $1,000 - $3,000, depending on the sale price of the home. I've purchased property in the $300,000+ range with a $2,000 deposit. During the inspection/feasibility period, you will get your various inspections completed and get approved for your loan. Your contract should state that during this period (maybe 45 - 60 days) if for ANY reason you choose to terminate the contract prior to the expiration of the inspection period, your earnest money deposit is 100% refundable. It's extremely important that you watch all dates in the contract...inspections need to be completed by a certain date, financing needs to be secured by a certain date, inspection review period (end of inspection period), title commitment review, etc. If you don't complete items by dates specified in the contract, the contract could become null and void and you lose your deposit. If any changes are made to the contract, make sure it's a written Addendum signed by Buyer and Seller, not an email or phone call. If you have a real estate agent representing you, they should write up the contract for you. Additionally, there are certain things the Buyer should pay for at closing and the Seller should pay for at closing. Some of these items can be negotiated, but sometimes it's dictated by what is customary in your state and these should all be addressed in the contract. For instance, the Seller should pay the transfer tax. The Buyer should pay for the deed recording. Again, all negotiable. Some states are dual agent meaning the same agent can represent the buyer and seller. If that is the case, you need to be aware that anything you say in negotiations can be relayed to the seller. In other words, get your own Buyer's agent that has a fiduciary responsibility to represent you. Also, if you aren't familiar reviewing the Closing Disclosure (settlement statement for closing) please have your attorney review it with you. Title companies make mistakes. These points are the basics. I'm happy to try to answer any other questions you have.

Thank you so much for a detailed answer. I will have more questions as I go along the buying process. Mostly, I am concerned about getting a lemon of a house as I know very little about home repairs & have heard of horror stories where sellers & agents dressed up a house to cover flaws and the buyers couldn't go after the home inspectors as they were smart enough to limit his liability to the cosr of his inspection fees.

i know things are expensive to repair, so any advice on what red flags to look for during home inspection? Also, can a lender bail on you after pre-approval and after the finance contingency is removed? An you safely back out og tgr purchase. Ontruacr in this case or would I still be forced to buy the house at exorbitant interest, from another lender?

I am really quite paranoir about getting ripped ofd / losing all my money.

[bjl584]

Trying to understand the home buying process:

When you sign a contract to buy a house (purchase contract) when do you give the seller your down payment?

Also what is a reasonable escrow amount? I was told this money can be forfeit it we change our mind about buying the house? What if the lender cannot fund the loan at the last minute - are we out of luck? Is 3% "escrow" too much?

What are some things that I should be aware of when buying my first home? Thanks for your advice / alerts!

Down payment is paid at the closing.
Earnest money depends on the sale price of the house, but $1000 is a good round number.
Yes, you can lose it if you pull out of the deal, but it's a long shot that you will.
The seller is not automatically entitled to your earnest money.
You can put a stop on the check the minute that the pull your offer.
The seller would then have to take you to small claims court to try to get the money.
After all the fees, the time, and the hassle, it just wouldn't be worth it to them.
There is a 99% chance they will just put the house back on the market and move on.

[Bluebird]

As I mentioned above, you can lose your earnest money deposit if you pull out of the contract after the inspection/feasibility period has expired. The title company will abide by the terms of the contract and release your deposit to the Seller.

You can not put a stop payment on your check. Your earnest money deposit has already been paid to the title company and been deposited into their account. The title company holds the funds and they will be applied as a credit on the Closing Disclosure.

With regard to inspections, find a reliable home inspector. You can also (and should) hire separate companies for the other inspections you might need, such as radon, mold, termite, HVAC, septic system, water potability, well flow rate, etc. if it applies to the property. Your home inspector may see something questionable, so you would then get a specialist to look at that item, such as foundation or electrical, etc.

Is the property in a flood zone? Flood insurance is expensive and your lender will require that you have it.

Ideally, you would have a preapproval letter from your bank at the time your offer is made. Preapproval letters expire, so you may need to have it redone if your home search takes awhile. As soon as your contract is signed, you would have your bank move forward with the financing asap. Your bank should be able to confirm within a couple weeks that your loan is formally approved. If you made financing a contingency of the contract, you can terminate the contract, but again, it would be by a specific date. I suppose a bank could cancel your approval, but it should already be far along in the process, it is highly unlikely. Find a reliable and local lender.

[bjl584]

You can not put a stop payment on your check.

I've done it twice

[Bluebird]

If you were able to stop payment on a check, it was not yet deposited or had not yet cleared. Checks clear my bank in 24 hours. Once a check clears, you cannot stop payment. Many years ago, the float on a check could be 5-7 days. Not now.

[bjl584]

If you were able to stop payment on a check, it was not yet deposited or had not yet cleared. Checks clear my bank in 24 hours. Once a check clears, you cannot stop payment. Many years ago, the float on a check could be 5-7 days. Not now.

Rules might be different depending on what state you live in.
My check was never cashed.
I was able to put a stop on it about 2 weeks after writing it.
This was early 2015.

[Bluebird]

That might be the case. However, contracts specify that the earnest money deposit must be paid within X amount of days. The title company is required to deposit the check immediately, not hold it. If you were within your inspection period and had a right to cancel, why did you have to stop payment? Obviously, if you were terminating the contract anyway and saw the check did not clear, it makes sense to stop payment. But under normal circumstances, a deposit check is not held. In your case, one could argue that you never actually paid your earnest money deposit and you defaulted under the contract and it is null and void. The check could have been lost. In every real estate deal, I request a receipt from the title company showing payment of the deposit. It's the Buyer's responsibility to confirm that the funds were received. The lender also requires a copy of this receipt.

[Drake3287]

If your new to the Real Estate buying process then finding a good real estate agent that will walk you through the entire process is the key. Most all "better" agents will gladly hold your hand throughout the process and fully explain any questions you have. There are no dumb questions when it comes to buying real estate. They will also offer advise on which home inspection company to use including contractor contacts in the event the house needs work after the purchase . Getting referrals from friends and family in your area is a good place to start in your search for a realtor. In general, only good honest realtors make it as a long term agent. It's not unlike picking a doctor so to speak.

Currently I'm in the process of selling my deceased mothers home which is in a different city from where I live. I simply got lucky and had our Estate Attorney recommend a certain realtor and he's been great. All the work needed for the home has been arranged by the realtor. Although we're in escrow from a second buyer currently, the first one backed out simply because of the work needed on my mother's house after reading the inspection report. Pretty common and my realtor even mentioned that very few people ever lose the down payment money, too many safety nets for most buyers.