Buying a Home
Authored By: Carl Vinson Institute
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Buying a Home
This document tells you the following:
What kind of property should you buy?
How do you look for a house?
What are the steps you must go through before you buy a house?
What are the usual terms you find in a real estate contract?
How do you pay for your new house?
How do you check the title for the property you are buying?
What happens if you can't repay the loan?
A condominium (or "condo") is an individually owned dwelling unit in a complex of such units. Each condo owner owns a share of the common property of the complex. Common property might be a laundry, swimming pool, or landscaped grounds. The condo owner pays a monthly maintenance fee to care for this property.
Georgia law requires that two documents be prepared for each condo development. One document is the bylaws of the owners' association. This document is needed for various reasons, including the fact that there are multiple owners in one complex, all of whom have rights and responsibilities associated with the common property. The other document is the master deed. Both should be read carefully so that purchasers know what to expect. Otherwise, a new condo owner might be surprised to learn that there are certain regulations regarding property use, such as that owners cannot keep pets or play loud music late at night.
|Cost||Investment Value||Maintenance Cost||Time Cost||Control over use of property||Privacy||Ease of Relocating and Resale||Other factors|
|Private House||highest||probably the greatest||a lot||a lot||greatest; limited by government and neighborhood regulations||greatest||could be difficult|
|Condo||medium||good||some; could increase||very little||some; limited by condo association rules||varies||could be difficult||may have recreational facilities|
|Mobile Home||low||poor because of depreciation||some||some||some; limited by local government regulations and mobile home park rules||varies||desired location could be difficult; resale would vary||vulnerable to winds|
|Rental||low to medium||none (except that because there is no downpayment the money could be invested elsewhere)||very little||very little||least||varies||easiest to relocate||may have recreational facilities|
Looking for a House
Selecting a home typically involves a real estate broker or agent. The broker brings the purchaser and seller together to negotiate the sale. Generally, the real estate broker is paid by the seller through a brokerage commission. In Georgia, this commission typically equals 6 to 7 percent of the total purchase price of the home.
1. Inspecting the Property
A friend advises them that before making an offer for the house, they should
inspect it very carefully, inside and out.
look for signs of breaks and leaks, wear and tear.
have it inspected for termites.
ask the age of the roof and the heating system.
be certain of the boundaries.
find out about easements and zoning regulations.
find out if things that are not fixtures (such as a refrigerator or porch swing) go with the house.
2. Signing the Purchase Contract
A written contract for buying real property is required by law. The contract makes the sale enforceable should there be a legal dispute. The contract should include all the terms of the sale.
Usual terms of a contract include:
description of the property, including all fixtures to be retained by the seller.
official location of the property.
sale costs for buyer and seller.
commission for real estate agent.
actions seller must make (such as repairs).
amount and conditions for earnest money.
3. Depositing Earnest Money
Earnest money essentially is a good faith deposit paid to the seller upon the signing of the contract. It is applied toward the total purchase price when the sale is closed. What if the actual sale does not occur for reasons that are not the fault of either the purchaser or the seller? Usually the earnest money is then refunded to the purchaser. It is important that there be a contract clause that makes earnest money refundable. If the contract is breached (or broken) by the purchaser, he or she usually forfeits the earnest money. The seller keeps it as payment of any damages caused by the purchaser's breach.
4. Obtaining Funding
Loans for homes are called mortgage loans. They are one kind of credit. Mortgage loans are secured loans. The property (that is, the house and the land it is built on) becomes the collateral needed to secure the loan.
As a general rule, a mortgage loan is taken out for a long period of time, typically 15 to 30 years. The homeowner borrows a specific amount of money for this time period. The amount borrowed is known as the principal. The period of years for which the loan is made is known as the term of the loan. The principal is paid back over the term of the loan at a particular rate of interest. The length of the term influences the amount of monthly payments. Homer and Helen know that these payments shouldn't be more than 20 to 25 percent of their income.
Through most of the years of payment, a high percentage of the monthly payment goes to pay the interest rather than the principal amount of the loan.Truth in Lending laws require that borrowers be informed of these figures prior to taking the loan.
In the past, most mortgage loans were at fixed interest rates; that is, the monthly payments were the same over the term of the loan. Recent years have been less stable economically. Lenders have found this kind of mortgage lending unprofitable. They have created new types of mortgages with adjustable and variable interest rates. This variety of mortgages makes home loan shopping more complex.
Most home loans come from banks and savings and loan associations.
Several federal government aid programs assist buyers in getting loans. The Federal Housing Administration (FHA) and Veterans Administration (VA) both insure home loans. This insurance encourages banks to lend to people whose loans they might not otherwise approve. FHA and VA loans allow lower down payments and usually have lower interest rates. VA loans are only available to veterans of the armed forces.
The Georgia Residential Finance Authority offers low-interest mortgage loans for eligible low and moderate-income borrowers. However, there are geographical as well as income restrictions. In addition, persons convicted of certain illegal drug activities are not eligible to participate in the program.
5. Checking the Title
Besides trying to arrange for financing the house by obtaining a mortgage loan, Homer and Helen hire an attorney to examine the title of the property they are buying. A title is one's right to ownership of a particular piece of real property. The title examination (or search) is critical for the homebuyer. It is important to know that the seller is the sole and rightful owner of the property and that there are no problems with the title.
A title search involves tracing the chain of ownership of the property. In Georgia, the search covers 50 years. The searcher looks to see that no one else besides the seller has any claim or right to the property.
The searcher also looks to see that there are no defects in the seller's title. A defect in the title might be taxes owed on the property. Another defect might be the right of other people to use part of the property as a driveway. In other words, a title defect concerns anything that might interfere with the purchaser's use and enjoyment of the property.
6. Closing the Sale
Federal law requires that the buyers be notified of the closing costs at least 24 hours before the closing. These costs may include fees for the loan application, property appraisal, title search, attorney's fees, and title insurance. (Title insurance protects a buyer against any claim overlooked in the search.)
Generally, the buyer must be prepared to pay these fees and the agreed-upon down payment on the house. The lender pays the remainder of the cost of the house. The seller will pay the real estate agent's fee and title transfer. At the closing, the documents are signed that complete the sale.
7. Recording the Documents
The document that represents the passing of ownership from the seller to the purchaser is the deed. The deed states that for a particular sum of money, the seller grants (or conveys) to the purchaser the property described. Once the deed is signed by the seller and handed to the purchaser, the purchaser becomes the owner of the property.
When the purchaser finances the property with a mortgage, another document is required. This document is known in Georgia as a deed to secure debt. This deed establishes the new buyer's property as collateral for the loan. The deed to secure debt is executed (or signed) by the purchaser and given to the lender.
After the sale is closed, the signed documents must be recorded at the local courthouse. By recording each real property sale, land records can be safely and centrally maintained.
If You Can't Repay the Loan
If a mortgage loan is not repaid as agreed, the mortgage lender may obtain the collateral and sell it to satisfy the debt. This process is known as foreclosure.
The house may be sold at public outcry (that is, at a public sale).
Note that property can also be seized and sold at public sale by a county government to meet unpaid property tax debts. Delinquent taxpayers (that is, those who fail to pay the tax assessed on their house) must also be notified before the sale.
Once you decide to buy a home, it is important to be aware of the legal steps and the financial demands of purchasing it. A lack of knowledge can result in financial loss and hardship.
* Excerpted from An Introduction to Law in Georgia, Fourth Edition, published by the Carl Vinson Institute of Government, 1998 (updated 2004). The Vinson Institute is not responsible for errors in the online text. Content is for information only; in no way should the information in the book be considered legal advice to anyone on any matter for which there are legal implications. Any such matter should be specifically addressed with an attorney. The book is available for purchase ator by contacting the Publications Program, Carl Vinson Institute of Government, University of Georgia, 201 M. Milledge Avenue, Athens, GA 30602; telephone 706-542-6377; fax 706-542-6239.