What should I know about buying a home?
Authored By: GeorgiaLegalAid.org
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Buying a home in Georgia
What should I know? +
- What is a home purchase agreement?
- How do I look for a home?
- What should I know about buying a home?
- What are my rights when buying a home?
- What are my responsibilities when buying a home?
When you are buying or selling a house, you will sign a home purchase agreement that outlines the conditions that both buyer and seller agree to, including the purchase price. It is a legally binding contract between the two parties.
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. The brokerage commission is split by the agent for the buyer and the agent for the seller. In Georgia, this commission typically equals 6 to 7 percent of the total purchase price of the home.
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.
What are common types of homes?
Your rights to the property will vary depending on the type of home you buy.
Common types of homes are:
Single family home: In a single family home, you own the house and the property it sits on. There are detached single family homes that are freestanding and single family homes that share a wall with another home.
Single family home in a homeowners’ association: Some single family homes are sold as part of a neighborhood or homeowners’ association. If you buy into a homeowners association, you agree to follow the rules and regulations of the community and to pay dues to the association.
Manufactured or mobile home: A manufactured or mobile home is a home that can be transported. In these homes, you often buy the structure separate from the land it sits on. You may have to buy or rent the land and/or pay fees to a mobile home community.
Townhouse: Townhouses are individual houses that built side-by-side, where one or two of the walls of the house are shared with another home. In a townhouse, you generally own the interior and exterior of the home and the land in the front or back of the home. Most townhome communities have homeowners’ associations and owners pay monthly dues and agree to follow the rules and regulations of the community.
Condominium: Condominiums can look like an apartment or townhome, but the difference is that when you buy a condominium you only own the interior of your unit. The exterior of the building, land, and all common areas are collectively owned by all of the condo owners. Condo owners pay high dues and fees to the homeowners’ associations to pay for insurance and the maintenance and improvements of the collectively owned areas.
A written contract for buying real property is crucial. The contract makes the sale easier to prove 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
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.
If the actual sale does not occur for reasons that are not the fault of either you or the seller, usually the earnest money is then refunded to you. It is important that there be a contract clause that makes earnest money refundable. If the contract is breached (or broken) by you, you usually forfeits the earnest money. The seller keeps it as payment of any damages caused by your breach.
You should inspect the property 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
What can I do? +
- How do I pay for my new house?
- How do I get a loan?
- What home purchase scams should I be aware of?
- How do I check the title for the property I am buying?
- What should I know about closing a sale?
- What other documents should I be aware of?
- What happens if I can't repay the loan?
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. These payments shouldn't be more than 20 to 25 percent of your 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 Dream Homeownership Program, administered by the Georgia Department of Community Affairs offers low-interest mortgage loans for eligible low and moderate-income borrowers. However, there are geographical and income restrictions. In addition, persons convicted of certain illegal drug activities are not eligible to participate in the program.
If you are considering buying a home, watch out for traps that are designed to steal your hard-earned money and leave you and your family on the street! Beware of lease-purchase options, contracts for deed, seller financing, and similar deals, because they almost never work.
- Lease-purchase options: You sign a lease that includes an option to purchase the home if you can get financing during the option period (often 1 year). You usually make a large down payment (which may or may not be credited toward the purchase price) and pay more in monthly rent (a portion of the rent may or may not also be credited toward the purchase price).
- Typical result? Either you can’t afford the lease payments that have drastically increased based on fine print in the lease; or you aren’t able to qualify for financing; or the home doesn’t appraise high enough to qualify for the loan amount you need (even after applying the credit from the down payment and rent payments). When you cannot pay the lease payments, or you pay but can’t get a good loan to exercise the option to purchase, the seller will evict you and your family, keep the house, your down payment, and excess rent payments, and then turn around and prey on the next unsuspecting person. You lose the home AND your money!
- Contracts for deed: The seller provides financing and you think you own your home with a mortgage. However, the contract says you won’t get title in your name until after you’ve paid the entire loan balance (often over a 30-year period). Typically, the contract requires you to make home repairs, pay the property taxes, and pay homeowner’s insurance during the 30-year period when you do not actually own the home.
- Typical result? You spend money fixing up the home and pay the property taxes and insurance. If you miss a single payment, the contract says the seller can evict you like a tenant, take back the house with all the repairs and improvements you made, and keep all the money you’ve paid on the contract. Because of your work, the seller has a more valuable house to sell to the next unsuspecting person. You lose the home AND your money!
- Seller financing (with or without a wraparound mortgage): The seller provides the mortgage, but the seller doesn’t comply with lending laws that apply to banks, credit unions, and other mortgage lenders. Seller financing often has inflated prices, high interest rates, and other bad terms. Sometimes the seller already has another mortgage on the property that also has to be paid to avoid foreclosure.
- Typical result? Bad terms make the payments hard to afford, and almost impossible to refinance. Even if you are making your mortgage payments on time, if the seller stops paying their original or “wrapped” mortgage, you could be at risk of foreclosure and not even know it. You lose the home AND your money!
A title is one's right to ownership of a particular piece of real property. The title examination 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 examination is time consuming and, many times, complicated. It is risky to do it yourself. It is wise to hire an expert, preferably a real estate attorney or title insurance company, to do it.
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.
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 the buyer against any claim overlooked in the search.)
Generally, you 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.
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 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 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. Those who fail to pay the tax assessed on their house must also be notified before the sale.
Tips to identify and avoid scams when buying a home:
Find a local HUD-approved, nonprofit housing counseling agency. Meet with a housing counselor to evaluate your budget, credit history, legitimate financing options, and possible down payment assistance. Also, enroll in a free homebuyer’s workshop. You can find a housing counselor here: www.hud.gov/findacounselor
Work on your credit, budget, income, and savings before you begin house hunting.
Get pre-approved from a reputable bank or mortgage lender.
Hire an independent inspector to make sure the house is in good condition.
Have your own lawyer examine the purchase agreement, other documents you receive, and the final closing papers before you sign.
Get your own title insurance policy to make sure you get good, clear title when you buy your home.
Buying a condominium
There are specific laws in Georgia related to buying a condominium. For example, 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 you know what to expect. Otherwise, as new condo owner, you 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. If you need help, consult an expert or attorney. Read more about Georgia’s condominium laws and buying a condo in the Homeowners’ Protection Bureau’s guide “Know What You’re Getting Into When You’re Buying a Condo.”
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.
- Read Atlanta Legal Aid’s brochure Thinking About Buying a Home?
- Visit GinnieMae.gov to learn more about applying and finalizing the loan application process.
- Explore this Buy vs. Rent Calculator to compare the advantages and disadvantages to buying a home versus renting one.
- Explore the Affordability Calculator: How Much Can You Spend to Buy a House? to calculate how much you can afford to spend on a home.
- Visit the Home Loan Guaranty Services for Veterans and the Military website to learn specifically about the VA Home Loan program.
- Read the National Consumer Law Center’s Home on Wheels document to learn about the challenges and common problems that mobile home owners face.
- Use the How to File a Complaint About a Manufactured or Mobile Home form if you have any complaints about the performance of your manufactured home that have not been resolved by the retailer where you purchased the home or by the manufacturer that produced the home.
- Learn about achieving homeownership with the Georgia Department of Community Affairs Homebuyer Education Course.
- Learn about buying a HUD home on the HUD website.
This article is adapted with permission from an excerpt of An Introduction to Law in Georgia, Fourth Edition, published by the Carl Vinson Institute of Government, 1998 (updated 2004). Reviewed and updated by Georgialegalaid.org, September, 2019.