When the search for the home of your dreams ends with its seller accepting your purchase offer, the number of legal documents required to complete the transaction can be shocking for anyone who has not gone through the process.
What may come as a surprise is the fact that the paperwork is pretty much the same whether the property is a $38 million penthouse in New York City or a modest, three-bedroom house in the suburbs.
The volume of paperwork can be overwhelming and confusing, which is why having an experienced real estate attorney representing you is essential.
To help give you a better understanding of what to expect, we present an explanation of some of the most common legal documents purchasers encounter when buying a home.
Seller’s Disclosure Documents
State laws differ on the type and scope of disclosure a seller must make to a prospective buyer about the condition of the property.
Those states that have disclosure rules, generally require a statement by sellers at or prior to the signing of the purchase contract of the condition of plumbing, heating, and electrical systems as well as the condition of the roof.
Some states allow a seller to opt-out of signing a disclosure statement by giving a purchaser a monetary credit at closing. For example, sellers in New York may give a buyer a $500 credit at closing in lieu of a disclosure document.
Federal law requires that sellers of homes built before 1978 must give buyers a written, lead-paint disclosure. The document lets a buyer know whether the seller has knowledge of the existence of lead-based paint in the home.
As with the property condition disclosure, a buyer has the right to cancel the purchase based on what is disclosed about the property or renegotiate to have conditions remedied by the seller prior to closing.
Purchase Agreement or Contract of Sale
The purchase agreement or contract of sale contains all of the key terms and conditions of the sale, including:
- Purchase price.
- Financing contingencies.
- Personal property is included with the home.
- Date of closing.
Depending on the laws and customs in the state where the property is located, either the real estate broker who listed the house for sale or the attorney for the seller prepares the purchase agreement.
The buyer signs it first and returns it with a check for the down payment or earnest money representing a portion of the purchase price. It becomes a contract enforceable in court after the seller signs it.
When a buyer is obtaining financing from a bank or other type of financial institution, the legal documents related to it include the following:
- Mortgage or loan application: As a borrower, you must complete a loan application for the lender. The application contains the personal and financial information the lender uses to determine whether to approve the financing.
- Loan Estimate: A lender must give you a detailed estimate of the costs associated with your loan within three days after it receives your loan application. The estimate includes the interest rate, the amount borrowed, and a repayment term of the loan along with estimated closing costs.
- Loan approval letter: If the lender determines that your income, financial information, and credit history satisfy its underwriting requirements, it will send you an approval letter.
- Closing Disclosure: The lender must give you a closing disclosure document at least three business days before the scheduled closing of the purchase. The closing disclosure contains the final terms, including interest rate, and closing costs you will be asked to pay to complete the loan process and the purchase of your home.
- Mortgage and promissory note: At the closing, your lender asks you to sign a mortgage and promissory note. The note contains the interest rate, the amount borrowed and repayment terms of the loan and legally obligates you to comply with them once you sign the document. The mortgage is recorded in the office of the county clerk as a lien on the house and property to secure repayment of the loan.
As with all documents related to the purchase of a home, you should not sign loan documents until they have been reviewed by your real estate attorney.
Your real estate attorney will arrange for a search of the title to the property to ensure that the seller has the ability to deliver a clear title that is free of judgments, liens, or any defects.
Title insurance can be purchased through the title insurance company that conducted the search to protect you and the lender in case the search missed something.
At the closing, the seller delivers to the title company a deed transferring ownership of the property into your name. Once it is recorded in the office of the county clerk, the deed becomes a public record of your rights in the house and property that you purchased.
Most states or local municipalities impose a transfer tax on the sale of real estate that must be paid at closing. Although it is generally paid by sellers, your attorney can advise you if local custom makes it a buyer’s expense.
Other Legal Documents to Expect
A survey showing the property lines and location of the house and other structures on the land that you purchase.
Unless one is on file with the county or turned over to you by the seller, your attorney may recommend hiring a licensed surveyor to create one in order to ensure that the property is free and clear of any encroachments.
One of the other important documents that you will receive is a certificate of occupancy for the house, garage, and other structures built on the land.
A certificate of occupancy issued by the local municipality certifies that the structure was built in compliance with local and state building codes.
There may be other legal documents required to complete the purchase of a home depending upon state or local laws. Do not hesitate to ask your attorney or real estate agent to explain them to you.