Congratulations, you’ve made the decision to buy property. Now what?
We are often asked what steps to expect in the process. There are a few things for which Buyers should be aware, particularly if it is the first purchase of a home, condo or land in Maine.
First, in Maine, the four-page Purchase and Sale document serves as the offer. It becomes an executed contract only when the Buyer and Seller have agreed to all terms and initials and signed on each page.
In this document, your broker will ask you to provide the legal names of the Buyers, including middle initial, as well as a mailing address. This is information that a closing agent would then use for the deed, though you have the option to add names to the deed at closing. For example, if more than one person will be on the deed but only one will actually be applying for the mortgage, the name can still be added to the deed later. If it’s a cash deal it’s best to put any and all names of the Buyers on the contract to start.
The document then includes the offer price, the amount of earnest money deposit offered, the number of days for which the offer is valid, and the requested closing date. It should be noted that unless otherwise stated, days are always business days in Maine standard contracts. Regarding the Earnest Money Deposit, the deposit is held in escrow in a trust account by one of the real estate agencies involved in the transaction (more typically the list agency) and then a check is written to the closing attorney just prior to closing and applied to the sale.
The financing contingency section outlines whether it will be a cash or financed transaction and if financed, the general terms of the mortgage, including the number of years and the maximum interest rate the Buyer expects to pay. This is also where the Buyer can request closing costs to be paid by the Seller, and it includes the number of days in which the Buyer will provide an initial letter from a lender, stating that application has been made and the applicant is pre-qualified (it is always a good idea to have a pre-approval prior to your property search). The financing contingency runs to the date of the close. However, there are many detailed steps in the mortgage approval process such as appraisal, and clear title, and in the case of a condominium purchase, there are project approvals that come in to play. When the loan has a “clear to close” from the lender’s underwrite the file has been approved and will be released to the title attorney for the documents to be signed by both parties.
Buyers need to make a decision regarding whether or not to have a home inspection. It is always recommended, but it is not a mandate. There is an entire section that delineates specific inspection items, from general inspection to septic, air quality, mold, etc. General inspections should cover most items, but best to be as specific as possible to prevent any misunderstandings with the Sellers. There are qualified home inspectors in our area and rates generally range from $350 to $500 depending on the size of the property and the level of inspection. This is also a contingency period and if something is uncovered in the inspection process the Buyers may back out of the contract and receive their earnest money deposit. More typically, the Buyer may ask a Seller to make modifications or repairs if there are issues, or just opt to handle it themselves, but at least they know if there are issues. Depending on the length of the contract (meaning, how many days form the time the contract is agreed to and the closing date), inspection periods run from 7 to 14 days. Always allow more time if air or water quality tests are done in order for the results to be returned.
With the inspection contingency complete and the financing in good shape, all you need to do is make arrangements to either be at the closing or to complete the transaction via mail. Before the closing you will received a HUD settlement statement detailing the Buyer and Seller’s obligations regarding the transaction. Taxes are pro-rated to the date of the close, and in transaction with association fees, they are pro-rated also.
Expect to pay about $750 to an attorney for title work, and depending on whether it’s financed, there will be costs for lender’s title insurance in addition to owner’s title insurance. In Maine, there is also a State of Maine transfer tax of $4.40 per thousand dollars of the sale, so $2.20 for each the Buyer and Seller. There will be other ancillary fees, including postage if the closing is completed by mail.
This is a general overview of the process, ask your broker for more details.