A General Overview of the Steps
Followed in Purchasing Property

A. The Agreement

An "Offer to Purchase and Contract" is completed with a sales associate's assistance, signed by the Buyer and is accompanied by an earnest money deposit of usually 3-5% of the purchase price. When the offer is accepted, these funds are placed in a non-interest bearing account by the listing broker until closing. Then the earnest money is credited to the Buyer on the closing statement.

Usual contingencies in the contract: obtaining a mortgage commitment, termite inspection, component inspections.

The Seller agrees to convey the property by General Warranty Deed.

The average time to closing (Transfer of Title) is 30-60 days.

The Contract is accepted and signed by the Seller.

B. Mortgage

The Buyer submits a mortgage application to a mortgage company, or other lending institution.

The Lender orders a credit report, and if satisfactory, orders an appraisal of the property:

Having verified the Buyer's employment, the Lender approves the Buyer's credit and the value of the property as collateral for the loan.

The Lender approves the mortgage application and sends documentation to the Buyer's attorney for closing.

The Lender orders mortgage insurance ( also called PMI)if it is required. You will pay PMI generally if the Loan To Value ratio (LTV) is less than 80/20.

C. Closing (Transfer of Title)

The Buyer's attorney orders title insurance and begins computation of closing statement and preparation of other necessary documentation.

Utility companies need to be notified when title transfers so the appropriate parties can be billed.

• Closing is normally held at the office of the Buyer's attorney.
• The usual closing costs include: loan origination fee (1% of the loan amount), discount points, if applicable, PMI if required, title examination and insurance, hazard insurance, credit report, survey, recording fees, and appraisal.
• The closing attorney completes the final statement, and records the documents at the County Courthouse.
• The Buyer (or Buyers, i.e. husband and wife) takes title as "Tenant by the Entirety."
• The Buyer typically takes possession immediately after the closing. In North Carolina closing is held to be at the recordation of the new deed not at the closing meeting.

Details of the Steps in
the Purchase of Property

A. The Agreement

Lawyers: Buyers and Sellers are not required by law to have an attorney represent them in the transaction, but it is common practice in North Carolina for Buyers to retain legal counsel, while Sellers usually do not.

Purchase and Sale (Final) Agreement: The instrument that creates a valid, enforceable contract between the Buyer and the Seller is commonly entitled "Offer to Purchase and Contract." The "Offer to Purchase and Contract" is a somewhat modified North Carolina Bar Contract and major firms in the market area use this or a similar instrument.

The practices (or provisions) described on the following pages are based on the "Offer to Purchase and Contract." The form is preprinted, and may be completed with assistance from a sales associate.

Customary Deposit (Earnest Money): The earnest money deposit that accompanies the sales contract is usually 3-5% of the purchase price. The deposit check is made payable to the listing broker who places it in a non-interest bearing account until closing.

Contingencies (Customary or Acceptable): The following contingency clauses are customarily included in the sales contract:

• Typically, the Buyer is given several weeks in which to obtain a firm loan commitment. The principal amount of the loan, the term (in years) and the maximum interest rate are noted in the contract, together with the maximum number of mortgage loan discount points.
• Termite Inspection: Under the provisions of the contract, the Buyer has the right (at his or her expense) to obtain an inspection for termites, wood-destroying insects and organisms, and structural damage on Standard Form No. 1 in accordance with the regulations of the North Carolina Structural Pest Control Committee. If new construction, the builder will typically provide a new construction termite bond. Extermination and/or repairs (if necessary) are at the Seller's expense.
• Residential Property Inspections: The Buyer has the option to have (at his or her expense) an inspection of the electrical, plumbing, heating and cooling systems, and the built-in appliances. The Buyer also has the option to have roof and structural components of the property inspected. Any necessary repairs are at the Seller's expense. If the Seller does not elect to complete the repairs, the Buyer may rescind the contract. Click here for more information.

Note: Occasionally, the sale of the Buyer's present home is a contingency. In this case, the Seller's home is usually kept on the market during this period. The Buyer is sometimes given a short period to negate the contingency in the event a new, bona fide Buyer makes an offer.

Restrictions: Recorded liens, encumbrances, easements and restrictions are referenced in the contract.

Fixtures/Personal Property: The "Offer to Purchase and Contract" contains a standard list of fixtures normally included in the sale. It is important to list any personal property that is expected as part of the sale. If there is a negotiated sale of personal property (as opposed to fixtures), this may be described in the contract or become a matter of a separate agreement.

Adjustments: Adjustments (and prorations) are described in the "Offer to Purchase and Contract" as follows:

"Unless otherwise provided, the following items shall be prorated and adjusted between the parties or paid at closing:

• Ad valorem taxes on real property shall be prorated on a calendar year basis to the date of closing.
• Ad valorem taxes on personal property for the entire year shall be paid by the Seller.
• All late listing penalties, if any, shall be paid by the Seller.
• Rents, if any, for the property shall be prorated to the date of closing.
• Accrued, but unpaid, interest and other charges to the Seller, if any, shall be computed to the date of closing and paid by the Seller; interest and other charges prepaid by the Seller shall be credited to the Seller at closing and paid by the Buyer. (Other charges may include FHA mortgage insurance premiums, private mortgage insurance premiums and Homeowner's Association dues.)"

Type of Deed: Property in our North Carolina market area is customarily conveyed by a General Warranty Deed at closing. Foreclosed properties are typically conveyed by Special Warranty Deed.

Buyer Default/Extension to Perfect Title: In accordance with the Earnest Money provisions of the contract, should the Buyer breach the contract, the deposit is forfeited but this action does not affect any other remedies available to the Seller for breach. It is customary for the Seller to be automatically granted an extension for a reasonable time to perfect any flaw found in the Seller's title.

Time-Agreement of Closing: The average time from the execution of the sales contract to closing (Transfer of Title) is 30-60 days.

B. Obtaining a Mortgage

Sources of Mortgages: Most Buyers obtain their mortgages from mortgage companies, credit unions, and in some cases private financing. FHA/VA mortgages constitute a relatively small proportion of local loan activity.

Discount Points: Discount points are sometimes a factor in obtaining a loan. Each discount point equals 1% of the loan amount.

Other Lender Requirements: Special Fees. Customarily, lenders require the following:

• Loan Origination Fee: 1% of the loan amount
• New Plot Plan (Survey): $200-$300 (required less often these days)
• AppraisalFee: $300-$500
• Credit Report Fee: $50-$75
• Title Insurance: $2.00/per thousand (unless the attorney can get a "re-issue" rate)
• Termite Inspection: $75

Basic Terms of Mortgage: Mortgages written in this market do not contain a prepayment penalty clause. They do, however, contain an alienation (or "Due on Sale") clause that prohibits assumption of the existing mortgage without the lender's prior approval. VA loans are typically an exception. FHA loans written prior to December 1986 are also exceptions.

Procedure: After the Buyer applies for a mortgage commitment, the lender orders a credit report and an appraisal of the property. Verification of employment is always required, as is verification of down payment and other financial resources.

Definition of Key Mortgage Instruments: The instrument that is evidence of the debt incurred is called a "Promissory Note," while the security for the note is called a "Deed of Trust."

Expediting the Application: In making a mortgage application, the Buyer can expedite the process by having all verification documents readily available. Included is a complete financial statement (assets and liabilities) credit references, bank and credit card account numbers and current balances plus any other relevant material.

Mortgage Assumptions and Second Mortgages: Assumptions are allowed in this market occasionally, and Sellers grant second mortgages sometimes. VA loans are typically assumable at the original rate. Conventional loans of less than 10 years are generally assumable only with the permission of the lender and then at the current interest rate. FHA loans written after December 1986 may be assumable subject to the buyer's ability to meet the lender's qualifying guidelines.

Bridge Loans: In general, commercial banks make interim (bridge) loans to out-of-town Buyers whose present home has not sold, or if under contract, has not closed. However, some mortgage lenders will not approve a borrower's credit until the Buyer's home has actually been closed.

Special Seller Financing: During periods of "tight money," seller financing is occasionally available. Seller financing is not frequently seen in this marketplace.

C. Closing (Transfer of Title)

Lawyers: The Buyers are customarily represented by an attorney at closing, but the Sellers usually do not retain legal counsel.

Title: The Buyer (or Buyers, i.e. husband and wife) usually takes title as "Tenant by the Entirety."

Special Power of Attorney: In the absence of the Seller, the listing or selling broker can represent him (or her) through a special Power of Attorney that names the real estate firm rather than a specific individual within the firm. In the case of a Power of Attorney for the Seller, it is necessary for the Seller to execute a deed as part of this Power of Attorney. The Buyer's name must be included in the deed and the document must be notarized.

Location of Closing and Recording: The closing is usually held in the office of the Buyer's attorney. Pertinent documents are recorded at the County Courthouse.

Closing Costs: At closing, the Buyer pays with a certified check, the balance due on the purchase price (the price less the deposit and new mortgage loan) plus all other closing costs. Customarily, Buyers in this market area receive an estimate of closing costs prior to the actual closing. (See chart on back page).

Utilities: The parties involved notify the utility companies (gas, electric, water, and phone) to change billing from the Seller to the Buyer, effective as date of closing or occupancy.

Final Walk Through: The Buyer has the right to walk through the property just prior to closing to check on the condition of the house. Closing constitutes acceptance of the property.

Possession: It is customary for the Buyer to take possession immediately after closing unless other arrangements have been made and put in writing. Recordation of the deed constitutes closing.

Closing Costs