How? When you rent the place that you live in, you write a check, or hand over cash to your landlord and in exchange you get the right to occupy the premises for another month. That’s it. Unless you qualify for and receive section 8 housing assistance, or some other form of government housing aid, you get no other benefits or help with your living expenses. On the other hand, if you own the place that you live in, and you borrowed the money to buy it, the government will be subsidizing your mortgage payment by letting you deduct the money that you spend on interest and on property taxes from your taxable income.

This is not just a play on words. It is real money. If you are paying $900 per month in rent, you pay the money from what’s left of your paycheck after the government siphons off their cut, and you just keep giving that money up month after month. You don’t get to deduct anything on your Federal Income Taxes, you don’t get to participate in any appreciation in property values and not one penny of that money goes toward building any asset, or equity for you. You get to stay where you are for another month and that’s it. Plus, every year when your lease is up, guess what? Your rent usually goes up with it and you still don’t get one penny back. Money you spend for rent is lost, instantly and forever.

If you are paying $900 per month for a mortgage payment, more things happen for you. First, just like with rent, you get to stay in the property. But now there’s more. In a typical $900 new mortgage payment at today’s interest rates, about $650 is tax deductible interest and about $100 is property taxes. That’s $750 that can be taken off of your taxable income that month. If you are in a 25% tax bracket, that would be $187.50 that the government will give you back just because you own, instead of rent. They are in fact subsidizing your housing payment by $187.50, which means that your actual monthly housing expense, when compared to renting, is $712.50, not $900. But that’s not all. Assuming your home increases in value along with the current inflation index of about 3% annually, you would be building equity on this home by about $260 per month. Every month that you own this home you have earned an extra $260 that can be retrieved anytime by selling your home, or borrowing against it. If you were renting, you would get nothing. Now your effective housing payment, compared to renting for $900, is $452.50. And there’s still more. With each payment you will be paying off the loan and building equity here as well. In the beginning of the loan you will pay off about $65 per month, but this amount gets larger with every payment you make, even though your payment stays the same. It is a form of painless forced savings. So now your payment, compared to that $900 rent, is only about $387 a month. For this, you can own a home worth about $100,000, even if you bought it with little or no money down.

Consider this: If you rent for the next 5 years, at $900 per month (assuming that your landlord somehow forgot to raise your rent each year) the end result is that you would have paid out $54,000 and have absolutely nothing to show for it. If you owned your home during this same time, you would have paid out $54,000 in payments, but gotten back $11,250 from the government, $4,837 in principal reduction equity and $15,600 in appreciation equity, for a total of $31,687 that is now in your pocket instead of your landlord’s. Your actual cost for housing would be $54,000 to RENT, as opposed to only $22,313 to OWN.

I haven’t even mentioned the many other advantages of owning your own home, like being able to do as you please with your property. Paint it, decorate it, change it anyway you want - to be YOUR OWN place - just the way you want it.

When most people decide to buy a home, they start looking in the newspaper or in the various free real estate ad publications to see what is out there. After calling on a few ads to get information, they often end up working with a Realtor who will show them other properties as well. Or, they may think they can get a better deal by looking at FSBO’s (For Sale By Owners), or perhaps they drove around first and found some homes they were interested in, or perhaps they have a friend or relative who is in real estate and they just called them first… There are many ways that people get started in looking for a home, but all of these methods usually involve looking for a home first, and then after finalizing a contract, applying for a loan to buy it. If you are working with a good Realtor, they will probably have you "pre-qualified" by a Loan Officer or Mortgage Broker, but you will still have to apply for a loan once you have a contract accepted to purchase a home.

A far better way to approach buying a home is to get your financing arranged first, then go out and find the home that you want. Taking care of your financing as the first order of business has several distinct advantages to a buyer:

• Being Approved for a loan (not just pre-qualified) effectively turns you into a cash buyer. You have a check all ready to go, you just need to find a home to spend it on. This gives you the clout of a cash buyer in negotiating an offer on a home.
• Getting your financing arranged in advance allows you to concentrate on all the very important and often complicated details of the real estate transaction, without the many distractions involved in arranging financing.
• Having the money in hand lets you move as quickly (or as slowly) as you like in closing on the home and removes much of the suspense and anxiety normally associated with buying a home.

Once you have been Approved for the maximum loan you want, or are qualified for, then you should find an agent to work with. More about this later.

Once you have your financing secured, the general process can proceed like this:

• Look at homes.
• Make an offer (or offers) on the home or homes that you like until you have a fully accepted contract.
• Have any inspections made.
• Get any repairs done (normally the seller’s responsibility).
• Apply for homeowner’s association membership if required.
• Arrange for insurance.
• Arrange the move.
• Close on the deal.

We will cover all of these steps in some detail throughout the rest of this book, but first let’s talk a little bit about the emotions of buying a home.

Changing homes is in itself quite an emotional event. All of the other factors that can complicate the process tend to further squeeze the ole’ hypothalamus. The seller’s are usually going through the same stress and emotional issues, and if you are both a seller and a buyer then you’ll have the full spectrum of experiences to enjoy.

Usually the parties on both sides of the transaction start out relatively civil to each other. Then, as the process progresses, inspections are done, disagreements begin to surface over repairs, mortgage approvals, title issues, interpretation of the contract provisions, changes in dates and other circumstances and on and on. The closer to closing, the deeper and more urgent the emotions become. Often, by the time the parties sit down at the closing table, both sides have sworn to call off the deal several times along with numerous other threats and posturing.

But, as the old saying goes, where there is a will, there is a way. And somehow, seemingly against all odds, it closes. Sanity is restored. Everybody ends up happy.

Having a competent real estate agent working with you, along with a competent mortgage lender and competent title company, can take much of the complexity, confusion and anxiety out of buying a new home. Having incompetent real estate, title and mortgage people involved can turn your dream home into your worst night mare.

Try to do two things when you proceed on your quest for your new home.

First, find the home of your dreams, but handle the purchase as a business transaction. Don’t take things personal.

Second, enlist the services of a good lender, real estate agent and title company to handle everything for you. This will cost you less, not more than trying to do it yourself, and you make your life much, much easier throughout the entire purchasing process.

Next, we will examine the various aspects of arranging the financing of your home purchase.

First, let’s look at the difference between getting pre-qualified and getting pre-approved. Most banks, lenders and brokers that offer mortgage financing will be happy to pre-qualify you. This generally involves speaking with someone over the phone and answering questions about your job history, income type and amount, assets, credit and your situation in general. It may also include pulling a credit report. Then the "loan officer" will give his opinion, based on the information available as to what kind of program would be best and how much you can qualify to borrow and what purchase price range you should be looking in.

This is a good place to start, so that you have some idea of where to begin, but it is really just someone’s opinion. This opinion can be wrong for a variety of reasons. The loan officer might make a mistake, or error in judgement. Also, you might not have given him all of the information that he needs to accurately pre-qualify you. Usually, this is not deliberate. You may have simply not volunteered certain information because you didn’t think it was important. The loan officer may have neglected to ask you all of the right questions based on your situation. But sometimes even the seemingly smallest details can have major impacts on what kind of loan, or how much of a loan you can qualify for.

For these reasons, pre-qualifications are often inaccurate, and while they are certainly a good place to start, if not done properly they can actually cause more problems than they might prevent.

A pre-approval, on the other hand, takes the process all the way to getting an actual commitment from a lender for a loan, but before you have found a property to purchase. This approval might be contingent upon certain things, like finding a property to buy, or selling an existing home, or receiving a gift from a relative, etc. Or it might not have any conditions. Either way, it is a firm, written commitment to loan you a certain amount of money (or less if you choose). It essentially turns you into a cash buyer, with all of the clout that comes with that status. Getting this out of the way up front not only increases your bargaining power, it gives you complete flexibility in structuring and timing the transaction. And with all of the financing issues out of the way, it allows you to focus on the real estate transaction without any additional stressful hassles and distractions.

Not too long ago, no one would pre-approve potential buyers for a loan. You had to find a property first, then pay money to a mortgage company before they would begin working on your loan - a process which could take weeks or even months before you finally got an approval (or denial). Now, many things have changed and it is often possible to get pre-approved the same day that you apply, or shortly thereafter. Some companies still collect money up front to do this, but other companies will do it for free (although once you find a property, you will usually have to pay for the appraisal at least, at that time).

There is still much to say about ARMs, but if you think an adjustable rate mortgage is your best option, just make sure that you get the following information when comparing and shopping for ARMs.

Start Rate

Convertible to Fixed Rate (yes/no)

As well as the usual information on points, origination fees and other closing costs.

These various loan types come with many different kinds of documentation requirements. Generally speaking, if you are applying for a government loan (FHA or VA), or a Community Homebuyer type loan, or any other "Conforming" type of loan, you will have to provide specific information on your employment, income and living arrangements for the past 2 years, as well as specific documentation on your assets, credit and various events that may have occurred in your life such as divorces and property settlements, business arrangements, etc… Providing this documentation and qualifying for a conforming loan type also means you will be able to get the best rates and terms available on the loan. If you are unable or unwilling to provide certain documentation (on your income for example), you can often still qualify for financing, but since the loan will not meet conforming guidelines, your rate and terms may not be as good. The farther away from conforming guidelines you are, the worse the terms get.

Here are some of the general requirements for documentation on a Government or Conventional loan:

Employment and Income - you must provide the names, addresses and phone numbers of all employers (including yourself if applicable), full and part-time, for the past 2 years. If you work for a wage or a salary only, you will need to provide copies of the last 2 years W2 forms and the most recent month’s pay stubs. If you are self employed (if you own 25% or more of the company you work for, or just work for yourself), or if your income includes commissions, frequent bonuses, significant overtime, income from investment property, dividend and/or interest income or any 1099 type income that you need to claim for qualifying purposes, then you must show your complete tax returns for the last 2 years, plus a current Profit and Loss statement if more than 120 days have elapsed since the end reporting date of your last tax return.

Assets - The most recent 3 months statements on any bank or investment accounts. Proof of the ownership and sale of any assets converted to cash, such as stocks and bonds, automobiles, jewelry or valuables, etc. If you are receiving a gift, a gift letter must be filled out and signed by the donor, explicit proof of the giving and receipt of the funds must be shown and the donor’s account must be verified to show that they did in fact, have the funds to give you. You must have unrestricted withdrawal rights to any joint accounts.

Credit - Any derogatory entries on your credit report over the past 7 years must be explained. Credit inquiries in the past 90 days must also be addressed. Usually, judgements, collection accounts, unpaid charge-offs and tax liens must be paid or otherwise settled. Inaccuracies and special circumstances must be documented and removed from the report.

There are many special circumstances that arise in everyone’s lives that are handled on a case by case basis. If you are going for conventional financing, just be prepared to prove and document everything explicitly.

For those people who would rather accept a little higher interest rate in exchange for less documentation requirements, there are many loans programs available. There are literally hundreds of variations on these programs and detailed descriptions of all of them would take several hundred pages. Your Loan Officer is the best person to consult for detailed information on these programs.

First of all, as with so many things in life, there is no free lunch here. Unless you are paying all cash, one way or the other, you are going to pay for the costs of obtaining financing to purchase a home. No Cost loans are arranged by increasing the rate and/or worsening various terms of the mortgage, or by the seller, builder or relocation company building it into the price of the property. One way or the other, you ultimately end up paying closing costs. The closing costs to the buyer on new construction are typically higher than buying a resale from an owner. You will notice that a standard Real Estate Board contract is 4 pages long while a standard Builder’s contract is about 15 pages long. The main reason is the builder’s contract has to spell out how they can do whatever they want, and you must also do whatever they want, including paying all of your closing costs, plus all of theirs. Even though it may appear at first that they are paying for at least a few things, they will also normally charge you a "closing fee" of an amount sufficient to reimburse themselves for anything that they are paying. They also normally pass through local impact fees, etc. ... Plus, on new construction, you often get stuck escrowing for taxes based upon the improved value of the property, but the builder will only credit you for taxes based upon the unimproved value of the property, and so on. Now, it may seem that I am criticizing builders. Not at all. I am telling you this because when you get rate quotes over the phone, the lenders will typically give you cost estimates based upon a resale transaction, and these fees could wind up being considerably less than your actual costs if you buy new construction. But, you can still use these Good Faith Estimates to compare rates as long as they are all based upon the same assumption (a resale transaction).

For illustration purposes, I am going to divide the typical borrower’s closing costs into 3 primary categories to which I will assign the following confusing names:

1. Out of pocket costs
2. Prepaids
3. Escrows

Lender Fees: These are fees charged or passed through by the lender. The fees that are charged by the lender are also sometimes referred to as "junk fees". The actual fees that you can come across will vary somewhat from lender to lender. Not all lenders will charge all fees, and the amount of these fees vary widely.

Title Related Charges: These are charges associated with obtaining a Title Insurance Policy, plus the fees paid to the Title Company, or closing agent, for performing the various services associated with closing a loan and/or real estate transaction. The Title Insurance business is a very competitive arena and fees and charges for services can vary greatly. Most builders will require that you use a particular title company, or attorney. The costs for their services will usually be spelled out in the purchase contract. Some lenders will also require that you use a particular title company (or attorney). If the lender is requiring that you use their closing agent, then you should consider the fees that will be charged by that company as part of the fees and costs of doing business with that lender when they quote you rates. If you are allowed to pick your own title company, or attorney, their rates and fees should be considered separately and apart from the rates and fees quoted by the lender. Real estate sales people will also often push a particular title company. This is frequently because the real estate company owns, or has an interest in the title company (or vice versa), but may only be because the agent has had a good past experience with the company. Just be aware that you can shop for title charges and fees, like you can shop for mortgage rates and fees.

Other Costs: The following costs are the remaining "out of pocket" expenses that you can expect to encounter as a buyer.

• A standard annual plan, which is the original way PMI was structured. This method has an annual premium. The first year’s premium must be paid for at closing (like hazard and flood insurance), and then 1/12 of the premium is collected with each mortgage payment so at the end of each year, the lender has enough money to pay the annual premium again.
• Another method is a single premium. This premium is paid once, at closing and can either be paid in cash, or usually can be financed in the loan.
• The third, most recently implemented, and now most common method of payment is the monthly plan. With this plan you pay a monthly premium only while the insurance is in effect. You typically pay one month up front, plus 2 months into escrow (discussed later).

VA - 0% down and the seller/lender/real estate agents can pay ALL of your closing costs. You can buy VA without any money at all. Really.

FHA - The actual formulas for calculating FHA down payments and minimum closing costs are a little complicated, but if the contract is written straightforward, a buyer will need about 7.5% of the purchase price for the down payment and all closing costs combined (somewhat less for a condo). But, if the contract is written with the seller or lender paying certain costs, a buyer can get away with 3.75% to 4.2% of the purchase price total, for down payment and all costs. So, on a $100,000 home, they would need about $3750 minimum if maximum seller/lender contributions. Note: you may see ads by real estate companies and sometimes even lenders saying "FHA 2.25% down". This is misleading and incorrect and shows that they either don’t understand how FHA loans work, or they are deliberately trying to mislead potential buyers to get them in their doors.

Community Homebuyer - Normally, you need 5% down, though with some programs 3% is the minimum requirement. Also, with these programs, even if you are required to put 5% down, 2 to 3 percent of that can be a gift from an immediate family member (or government agency). The seller can contribute up to 3% of the purchase price towards the buyers closing costs. This means that the total amount needed by a buyer under this type of program (not including gifts), if the seller is paying the maximum allowed costs for the buyer, is about 6 to 7 percent. So, on a $100,000 purchase, a buyer could get in with as little as $6,000 to $7,000 total. Even less if they are receiving a gift. These programs have various restrictions on income, prior home ownership, etc. Make sure you check with your Loan Officer for the details. You can also put 5% down on a conforming loan that is not a Community Homebuyer type, but the qualifying requirements are more strict.

100% Financing - Yes, this can be done without VA. There are several ways to do it and usually it involves 2 loans. A first mortgage and a second mortgage. The second mortgage might be held by the seller, or by the lender. It is also possible to get a 100% first mortgage. In order to get this kind of loan, however, you must be willing to pay a higher interest rate than on a conforming or government loan, plus you must have excellent credit and you usually must have at least 5% of the purchase price in liquid funds in the bank, even though you may not have to use it. Again, there are many variations on these types of loans, and some new products allow over 100% financing on a first mortgage for a purchase so that you can finance your closing costs as well. Talk to your Loan Officer if you are interested.

With all other loan types, you must put at least 10% down and often 20% or more, plus closing costs. A Good Faith Estimate provided by your lender will detail the costs and amount of cash that you will need to complete any transaction that you might put together.

When you are looking for a way to purchase a home with the least amount of cash required from you, you can get help from the seller, relatives, the lender and sometimes the government. Most local governments have programs to assist low income earners, first time homebuyers and people who are willing to buy property in targeted areas and/or rehabilitate the property that they buy. There are typically many restrictions with these programs as well as limited funds available, but for some people, they can prove to be a valuable source of assistance. For most everyone else, help from the seller, lender and family can greatly reduce the amount of cash needed to acquire a home. See Appendix B for more information on Government Housing Assistance.

These days there are many other sources for finding homes for sale as well. The Internet has hundreds of thousands of homes listed for sale in the United States and even around the world. The Florida Association of Realtors maintains listing information on more than 60,000 homes for sale at any given moment. The National Association of Realtors posts listings on the Internet for more than 1,000,000 homes. Real estate company franchises, companies, individual offices and even individual agents have their own Web Sites that post properties that they have for sale. Also, there are independent sites that list properties for sale directly by the owners, or they may carry a mix of properties that may be for sale by owner, or by an agent. Many of these sites are quite sophisticated allowing for "tours" of the homes with multiple pictures and other enhanced features.

You can also find homes for sale on Cable TV, books published exclusively for homes for sale by their owners, relocation services and other sources. And as I mentioned, since there are so many real estate agents in Florida (about 1 in every 50 adult residents has a real estate license) many people know someone who sells real estate already, if they don’t have a license themselves, and will just call them when they are ready to look for a new home. (It should be noted however, that fewer than one in ten people that have obtained a Florida Real Estate License actually attempt to make even a part time income from it).

So, whatever source people choose when they begin their search for a new home, one thing usually remains constant. They look for a property first, then they attempt to arrange financing. This however, is usually not the best way to go about finding a new home. For many reasons, it is usually much better to get approved for financing first, then go find a property to buy.

But, real estate agents come in different styles, and you should know which one is best for you. The issues of "agency" in the real estate business have been hotly debated over the past several years. New laws, regulations, guidelines and professional rules of conduct have all come about recently as a result. Many people, including some real estate salespeople don’t understand the current rules on agency in a real estate transaction. This entire book could easily be written on that one topic alone, but I will try to narrow it down to a few key points.

The issue of agency here basically refers to who a real estate agent is working for and what obligations the agent has to this person in a particular situation. Here are the basic types of agency.

Listing Agent - (Selling Agent) A real estate broker who has a listing contract with a homeowner to sell their home and has presented themselves to the seller as representing their interests over all others. A listing agent has a single agency relationship with the seller of the home. Since a selling agent who’s office also works with buyers on a single agency relationship could potentially be forced into an illegal dual agency situation, the law now allows (as of October 1997) for the agents involved in this type of situation to transition to "Transaction Broker" for that sale, as long as the parties have previously agreed to it.

Dual Agent - (As of October 1997, this arrangement is no longer allowed in Florida) This is an agent who shows a home that is listed by them or by their office to a buyer that they are working with under a buyer agency arrangement. In this situation the agent owes a primary responsibility to both the seller and the buyer. A difficult situation to manage because both the buyer and seller expect, and are entitled to have their opposing interests represented without compromise by the agent, at the same time.

Transaction Broker - An agent who is working with both the seller and the buyer in a transaction, but only provides limited representation. The agent primarily attempts to facilitate the transaction using his or her professional knowledge and expertise, but does not claim or attempt to represent the interests of either party over the other. Most real estate offices handling both sellers and buyers now operate this way.

Buyer’s Agent - An agent who is working with a buyer and is obligated to represent their interests, even though they are usually getting paid by the seller. A Buyer’s Agent has a single agency relationship with the buyer, but may transition to a transaction broker if they show or sell one of their own office’s listings, as long as the parties previously agreed. If the office took the listing as a transaction broker, then agents in that office working with buyers must also function as transaction broker when showing any of their office’s own listings. They cannot be a buyer’s agent to the buyer and a transaction broker to the seller at the same time.

Exclusive Buyer’s Agent - An agent who only works with buyers. This is the only kind of agent that does not and can not change hats. They never become Dual Agents because their office does not carry any listings. They are never Selling Agents or Transaction Brokers either. They only represent the interest of the buyer. Exclusive Buyers Agent’s are also usually paid by the seller, but their sole responsibility (other than being honest and fair to all parties) is to the buyer. Exclusive Buyer’s Agents are also in the extreme minority, but may be worth seeking out if you are interested in having your rights and interests protected without compromise. They usually work with buyers under an exclusive contract for a set period of time and in some areas will collect a good faith deposit from the buyers as well, though this is not the rule. While these agents are typically paid by the seller when the transaction closes, occasionally a buyer will opt to pay the Exclusive Buyer Broker directly, particularly when working with unusual circumstances.

Now that you know a little about the kinds of agents you will encounter, and are thoroughly confused, you will need to pick someone to work with. You may be using someone you know or who was referred to you by a friend or family member. Or, you may choose to use someone new. There’s no big secret here. You will come across many agents when you start looking for homes. If you want to use an Exclusive Buyers Agent, you can usually find their ads in real estate for sale magazines and in the phone book. You should also be able to get a list of Exclusive Buyers Agencies from the local Association of Realtors. You might also be able to find some on the World Wide Web. Which ever way you decide to go, make sure you use someone that you like and feel comfortable with; someone who seems to understand your needs and is competent and willing to do what you want.

A good real estate agent will save you a lot of time, aggravation and money. They will coordinate, negotiate, arrange, implement, expedite, cajole, console, troubleshoot, solve, soothe and smooth out the whole complicated process.

A bad real estate agent can turn your dream home into your worst nightmare.

Choose carefully and tell them what you expect from them right from the start. If you are less than enthused by their attitude or apparent competency, move on to someone else. There is no shortage of real estate agents, but good ones can require a little searching.

Making an offer to a FSBO. If you are making an offer to purchase a home being sold directly by an owner and without using an agent to represent you, then you will need to avail yourself of a suitable real estate purchase contract. Some people choose to have their attorney draw up the contract. There are also Title Companies who will perform this service for you for free. The sellers will sometimes suggest that you just have their attorney draw up the purchase contract. You should avoid that option.

Standard real estate contracts can vary significantly from area to area. Even the standard contracts adopted by the various Associations of Realtors vary from board to board. Without getting into the extensive area of contract law, I will touch on the basic parts that should be addressed in most real estate purchase contracts. If you want professional advice or additional details on these topics, you should consult a competent real estate attorney.

First, if you intend your offer to be binding, it must be made in writing. Once you are ready to prepare the offer, you should take the time to actually read the boiler plate language in the contract that you are going to use. Don’t make any assumptions. Know and understand exactly what it says. If you have managed to get your hands on a current standard contract used by the Association of Realtors in your area, or something similar from your attorney, title company, or whoever, then most of the important (and often tedious) language covering normal contingencies and events in a typical real estate transaction will be addressed in the typed language of the contract. All you need to do is fill in the particulars of your specific offer.

Before we get into some of the highlights of filling in the contract, lets first look at an overview of the offer process. When you were initially looking around, you may have entered into some discussions with the owner(s) about how much they are asking for their house. You may have also discussed how much they are willing to take, or whether or not they would entertain various types of financing alternatives, help with closing costs, make certain repairs or changes to the home, leave or take certain appurtenances with them, when they want to close and so on. Now you have taken this information, along with your own needs and desires and have decided to make a formal offer for the purchase of this particular home.

Some people will discuss the details of the proposed offer with the seller(s) first, to see if they will consider what they intend to present before they go through the trouble of writing up an offer. Other buyers, particularly those who are more experienced in the process, will put the offer in writing first, and then negotiate the offer. Assuming that you have gotten to the stage that you ready to make a written offer to the seller, the first thing that you must do is to put some amount of money down to secure the offer and make it binding once it is accepted by all parties. You should not give this money directly to the seller. It should be held in escrow by either your attorney or title company, or if you do not yet have one of these professionals enlisted in your cause, you could give the money to the seller’s attorney to hold in escrow for you (you are better off giving it to your own representative).

Once you have paid the initial escrow deposit to secure the contract (usually $100 to $500) and completed the contract, you will present it to the seller. Depending on the agreement between you and the seller, you may be presenting the offer in person, faxing it to them, giving it to their attorney or representative, or even mailing it.

After the seller(s) and possible their representative have reviewed the contract, they will either accept it, reject it, or make a counter offer. The latter is the most common response. Once you have received their reply, you can then either accept their counter offer, reject it, or make a counter offer to their counter offer. Each time that the parties makes a counter offer to the previous offer made to them, they should do so by making the changes on the original contract and then initialing all of these changes (don’t forget to sign the contract as well).

This process can go back and forth until the gap between what the sellers are willing to accept and what the buyers are willing to offer has narrowed to the point that the two sides have finally reached an arrangement that everyone can live with. More or less.

Each time that an offer is countered, or a counter offer is countered, the party making the counter offer is actually making a new offer back to the other party, using as a basis of their new offer, the last offer presented to them by the other party. Because of this, some people are tempted to prepare a whole new contract for the counter offer, especially if there are many changes being made. It is best not to do this, however, because having all of the various offers and counter offers indicated on the same contract helps establish the chain of events that led up to the final agreement in case of a dispute later on in the process; even if the final version of the contract looks very messy as a result.

Once all of the provisions of the contract have been agreed upon by all parties, and everyone has signed and initialed in all the necessary places, you finally have a binding, legal and enforceable contract. Hopefully. Now everyone can go about meeting the conditions of the contract such as arranging financing, performing inspections, completing repairs, etc. Usually, the contract will call for the buyers to put an additional deposit down (with the escrow agent) within a reasonable amount of time. When this additional deposit is due and what amount it is for, is strictly a matter of negotiation between the parties. In some cases, there may be no second deposit at all. It is whatever the parties agreed to.

So back to the contract. The first thing you want to do is accurately name the buyer(s) and seller(s) in the transaction. Try to make sure that the sellers you have named in the contract actually own the property. You might be surprised how easy it is to get this simple part wrong. Next you want to accurately identify the property as well.

You should list all of the appliances, equipment, attachments and fixtures that you want to remain on the property when you buy it. Things like refrigerator, washer, dryer, microwave, ceiling fans, window treatments, chandeliers, shelving units, sheds, pool equipment, mirrors and similar items should be listed to make sure they will still be there when you go to close on the property. If the specific type of equipment is important to you, you may want to specifically identify those items by manufacturer name and model for example, so that they are not replaced by something less desirable by the seller before closing.

You should identify the purchase price, the amount and type of financing, any initial and additional escrow deposits and when they will be paid. Specifying a maximum interest rate protects the borrower by giving them a way out if for some reason the market worsens and the rate initially wanted by the buyer(s) is no longer available. Alternatively, the term "prevailing rate" is used to prevent the buyer from using that as an excuse to get out of a transaction too easily.

The date of closing should be specified and you should pay particular attention to whether the wording says "on or before" or "on or about" that closing date. Big difference. If a closing date extends beyond the final date indicated without the parties having agreed in writing to an extension, then the contract is essentially no longer in effect and either party can withdraw from the transaction. Depending on the circumstances, if this happens, the seller may make a claim on the buyer’s deposit. If such a dispute should arise - in fact if any dispute arises over the disposition of a buyer’s deposit on a contract that never closed, the parties must either come to an agreement, or the matter will end up with an arbitrator or in the courts. Meanwhile, the escrow agent cannot give the escrow deposit to either the buyer or the seller until the matter is formally concluded.

Decide what inspections the buyer(s) can have made, when they must be made by, how much the seller(s) are liable for spending to make repairs based on the results of these inspections, what kind of deficiencies the sellers will be liable for fixing and by when must they have these repairs (if any) completed.

Most of the rest of the issues are covered in the standard text of the contract. If anything else was negotiated, it should be spelled out in the portion of the contract for other clauses, or on a separate addendum that is specifically referenced in the text of the main contract. Such an agreement might be for the seller to pay a certain amount toward closing costs, for example, or to hold a second mortgage, or to describe the terms of a lease option.

If you are intending on applying for FHA or VA financing to purchase a property, then the contract must also include an addendum that specifically addresses several issues required on these loans. For example, who is paying points if any, and how much, and who is paying the buyer’s closing costs, or portion thereof. Or, the statement that if the property does not appraise for at least the purchase price, the buyers do not have to purchase the property and can have their escrow deposit refunded, and how much is the seller going to pay of the "non-allowed" lender costs.

If the property is a condominium, then a separate addendum for condominiums is also needed to address the various issues particular to condominium purchases. Items such as the requirement that the borrowers be approved by the Condo Association prior to closing, or whether or not there is a recreation lease on the common areas, who pays for any pending or future special assessments, how much the condo association fees are, etc. Also, on a condo purchase the seller is required to provide the buyers with a full set of the condominium documents and the buyer typically has 3 days from the receipt of these documents to change their mind and cancel the contract.

If you are making an offer on a home listed by a real estate agent, and/or you’re making an offer with your own agent, you will essentially go through the same process, only most of the leg work will be done for you, including the presenting and negotiating of the offer (to your requirements). The real estate agent will also probably provide you with information and advise about how much to offer based on your needs and comparable sales, what terms to request, etc. The amount and nature of this assistance from an agent will depend largely on what kind of agency relationship they have with you on this particular transaction. For example, are they a buyer’s agent, dual agent or transaction broker.

The standard Association of Realtors’ contracts typically allow for the buyer to obtain any inspections that they want within a specified time period, and for the seller to make repairs to all functional defects discovered by the inspections. The inspections are performed at the buyer’s expense and the repairs are performed at the seller’s expense. Usually there is a limitation on the maximum amount that the seller has to pay. A common figure is 2% of the purchase price(this can vary from area to area and is sometimes split between wood destroying organism repairs and all other repairs). If the repair costs exceed this amount, then the difference can be renegotiated and if no agreement can be reached, then the borrower is entitled to receive their escrow deposit back (notwithstanding any other claims) and the house goes back on the market. Frequently disputes arise about what is a functional problem and what is not. There is no clear cut way to approach this, except to try and use good common sense. Keep in mind that this is just the standard boiler plate in the contract. Anything can be changed and negotiated.

How to Prepare for the closing. The closing agent is supposed to give you a copy of the proposed HUD1 (settlement statement) one day prior to closing so that you can review all of the numerous figures, and obtain a cashiers check for the amount that you need to bring to closing. Unfortunately, more often than not you will either not get a statement until the day of closing, or the statement you get will be revised several additional times before (and even during) the actual closing. There are a million reasons and circumstances that can and usually do occur at the 11^th hour in real estate transactions and in spite of everyone’s best efforts, there are just too many variables and too many people involved for many transactions to proceed flawlessly. So, just be prepared to be a little flexible with all of the seeming chaos that may descend upon you at the last minute. If you are trying to sell your own home, particularly if you are trying to close both on the same day (other parties affected by this transaction may also be attempting the same feat), then you are really in for some challenges to your time and stress management skills. Just remember, Apollo 13 made it back safely - so can you.

Also, keep all of the papers you received at closing in a safe place. Within 6 weeks of closing, you should receive your original recorded Deed, as well a an original Title Insurance Policy. If you don’t receive these items, make sure you call the closing agent and get them. They are very important.