Know Your Rights as a Home Buyer
In today’s world, knowledge is power. This is just as true when it comes to buying a home - the difference between keys to your dream home or coming up empty-handed could be a small but highly important piece of information you had not considered. We’re here to help. We’ve compiled the most important things for you to keep in mind as you embark on your home buying journey.
All You Have To Do Is ASK.
Luckily, the government understands that there have been, and may still be, malpractices when it comes to housing, so they’ve implemented some laws to help protect the home buyers of our country. Because of these laws, home buyer have the right to ask questions about anything you do not understand about loan charges and terms.
Buying a home can be a very intimidating and daunting process, especially if you’re a first-time home buyer. There are so many people and processes involved, and it can become very easy to lose track of all the moving pieces. In the midst of all the chaos, it’s totally okay to hit the pause button and ask your lender or broker to help you fully understand all the financial implications of your loan. The last thing you want to do is buy the home of your dreams only to realize it’s putting you into a world of financial nightmares.
It is completely within your rights to ask that you be informed of any and all fees that will not be refunded to you in the event that a loan agreement does not completely go through. In fact, you can even set up your own contingencies to a contract to better protect yourself during the home buying process. The contingencies that you may want to seek out and which ones make the most sense will be completely different depending on each person’s individual circumstances, so we’d highly suggest consulting with your lawyer to understand what would be best for your particular situation.
You can ask to be informed about the total cost of your loan, which would include interest rates, points and other fees assessed by the lender or broker. You can get even more granular and ask specifically to know how much you and the lender are paying the mortgage broker for your loan. It could be a good idea to ensure that this question is included in your line of questioning so that you know for certain whether or not you’re being treated fairly.
It's a smart idea to shop around for the best loan among different mortgage lenders and brokers. You don’t have to accept the first mortgage lender you come across. In fact, you can refuse any lender for any reason. If you feel that your current mortgage lender is being dishonest or otherwise untrustworthy you can always look for another that would happily welcome a conversation with you. Even if you’re satisfied with the mortgage lender, it could be worthwhile to shop around just to ensure you’re getting the best possible deal you can. Let’s say one lender has been showing far superior service than another but they are offering a higher rate. You can take a competitive offer to hopefully bring that rate down or ideally match it so that you’re getting the offer you want while still retaining the customer service you appreciate.
Understand WHY you've been denied.
Not all loans are approved, but it’s important that you ask to better understand why your loan was denied. This can help you understand what you need to improve in order to get approved the next time around, and also ensure that you’re not falling victim to discriminatory lending practices. You can actually request a free copy of the credit report that was used in the denial of your loan so that you have the most accurate information as you assess what you need to do in order to buy your ideal home.
After the passing of the Fair Housing Act of 1968, it is now illegal to discriminate in the purchase, sales, rental or financing of housing based on age (unless under the legal age to sign a contract), gender, marital status, race, religion, skin color, or national origin. It was further amended in 1988 to add disability and family status. The creditor is allowed to ask if you have to pay alimony or child support but they cannot ask you if you plan to have children. (of course, if disclosing alimony or child support helps you qualify for the necessary income of a loan, it would obviously be in your best interest to disclose that information, but you are not obligated to tell them).
Getting an appraisal report will help ensure that you’re paying a fair price for your new home. You’ll want to ensure that the property is appraised in a fair and neutral manner. As the home buyer, you'll need to pay for the appraisal.
As part of the appraisal, there will be market price analysis and comparisons being done to other similar properties in the area. You can and should ask for a copy of that analytical work - if nothing else, for your records.
Be knowledgeable to defects and/or safety dangers.
As a home buyer, you have a right to know if there are any issues or defects that could affect the overall value or safety of the home. This can include things like waste management systems, HVAC, water supply, insulation, hazardous materials (things like lead-paint) and other issues. We highly recommend you do a thorough walkthrough of the property before moving forward with the purchase of a home, as well as a professional house inspector to look at the home to ensure that there’s nothing major or minor that is being overlooked.
Most contracts will include a provision for a home inspection before the contract is considered binding. If not, we’d recommend you work with your lawyer to get something like this into the contract. In some hot housing markets some buyers may opt to intentionally leave this out of their contracts to be more appealing to the seller but we’d recommend you proceed carefully with this type of strategy. It can definitely help you stand out and may give you a slight edge over your competition, but there is also the huge risk that you’re buying a faulty home that could ultimately cost you much more down the line. Weigh your options carefully.
Be informed of any encumbrances on the title.
Okay, okay. Encumbrance is a bit of a fancy term and perhaps not everyone may fully understand what it means, but as a home buyer you have a right to know if there are any issues with the home. This doesn’t just apply to physical issues but can also apply to financial issues as well. Therefore if there are any liens, easements or other issues associated with the home you have a right to know as those issues could come back to haunt you later if not properly settled.
Know Your Terms - Title Insurance, Deed, Purchase Agreement and Settlement Statement
Title insurance is required by mortgage companies to ensure that the title, or ownership rights, you receive to the home is completely valid and free of any claims. A title search will need to be done in order to assess any outstanding mortgages, liens, HOA dues or other unsettled issues but it ultimately protects you from any issues that could occur down the line that may lead to a property dispute.
The deed is your legal ownership to the home and will be provided to you as part of the closing process. This deed will contain a description of your property as well as its property lines. If you’re buying the home as a married spouse or jointly with someone you’ll need to consult with your attorney to figure out ownership of the home in detail. Some options you can look at are joint tenants, joint tenants by the entirety or joint tenants with right of survivorship.
A purchase agreement is a contract for the purchase or sale of a residence. It governs the terms of the sale and dictates the various duties, rights and responsibilities of each party of the transaction. Each state may have slightly varying laws when it comes to real estate purchase agreements, but in most cases the purchase agreement should describe the property in a way that involves measurements and boundaries, and not landmarks which might be subject to changes over time.
The settlement statement is a standard form used at nearly all home loan closings. It lists all of the closing costs and charges while also showing how the loan proceeds are paid out and who will receive them. It is sometimes referred to simply as the “HUD-1”. You as the home buyer have a right to receive a copy of all of these documents.
If you feel that you’ve been discriminated against at all or otherwise have had your rights as a homebuyer violated, you can take any of the following actions:
Contact your local Attorney General’s office
Report the lender to the relevant government agencies, such as the Federal Trade Commission or Office of Fair Housing and Equal Opportunity
Sue the lender in federal district court
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