Buying A House In Michigan
Buying a house is one of the most important legal transactions you’ll ever undertake. It’s exciting, and you can keep the stress level to a minimum if you take time to learn about your legal rights and how the home buying process works in Michigan. First-time home buyers and repeat buyers need to be informed.
Working with a Real Estate Agent
Like most home buyers, you’ll probably work with a real estate broker or salesperson (agent) to find your new home. A license is needed for someone to participate in a real estate transaction. Generally, this is a broker, with salespersons working under a managing or sponsoring broker’s authority. In Michigan, real estate agents can enter into a contract representing either the buyer or seller, or both, called disclosed dual agency. When you contact a real estate professional, she should provide a consumer disclosure explaining all roles. Ask questions if you don’t understand. You can contract for a “buyer’s agent” who will represent your interests.
Real estate agents have what’s called a “fiduciary duty” to the party they’re representing. They are held by law to owe specific duties to that person. These duties are described in your brokerage agreement, listing agreement, or other contract, and also include:
Providing services honestly and in good faith
Using reasonable care and skill
Keeping information confidential, except for public information, where authorized by the buyer, or required by law Promptly presenting offers to sellers Answering your questions completely and accurately Finding a Home
Property Disclosure
Looking at a home involves more than finding one appealing to your eye. Overall condition is important. When you visit homes for sale, sellers must disclose of all important facts they actually know about the home’s defects; there’s a state form. It doesn’t matter if disclosure affects whether the property will sell, or the ultimate sales price paid. The disclosure covers these common defects:
– Plumbing and sewage
– Water leakage of any type, including in basements
– Termites or other insect infestations
– Roof defects
– Heating or air conditioning system problems
– Property drainage problems
– Foundation instabilities or cracks
– Title issues
– Lead paint (required under the federal Residential Lead-Based Paint Hazard Reduction Act of 1992)
Purchase Agreements When you find a house you’d like to buy, you’ll put together and sign a purchase and sale agreement, also called a buy and sell agreement which contains all of the terms of the sale, including:
– Sellers’ and purchasers’ names and addresses
– Purchase price and down payment
– Financing arrangements
– The property’s legal description
– Requirement for good and marketable title
– Property condition
– Closing and possession dates
– Statement of settlement costs
– Condition for who bears the risk if the property is damaged before closing
– Property liens
Consult your Michigan real estate attorney before you sign the contract. An experienced real estate attorney can help identify issues and find solutions to any problems that come up.
Inspection Your purchase agreement should allow you to have a home inspection. The contract can be contingent on resolving issues the inspector finds. A home inspector visually examines a home’s major structural, mechanical, plumbing and electrical systems.
As a buyer, it’s best to pay for the inspection yourself, ensuring the inspector is looking out for your interests. Your attorney can help you review the inspection report and negotiate with the seller for repairs or money for repairs. Legal Title Issues
When you buy a house, you also buy title insurance. A title search is a review of public records, looking for any problems with the title’s validity before closing. The policy insures against loss due to certain title defects that didn’t turn up during the title search. Your real estate lawyer or title company investigates the legal title of the property you want to buy, and may find issues you’ll need to understand.
Typical title issues relate to easements and liens. An easement is a right to use property, such as a utility easement. Liens are a charge against a property to satisfy the current owner’s debt. Tax liens, mechanics’ liens and mortgages are examples. You usually won’t want your new home to be subject to the seller’s unpaid liens. The title search serves to reveal whether there are possible title problems. Your lawyer can help you assess and solve these problems so you can complete your purchase and enjoy your new home without worry.
Closing the Purchase
The closing or settlement is the transaction’s completion. All documents are signed, you take title to your new home, and the seller collects the purchase money. Your house buy is done and you get the keys! Closing Costs
In Michigan, you can expect to pay for the following charges – called “closing costs” – when buy your home:
– Discount points
– Appraisal fee
– Credit report fee
– Lender’s inspection fee
– Mortgage insurance application fee
– Assumption fee
– Mortgage broker fee
– Tax service fee
– Document preparation fee
– Underwriting fee to mortgage lender
– Accrued interest
– Mortgage insurance premium
– Hazard insurance premium
– Flood insurance
– Escrow account deposits
– Title charges
– Recording fee
– Surveyor’s fee
– Pest and other inspections
The real estate brokers or agents are paid at closing; the seller typically pays the sales commissions. Closing costs can be negotiated. RESPA
A key federal law, the Real Estate Settlement Procedures Act (RESPA), ensures equity and efficiency in home sales. The law applies to almost all mortgage loans and mortgage companies, not just FHA-insured mortgages. The US Department of Housing and Urban Development (HUD) administers the law.
RESPA requires consumer disclosures that prevent unethical lending practices and empower consumers to understand and make informed decisions when choosing closing services. The law helps you avoid surprises, like an unexpected fee at closing. Certain disclosures are required at the time of loan application, before closing occurs, at closing and after closing.
Mortgage Basics
What Are Mortgages and Deeds of Trust?
At the time of your home purchase, you’ll sign a promissory note. This is your legal obligation to pay back your home purchase loan. A promissory note is, in effect, an “IOU.” You promise to pay your lender the full amount, payable in equal monthly installments, at the interest rate previously agreed upon. Your lender keeps the original until you completely pay off the loan.
In Michigan, the document you sign as a security interest in your house is called a mortgage or deed of trust. A mortgage is the instrument (a contract), usually held by the lender, naming your home as loan collateral. Shop carefully for your mortgage, as terms and conditions vary greatly. A deed of trust differs as a trustee holds legal title to your home, and foreclosure is possible without a lawsuit.
Private Mortgage Insurance
If you put down less than 20 percent on a home mortgage, lenders usually require you to have “private mortgage insurance” (PMI). PMI protects the lender if you default on the loan, which is a risk when the down payment is small. PMI covers the gap if a foreclosure sale of your home doesn’t bring enough money to pay off your mortgage plus foreclosure costs. PMI premiums are usually added to your monthly payment and the loan servicer pays the insurer.
The Real Estate Settlement Procedures Act (HPA) establishes rules for automatic termination and borrower cancellation of PMI on home mortgages. Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value.
Search for your new home and complete your purchase with confidence, along with the help of a real estate law attorney in your area.
Questions for Your Attorney
If I can’t meet the deadline for mortgage approval, does the seller have to give me more time? Will I have to start the house buying process over? Should I ask the seller to repair items found in the home inspection, or ask for money instead? Shortly after closing, I found the roof needs major repair. Is anyone responsible for this cost – the seller or home inspector?