First time buyers and seasoned real estate investors often fail to understand the important time frames involved in a real estate purchase. Here's 5 important dates to remember:
- 3 days from when the buyer is alerted that the seller has accepted his offer, the initial deposit of the 1-3% downpayment is due.
- 7 days from the seller's acceptance, the buyer must prove he/she has the cash funds to complete the down payment and to pay the closing costs.
- 7 days from the seller's acceptance, the buyer must be pre-qualified for any mortgage.
- 7 days from the seller's acceptance, the seller must deliver to the buyer or buyer's agent all reports and disclosures as specified in paragraphs 4, 5a, 5b, 6a, 7b, and 12 of the Residential Purchase Agreement and Joint Escrow Instructions.
-17 days from the seller's acceptance: a) Complete all buyer's investigations. b) Approve all disclosures, reports and other applicable information. c) Approve all matters affecting the property. d) Return to Seller signed copies of statuary and lead disclosures.
The critical day is #17 because that's the period when the buyer can back out of the deal and recover up to 3% of the purchase price...i.e., his/her initial downpayment. That's why a prudent Buyer's Representative will not permit his/her client to expose more than 3% of the purchase price until after the 17th day.
For example, let's say one of our buyers enters into a contract to purchase a $600,000 property. At "Home, James!" we advise our buyers to never expose more than that 3%. So the Initial Deposit would not be more than $18,000.
If the buyer is getting a 30-year fixed rate 80/20 mortgage, the bank wants a 20% downpayment by the close of escrow. 20% of that $600,000 purchase price would be $120,000. So if the Initial Deposit was $18,000, at some point prior to the close of escrow the buyer would have to wire an additional $102,000 to escrow to bring the total downpayment to $120,000. And those would be funds dedicated to the lender and the mortgage.
Additional fees the buyer must pay by the close of escrow have been discussed in other blogs. If you have any questions or require further clarification, please submit your inquiry to us by email to drtimjames@prusd.com.
We hope this helps clarify the procedure for purchasing real estate.
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