Unless you wheel and deal in the financial markets, the home purchase agreement is one of the most important contracts you’ll ever put your signature to. Today we take a look at some of the parts of the agreement you’ll want to get to know.
Earnest Money Deposit
Line 3 of the purchase agreement here in the Twin Cities deals with the amount of money you’ll be putting down as an earnest money deposit. Don’t confuse this with the down payment, which is a lender requirement.
The earnest money deposit shows the seller that you are earnest about buying the home. In Minnesota the deposit typically amounts to 1 percent of the purchase price of the home and it is kept in the broker’s trust account; in this case it will be held with Edina Realty. If the seller accepts the offer, the earnest money is then transferred to the broker’s trust account to be applied to the purchase of the home.
The blank lines at line 26 of the purchase agreement are there to list any personal property included in the sale. Anything that is not permanently attached to the home is considered personal property. Examples of this include appliances that aren’t built-in, furniture and yard and outdoor play equipment.
The next line that you need to pay attention to is line 40 – where you will stipulate the day you want to close escrow. There are different schools of thought on how to strategically choose a closing date:
Some people feel it’s best to close escrow as late in the month as possible. This is because prepaid interest, which you’ll need to pay at closing, is prorated from the date of closing to the end of the month.
If you are cash-flow conscious, on the other hand, you may want to close escrow early in the month. Your prepaid interest charge will be higher but, because mortgage interest in paid in arrears, you will skip two mortgage payments instead of one.
For instance, if you close on November 6, you will pay interest until November 30, at closing, and you won’t need to come up with your first mortgage payment until January 1. Although you are actually not paying less money in the long run, you aren’t paying cash out of your pocket for living in the home during November and December, in the short term.
By the way, if you’re paying off an FHA-backed loan with a refinance, FHA does not prorate the interest, so it’s best to close this type of loan at the end of the month
Excerpted from "Homebuying Made Easy" by Kris Lindahl, all rights reserved. Contact us for your free copy.