Pennsylvania Home Buying Process [1]

PRE-APPROVAL FOR MORTGAGE

If you are not a cash buyer, it's necessary to obtain a "pre-approval" letter from a lender indicating approximately how much the buyer can afford to pay for a property. For pre-approval, the lender will verify the buyer's earnings and financial situation - often by obtaining a credit report – to determine whether or not to lend money. This is not a guarantee of financing but helpful to know the price range the buyer should be focusing on and to let the seller get an idea of the buyer's financial ability.

AGREEMENT OF SALE

In Pennsylvania the majority of offers are made by presenting the seller with a completed Agreement of Sale that lists the terms and conditions requested by the buyer. The buyer and seller negotiate the complete terms of the Agreement, and if both sign off on the Agreement, the result is a legally binding contract.

ESCROW ACCOUNTS

Buyers are required to make a "good faith deposit" on the property. Deposits can be given in one large deposit or in two steps. When a buyer makes an offer, an initial deposit is given to the seller along with the Agreement. If the seller accepts the offer, a second deposit is due within a short time after acceptance.

In most markets, a buyer's deposits are held by the Realtor® representing the seller. Deposits are held in a special bank account called "an escrow account". An "escrow account" is separate from a broker's regular business account, that a broker is required to establish to hold deposit monies until a transaction is completed or terminated.

TAXES

In Pennsylvania, the real estate transfer tax is assessed when a property is purchased. The state imposes a tax on all transactions and there may be a local transfer tax on the transaction as well. Transfer taxes may range from 1% to 4% or more of the purchase price. In most areas, the practice is to divide payment of the transfer taxes equally between the buyer and the seller, but this is negotiable.

CLOSING COSTS

Whether you are cash buyer or taking a mortgage, your real estate agent will provide a detailed Estimated Closing Cost report and monthly payment analysis prior to signing the Agreement of Sale.

MORTGAGE

Mortgages come in many varieties. Many loans are variations on the traditional "conventional" mortgage loans, but each lender has its own requirements for providing mortgage loans. There are a number of loans and loan guarantee programs available through federal, state and local governments. Most loans will require a downpayment (often between 5% and 20% of the purchase price), although the amount may differ depending on the lender and the programs for which a buyer qualifies. Keep in mind that buyers who have down payments of less than 20% may be required to purchase private mortgage insurance (PMI), which is available for an additional fee.

SETTLEMENT

Settlement usually takes place within 30 – 90 days at an agreed upon date acceptable to buyer and seller. The buyer's title company will usually handle the settlement. At settlement, buyer presents a certified check for purchase and closing cost funds, is presented with a HUD-1 sheet (a detailed statement of settlement costs) and a copy of the deed. When the deed is recorded, the buyer receives the original.

[1] Consumer's Guide To The Agreement Of Sale – PA Association of Realtors®