Buying property that’s “For Sale by Owner” (FSBO) can have advantages. Perhaps chief among them is that no one has to pay a real estate agent’s commissions or fees.
Buying a “For Sale by Owner” Property? What You Need to Know
When buying an FSBO property, there are a few matters that need consideration. But by the time you finish this blog post, you should be prepared to secure the home of your dreams.
If you found the perfect FSBO property, your first task is to complete the purchase agreement. You may not necessarily have a real estate agent around to help, but you just need to provide some basic information in order to get the home under contract. Provide your mortgage banker with a copy of the agreement, making sure it includes the following:
- Buyer and no credit check loans Tennessee seller first and last name – if there’s more than one buyer or seller, be sure to include all names
- Full property address, including the county – also add the unit number if applicable
- Purchase price of the property
- Buyer’s indication of satisfaction with the inspection results
- Target closing date – if you need help determining what’s realistic, ask your lender.
- The signature of all buyers and sellers
If there’s any other property being transferred other than the house, it would be included in the purchase agreement. For example, is the seller leaving behind the kitchen appliances or the ATV sitting in the shed? It all goes in the agreement. It should be noted in the purchase agreement that the seller is including such items and that those items have zero value.
If the seller is providing any credits to help with closing costs (prepaid mortgage interest points, title insurance, etc.), this will also need to be included in your purchase agreement. Closing costs credits are concessions from the seller to the buyer at closing. For example, if at your closing the seller agreed to a $5,000 credit, that is $5,000 less the buyer has to bring to the closing. This money is reflected in the seller’s sale proceeds, so it’s not necessarily coming directly out of pocket and can help move the closing along quickly.
It’s also common for the buyer to pay the seller a small amount of earnest money deposit up front as a show of good faith for the owner to take the property off the market while the mortgage process moves forward. This amount would be included in the purchase agreement. Once the loan closes, this amount is applied to your down payment.
As part of a real estate sales transaction, there are matters related to title and settlement that will need to be considered. Purchasing title insurance helps to ensure any parties who have an interest in that property are satisfied and cannot later return to stake a claim in the property.
In a purchase transaction, there are typically two types of title policies. Both protect the insured against financial loss or damage related to title, but the type of policy indicates who is insured. Lender title policies are required because the lender’s loan to the borrower has to be protected against loss. With this policy in place, the lender is insured against title problems that could impact the mortgage. The lender’s policy does not provide protection to the buyer, however. That’s what an owner’s policy is for.
The owner’s policy is an optional expense but a long-term investment, because it’s valid for as long as the policyholder owns the home. Unlike other common types of insurance, an owner’s policy is paid for with a one-time payment due at closing. For many home buyers, this can provide some peace of mind to what’s likely the biggest financial investment of their life. Mainly, the owner’s policy protects the owner from potential title claims in the future. If another party comes forward and makes an unbeatable claim to the property – without an owner’s policy in place, the title insurance pays off the lender, but any equity established by the owner will be lost.