Prepared By:Timothy P. McAloon, Esq.

Marshall, Crane & McAloon, P.C.69 Winn Street

Burlington, MA 01803-4870(781) 270-0181

(617) 834-1276 Quincy

© Timothy P. McAloon

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TABLE OF CONTENTS_________________________________________________________________________

I. INTRODUCTION………………………............................................................2

II. PREPARING TO BUY YOUR HOUSE.............................................................2

A. Get Pre-Approved For Financing……………………………………………..…2B. How to Find the Best House in a Desirable Neighborhood…..……………….....3C. Determining the Type of House You Want………………..…………………….3

III. FINDING YOUR HOME………………….………………………..………...4

A. How to Find a Realtor………………………………………………….……….4B. Searching For Your Home……………………..………………………………..5C. Negotiating…………………………..………………………………………….6

IV. THE OFFER…………………………………………………………………..7

V. THE HOME INSPECTION…………………………………………………..8

VI. THE PURCHASE AND SALE AGREEMENT…………………………….11

VII. OBTAINING YOUR MORTGAGE FINANCING………………….……..12

VIII. THE CLOSING………………………………………………………………15

IX. POST CLOSING MATTERS…………………………………………..........17

ATTACHMENTS:A. HOME CHECKLIST……………………………………………………….19

B. OFFER TO PURCHASE …………………………………………………21

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I. INTRODUCTION_________________________________________________________________________

I remember the excitement of buying my first house. For most people owning their own home still represents the fulfillment of the American dream, whether it is buying a first house or upgrading to their dream house.

As an attorney with twenty-five years of experience in helping people to purchase their homes, I decided to write this Guide to help buyers to get the best house that they can afford and to save as much money as possible. When writing this Guide, I viewed myself as the buyer and outlined the steps that I would take if I were buying a home. Therefore, I have structured the Guide to take you through the whole process of buying a home, from the initial point of deciding what type of house to buy and where to buy it, all the way through the closing of the purchase. I have also given you a number of resources that you can use to educate yourself in different areas.

I hope that you find this Guide useful and that you find the house of your dreams.

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II. PREPARING TO BUY YOUR HOUSE_________________________________________________________________________

A. Get Pre-Approved for Financing

Your first step is to find a lender or mortgage broker and get pre-approved for a loan. Almost all lenders or mortgage brokers do pre-approvals. You fill out an application or provide information to them about your income and assets and they should order a credit report to get your credit history. Using underwriting standards, they can then issue you a pre-approval letter telling you the amount of mortgage that you will qualify for. You should get pre-approved for the following reasons:

By determining the amount of mortgage you will qualify for and approximately what your monthly payment will be, you will know what your price range is.

To uncover any credit problems that you need to address. To give you more leverage when submitting an offer on a house.

One primary concern of all sellers is whether you can afford the house. The last thing a seller wants is to take their home off the market and then find out weeks later that the buyer can’t afford the home and then have to start over to find another buyer. Your pre-approval letter will help to alleviate this concern and give you an advantage over other buyers who have not gone through this process.

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It is important to find a good mortgage broker to assist you from the start. The financing of your purchase is a very important part of the home buying process and a qualified mortgage broker can help you to find the best financing option for you. As you will see in section VII later, getting the right mortgage program can save you many thousands of dollars in payments over the life of your loan.

B. How to Find the Best House in a Desirable Neighborhood

Determine in what cities or towns you would like to live. Do research comparing each city or town. If you have already decided on a city or town, you should research the areas of the city or town that you would like to live. Start by getting general information about the schools, crime, population, the selling prices of homes, real estate taxes and the government. Search the local papers for real estate prices. Some good internet sites to obtain information are: www.homefair.com; www.homeprice.net; www.state.ma.us/dhcd/iprofile. Then drive around the cities and towns to determine neighborhoods that you like. Ask around about where the best schools are located in the city. These neighborhoods will generally be the most desirable neighborhoods with the best resale value. Realtors can also be a good source of information about schools, traffic and other matters. Compare what services the city or towns provide and the parks and recreational facilities available. When you find neighborhoods that interest you, drive them at different times (including rush hour) to determine what the traffic is like. In addition, walk the neighborhood. This will give you more of a feel for the neighborhood and allow you to notice more details. Do people maintain their properties? Are they landscaped nicely? What is the mix of homes? How many cars are parked in the neighborhood? Are there trucks or commercial vehicles parked in the neighborhood? How many children are in the neighborhood? Talk with people in the neighborhood.

Once you have narrowed your search down to a city or town and neighborhoods you are interested in, you are ready to get more detailed information on the market in that area. Search the local papers for the selling prices of homes in the area. Now, is also the time to find a realtor. You are in a position to tell a realtor exactly what you are looking for and where you want to buy. This will assist the realtor by narrowing the search and should prevent a waste of the realtor’s time and your time.

C. Determining The Type of House You Want

Develop a list of the type of house and the features you want. Do you like older or newer homes? How many bedrooms do you want? How many bathrooms do you want? What kind of heating system do you want? How much land do you want? Do you want a garage or a fireplace? Do you want to avoid being on a busy street?

This list will help you to focus on what you really want and help you in your search for a home. You will be able to narrow down the features that are most important to you, and it will help you to be clear with your broker as to exactly what you are looking for. One thing to keep in mind is that you should try to look ahead and see if your needs may be different

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in the near future. Do you plan to have children in the near future? Many people buy a home figuring that they will not be there for a long time and then discover that they don’t want to move because they have become established in the community and their children are comfortable in the neighborhood.

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III. FINDING YOUR HOME _________________________________________________________________________

A. How to Find a Realtor

The first step is to find a realtor (more commonly referred to as brokers in this area) to help you find a home. You must understand that the sellers of homes pay brokers. They are paid a commission at closing based on a percentage of the purchase price. This commission comes out of the seller’s funds. There are two types of brokers, a listing broker and a co-broker. Sellers will typically hire a broker to help them sell their home. This is the listing broker. Buyers may also use a broker to help them find a home. If your broker introduces you to a home and another broker is the listing broker, your broker will split the sales commission with the listing broker. But your broker’s commission comes out of the seller’s funds.

I recommend that you use a broker to help you find a house because they can be an excellent source of information. When choosing a broker you should consider the following:

You are usually better off choosing a broker who works in the community in which you want to buy. You want someone who is intimately familiar with the community and can give you a lot of valuable information. They should be able to give you detailed information about the school system, about the advantages and disadvantages of different neighborhoods, and they will know the market value of homes in the community and the selling history of different houses on the market.

Look for a broker who is a fulltime broker and who specializes in home sales. Many brokers do it as a part-time job. Other brokers sell more commercial properties than homes. You want someone who makes their living selling houses, who will be available when you need them, and who will work hard to help you find the right house.

Look for a broker who has at least a few years experience and who is successful at selling houses. Like any other business, it takes time to learn the craft and get good at what you do. You want an experienced broker working for you. Some brokers are just more successful at what they do. It has been said that a rule of thumb is that 20% of the brokers sell 80% of the houses. You want a broker in that 20% working for you. When you go into an office, look to see which brokers have received awards based on sales.

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When you interview a broker, you should feel comfortable with them and feel like they are listening to you. Do they seem willing to spend time with you? Do they seem knowledgeable about the community and the market?

If you know someone who has used a broker in the area, ask him or her if they were satisfied with the job done by the broker and get a referral.

When you find a broker that you are comfortable with, use only that broker. You want the broker working hard for you and you need to show loyalty to the broker. If it does not work out and the broker stops paying as much attention to you, then you can seek out another broker at that time. Make sure that you give your broker detailed information about the type of house you want, the neighborhoods you are looking for and your price range. The more information the broker has, the better job he or she will be able to do for you.

B. Searching For Your Home

Create a house hunting checklist to complete when you look at houses. Make sure the list contains all of the features that are important to you. A sample Home Checklist prepared by the US Department of Housing and Urban Development is attached at the end of this Guide and labeled Attachment A. Check off the features the house has, write down the things you like about the house and the concerns you have. If you look at a number of houses it is very difficult to keep all of the details straight in your mind. These checklists will be a convenient source of information to help you compare the various properties you view. It will also help to eliminate houses and narrow down your choice. It is also helpful to bring a camera with you and to take pictures of the homes and the various features that you like. Make sure that you ask questions about any houses that appeal to you to get as much information as possible to compare with other properties. How old is the house? How old is the roof? How old are the furnace and other major appliances? What improvements did the owners make to the property? How much are the property taxes? Have they had any flooding problems on the property or any water in the basement? Are there any problem neighbors? Look closely at the surrounding houses. Do the neighbors maintain their houses? Are yards landscaped well and free of junk? Ask if there are renters nearby. In many cases, rental properties are not kept up as well and there can be a high turnover of people living in these properties. How busy is the traffic on the street?

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C. Negotiating

Once you find a house you like, it is time to negotiate the purchase. The first thing to remember is that everything is negotiable when buying a home. The following are commonly subject to negotiation:

The price you will pay for the house. When the closing will take place. Closing costs. If you don’t have a significant amount of cash for closing costs, you

can negotiate for the Seller to give you a credit at closing to help cover your closing costs.

Repairs. You can negotiate for the Seller to make certain repairs to the property prior to closing.

Furniture and appliances. You can negotiate for the Seller to include certain furniture or appliances in the sale so that you do not have to purchase these items after you buy the house. Typically, the only items that come with the house are fixtures that are built in, like a stove, built in microwaves and dishwashers. For instance, you can negotiate to have the refrigerator and washer and dryer included in the sale. There may be patio or pool furniture or equipment that you can negotiate to be included in the sale price, or you may want to keep certain window treatments.

Don’t lose site of the fact that the price is the biggest ticket item and the most important part of the negotiation. As with any negotiation, it is to your benefit to have as much information as possible. How long has the house been on the market? What is the average time frame for houses being on the market in the area? Are the Seller’s moving and in a hurry to sell? What have similar homes sold for in the area recently? Have other offers been made on the house and how much were these offers?

Another important point to remember is that you can only rely on yourself when it comes to negotiation. Keep in mind that the broker only gets paid if the sale is made and the higher the price the more the broker gets paid. So there is a built in conflict between you and the broker. In some cases the broker may be representing the seller and have a fiduciary duty to get the best price possible for his or her client. Thus, you are the best person to look out for your own interests.

Some people are also reluctant to negotiate a lower price if they really like the house, for fear that they will offend the seller and not get the house. Keep two things in mind. If you negotiate in a reasonable manner you normally will not offend anyone. Second, if you offer less and it is rejected you can always offer more. If you don’t ask, you won’t receive.

Once you determine that you like a house, don’t let the broker or seller know right away. You don’t want to be rushed into making an offer and you typically don’t want to act on emotion if you really like a house. Ask questions and obtain as much information as possible. Particularly what other houses have sold for in the area and how those properties and prices compare to the one you are interested in. Once you have your information, determine the price you want to first offer for the house. Usually the initial offer will be less than the asking price. But, if your research reveals that it is a good price and other

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parties are interested in the house, you may decide to offer the asking price. Come up with reasonable and plausible explanations for the price you are offering. For instance, if the asking price is $300,000 and you discover that similar houses have sold for $275,000, or that the price is in line with what similar houses have sold for but is in worse condition, you have a plausible reason for offering less. If you negotiate from a position of reasonableness, you typically will not alienate the other party and this is important because you may need to negotiate another matter later in the process. If the seller feels that you were unreasonable or took advantage, it may come back to hurt you. Another thing to keep in mind is that sometimes your best leverage in negotiations comes from being willing to walk away. If the seller does not accept your price, you can say “I’m sorry but this all that I can reasonably offer for your home and I wish you the best in selling your home”. If you plan to negotiate something in addition to the price, do this at the same time you negotiate the price. There is a high probability that you will alienate the Seller if you negotiate the price and then come back later to negotiate other matters. The only exception, which will be discussed later, is if the subsequent inspection reveals significant items that you did not notice when you looked at the house.

How the negotiations will take place will vary from deal to deal. You may be able to state your case directly to the seller. This is usually preferable because you can make your case without any potential miscommunication. In some cases you will give your proposal to the broker and he or she will communicate it to the seller or the seller’s agent. If the broker feels comfortable with your price and thinks the seller may accept it, they may want you to make a written Offer right away. A word of caution. Before you make any written Offer, have your attorney review it. It will not take long for the attorney to review it, but it may save you significant trouble and costs down the road. An Offer is a contract and has legal consequences. Your home is typically one of the biggest purchases you will make and you want to make certain that your interests are protected fully.

_________________________________________________________________________ IV. THE OFFER _________________________________________________________________________

The Offer is a written contract that binds you to purchase the house if the seller accepts your offer and certain conditions are satisfied. In addition to setting forth the price, the Offer will contain other terms of the deal, such as: (i) the date the Offer is good until if not accepted in writing by the seller; (ii) the date to sign a Purchase and Sale Agreement; (iii) the closing date; (iv) the date to do inspections; (v) personal property that you want the seller to include for the offered price; and (vi) any other closing contingencies (see attached sample Offer). Thus, it is important to have the Offer reviewed by an attorney. Don’t let the broker or anyone else pressure you to submit a written Offer prior to it being reviewed by your attorney. It should only take your attorney a short period of time to review the Offer, but it could save you a lot of aggravation and money depending on the circumstances. The broker will typically prepare the Offer. Try to give your attorney advance notice if you plan to

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make an offer on a house and make arrangements for him or her to review it as soon as you receive it from the broker.

I recommend that the date to sign the Purchase and Sale Agreement be set far enough out so that you can do your home inspections prior to the signing of the Purchase and Sale Agreement. There are two reasons for this recommendation. First, if your home inspection reveals significant problems that the seller is not willing to fix, you can terminate the deal and avoid incurring attorneys’ fees for the preparation of the Purchase and Sale Agreement. Second, if a Purchase and Sale Agreement has already been signed, psychologically it makes it more difficult to renegotiate the price or repairs. It is easier to negotiate these items in conjunction with negotiating the other terms of the Purchase and Sale Agreement.

_________________________________________________________________________ V. THE HOME INSPECTION _________________________________________________________________________

As mentioned previously, do your home inspections prior to the negotiation and drafting of the Purchase and Sale Agreement. The inspections are important to help ensure that there are no significant structural problems and all systems are operating properly. Don’t try to save money by skipping the inspections. The inspections typically cost a few hundred dollars but can save you thousands. You want someone with a trained eye, who is knowledgeable about structural matters and various operating systems, to help you assess the true condition of the house. Otherwise you may not discover less obvious problems until after you own the house, and then it is too late. At a minimum, you should do a basic home inspection consisting of the following:

Exterior. Is the exterior of the house in need of repairs? What is the approximate age of the roof and what condition is it in? What is the approximate remaining life of the roof?

Foundation. Is the structure sound? Are there any significant cracks? Do there appear to be any moisture problems or leaks?

Interior. What is the general condition of the interior? Are the walls and ceilings in good shape? Do doors and windows open and close properly? What shape are the floors in? Are the floors sturdy?

Kitchen. Are the appliances operating properly? Is the plumbing in good shape? Are the cabinets working properly and in good shape? What is the condition of countertops and tiles?

Bathrooms. Is the plumbing working well? Any evidence of leaks? Are the floor and any tiles in good shape?

Basement. Is there any evidence of moisture or water leaks. Any cracks or structural issues? Any evidence of pests?

Electrical. Are there any apparent code violations? Is the electrical system adequate to serve the reasonable needs of the house? Do any dangerous conditions exist? Are outlets working and grounded properly?

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Heating and Cooling Systems: Are the systems working properly? Are they sufficient for the size of the house? How old are they and how many years do they have left? Have the systems been maintained properly?

Plumbing. How is the water pressure? Is there sufficient hot water? Any evidence of leaks? What is the age of the system and the general condition?

You should be present when the inspection is done so that you can ask questions and the inspector can explain issues to you, show you how systems work and educate you about maintenance. The inspection should last at least a couple of hours and the inspector is required to give you a written evaluation report in compliance with Massachusetts General Laws Chapter 146. If the basic inspection reveals any possible termite or pest problems, you should get a qualified pest inspector to inspect the house.

In addition, I recommend that you do a radon gas inspection. If radon gas is present, it is typically found in basements or lower living levels of homes. Radon is an odorless gas that results from the natural breakdown of uranium in soil, rock and water. Radon moves up through the ground and is released into the air. It can get into the home through cracks and holes in the foundation. The Environmental Protection Agency (“EPA”) has determined that radon can be a cause of cancer if a person has sufficient exposure to it. If a test reveals that the radon gas level is in excess of the EPA guideline of 4 picocuries per liter (pCi/L), you should request that the Seller have a radon mitigation system installed to reduce the levels below the EPA guidelines. The EPA publishes an excellent Guide that contains valuable and informative information about radon gas. This Guide can be found at www.epa.gov/iaq/radon/pubs/hmbyguid.html . If the radon reading is elevated, you should consider installing a radon mitigation system. For houses, a contractor will typically install a Sub-slab Depressurization System or an Active Soil Depressurization System. The typical cost runs between $1,000 and $1,500. The cost can be higher if it is an older home with a stone foundation. The typical system involves making a 5 inch hole in the basement floor and installing a pvc pipe that runs up to the roof and vents outside. A small 50 watt fan is usually installed. The pipe can usually be placed by an edge of the basement and the pipe can either go outside and run up the side of the house or it can run inside the house and up through the roof. We recommend that you run the pipe up inside the house, because if the pipe and fan are located outside of the house cold weather can freeze the fan and the system may not operate properly. The system should be installed by a remediation contractor who has been EPA certified. The EPA previously coordinated the certification but now private entities do it based on the EPA guidelines.

If the home was built prior to 1978, you may also want to have the house tested to determine if any lead paint exists. Under Massachusetts and federal law, owners and real estate agents must comply with Property Transfer Lead Paint Notification requirements when a prospective buyer is about to purchase a home built before 1978. This law is designed primarily to protect children under the age of six from the danger of lead paint poisoning if they ingest lead paint chips or dust. If you purchase a home built prior to 1978 that contains lead paint and a child under the age of six will reside in the home, the law requires that the new owner must either have the home deleaded or brought under interim control within 90 days of taking title. An excellent source of information on the

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lead paint law can be found at www.state.ma.us/dpf/clppp . In practice, many people buy older homes and do not comply with the law and the law is not enforced. In many cases people decide not to delead the house because the amount of lead paint is minimal or it is covered up by non-leaded paint or varnish. Keep in mind, however, that if you do renovations to the house that involve sanding or scraping, this can create lead paint dust or chips.

If the house is served by well water (and not public water supplied by the city or town) you should have the well inspected to determine if it is operating properly and to determine the quality of the water for drinking. If the house is served by a septic system. The Seller is required by law to have the system inspected within two years of the sale to verify that the system is working properly and complies with the Title V regulations. The Seller will have to provide a certificate at closing issued by the Health Department that proves that the system was inspected and is in compliance with the law.

When looking for a home inspector, I recommend that you find your own inspector. You should be wary of any inspector recommended by the Seller or anyone with a vested interest in selling the home. If you know anyone who has purchased a house, ask him or her if they were satisfied with their inspector. The names of local inspectors can be found at the Commonwealth of Massachusetts Division of Professional Licensure website at www.state.ma.us/reg/boards/hi . Home Inspectors have been required to be licensed in Massachusetts since 2001 and you should check to make sure that any inspector you plan to hire is licensed by going to the website above or by calling (617) 727-4459. You can also check to see if any complaints have been filed against the inspector by contacting the Division’s Office of Investigations (617) 727-7406. Another source for locating inspectors is in the Yellow Pages under Building Inspection Service or Home Inspection Service. You should also look for an inspector who carries Errors and Omissions Insurance. This gives you some protection if the inspector misses a significant problem that he or she should have discovered and you incur damages as a result of that problem. You should look for someone with a significant amount of experience and preferably someone with a structural engineering background or experience in building homes. Beware of contractors who do home inspections part time. Their primary interest may be in looking for more work.

If the inspections reveal any significant problems that you did not notice when you looked at the house, this is another opportunity to negotiate with the Seller. You can either ask the Seller to make repairs or replace defective items prior to the closing, or you can negotiate a reduction in the purchase price to compensate you for work that you will do after the closing. This negotiation should be done immediately and prior to the drafting of the Purchase and Sale Agreement. If the problems are significant and you cannot successfully negotiate a solution with the Seller, you have the option of terminating the purchase and getting back any deposit put down with the Offer. If you are able to successfully negotiate a solution, these provisions should be included in the Purchase and Sale Agreement.

Note, that this inspection process will change if you are having a home constructed for you. In this case, the home will be built in accordance with plans and specifications that should be set forth in detail. After the house is constructed, and prior to the closing, you should be

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given the opportunity to inspect it to determine if the home has been built in accordance with the plans and specifications. If things have not been completed properly or not finished, you can then negotiate with the builder to make the necessary repairs prior to closing or to hold back an amount in escrow until the repairs are made after the closing. You would still want to do a radon inspection when the house is completed and to test any well water. With new construction, it is very important to get information on the builder. You want to make sure that the builder has a track record of building quality homes and that the builder stands behind the work it does. You should get references and look at other projects that the builder has built. Ask people who live in other homes built by the builder what their experience was and if they had any problems after the purchase. You should also check with the state agency that issues licenses to builders to confirm that the builder is licensed and to inquire about any complaints filed against the builder. Home builders are required to have a Construction Supervisor’s License and are regulated by the Department of Public Safety. To check on a builder call (617) 727-3200 extension 25207 or go online at www.state.ma.us/bbrs/csl.htm. This web site also contains a section called “Information on Selecting a Contractor” that contains useful information.

_________________________________________________________________________ VI. THE PURCHASE AND SALE AGREEMENT _________________________________________________________________________

After the inspections are completed, it is time for your attorney to prepare the Purchase and Sale Agreement. This is a more elaborate legal document that spells out in detail the financial and legal terms of the deal. You need an attorney to draft and/or review and revise this Agreement to ensure that your interests are protected. Don’t let anyone convince you that you don’t need an attorney involved at this stage. Even though a standard form agreement is typically used, many changes are made to this form, depending on which party the attorney is representing. This purchase will probably be one of the biggest investments you will make and you need to make sure that your interests are protected.

Make sure that you have an experienced real estate attorney working for you. An experienced attorney will work more efficiently and will be aware of all the issues that need to be addressed to protect your interests. There are typically a number of time deadlines in real estate deals, so it is also important for your attorney to be responsive and organized. Is your attorney available when you need him or her? Does your attorney return your telephone calls promptly? Does your attorney take the time to answer your questions thoroughly? Does your attorney seem knowledgeable and explain things clearly?

Give your attorney a copy of the Offer and inform him or her of any issues that arose after the Offer was signed. The attorneys for the seller and buyer will usually negotiate the terms of the Purchase and Sale Agreement. Your attorney should, however, consult with you about the terms of the deal, keep you informed of all developments and review the draft Agreement with you prior to it being finalized. After both parties have agreed to the terms of the Purchase and Sale Agreement, it is time to sign the Agreement. The brokers typically

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coordinate the signing. When you sign the Purchase and Sale Agreement, you will also have to put down a more substantial deposit (normally between 5-10%), but this is negotiable. The deposit is normally held in escrow by the broker until the closing or until the deal is otherwise terminated.

Most buyers obtain a loan (otherwise known as a mortgage) to partially finance the purchase of their home. Thus the Purchase and Sale Agreement should contain a mortgage contingency that gives you a set period of time to obtain a mortgage commitment letter from your lender. This letter is a representation by the lender that you qualify for the loan and your loan has been approved. Once you obtain a mortgage commitment letter, the mortgage contingency expires. If you obtain the commitment letter prior to the contingency date, provide a copy to your attorney. If it appears that you won’t receive the commitment by the contingency date, notify your attorney and discuss your options. One option is to notify the seller that you are terminating the deal and to receive your deposit back. Or you can request an extension of the contingency date for a reasonable period of time if it is likely that you will receive a commitment and just need more time for the lender to process the commitment. If you fail to notify the seller in a timely manner and are unable to otherwise come up with the full purchase price by the closing date, you would be in default under the terms of the Purchase and Sale Agreement, and the seller would usually be entitled to keep your deposit under the terms of the Purchase and Sale Agreement. Therefore, it is important to calendar the mortgage contingency date and make sure you notify the seller if you are unable to obtain a commitment by the specified date.

If the home is being built for you, the Purchase and Sale Agreement should contain plans and specifications that specifically spell out how the house will be constructed and what materials will be used. You want these plans and specifications to be as detailed as possible so that there are no misunderstandings about how the house will be constructed and the quality of materials and equipment to be used. It is also important to have the builder’s warranty provisions included as part of the Purchase and Sale Agreement so that you are aware exactly what the builder is required to fix if problems occur after you purchase the home. The terms of the warranty may or may not be subject to negotiation depending on the builder.

After the Purchase and Sale Agreement is signed by both parties, you should receive a fully executed copy. Provide a signed copy to your attorney and to your lender.

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________________________________________________________________________ VII. OBTAINING YOUR MORTGAGE FINANCING _________________________________________________________________________

Once the Purchase and Sale Agreement is signed, proceed promptly to obtain your mortgage financing. This involves submitting an application to a lender for a mortgage loan. Inform your lender of your mortgage contingency date in the Purchase and Sale Agreement and calendar the date one or two days before the expiration date. If you obtain a mortgage commitment letter from the lender prior to the expiration of the mortgage contingency, inform your attorney and provide a copy of the commitment letter to him or her. If you cannot obtain the mortgage commitment letter by the contingency date, notify your attorney at least a day or two prior to the expiration date. If it looks like you will not qualify for the loan you can notify the Seller and get your deposit back. If you just need more time to obtain the commitment letter, you can request an extension of the mortgage contingency date.

Many people think that the biggest investment they will make is the purchase price paid for their home. On the contrary, the biggest investment is your mortgage. This is why it is so important to find the right type of loan. You can save thousands of dollars in interest payments over the life of the loan. For example, assume you buy a home for $300,000 and finance 80% of the purchase price with a 30 year mortgage at 7% interest. Your total payments will be $574,821 over the 30 year term of the loan. If you obtain the same loan at 6.5%, your total payments will be $546,107, which results in a savings of $28,714. As you can see, a small change in the interest rate can have a big impact on what you pay if you keep the loan for an extended period. Unfortunately, most people don’t get the best mortgage available to benefit from this substantial savings. The mortgage market is so complicated that most people just don’t understand their options.

In the past, lenders were more strict about who they lent money to. Now, lenders are willing to loan money to less-qualified buyers, but they compensate for the additional risk by charging higher interest rates on these loans. Today there are many more mortgage programs and lenders in the home mortgage market. Various lenders offer different types of loans, but no lender offers every type of loan and no lender has the best rates on every type of loan. Because there are so many different types of lenders and loan programs, it is important for you to obtain a mortgage specialist who can help you to navigate the varied options and choose the right program for you.

When you compare mortgage programs, make sure you compare similar types of mortgages and that you compare points and various fees charged by the lenders. There are two basic types of mortgages: (i) a fixed rate mortgage where the interest rate does not change for the life of the loan; or, (ii) an adjustable rate mortgage where the interest rate can change depending on the market.

Adjustable rate mortgages have lower interest rates at the start of the loan, due to the risk you take that interest rates could increase during the term of the loan. When comparing

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adjustable rate mortgages, you need to look at how the interest rate is adjusted and how it is calculated. How long is the interest rate locked in for? How frequently is the interest rate adjusted? Is there an interest rate cap? Many adjustable rate mortgages offer a cap limiting the amount that the interest rate can increase during certain adjustment periods and the life of the loan. Generally speaking, you want a longer adjustment period if you believe interest rates may rise, and a shorter one if you feel interest rates may decline. The interest rate is calculated periodically based on an index. Lenders use different indexes on different loans. If you think interest rates may rise, you want an index that does not fluctuate widely. Some common indexes are: (a) 6-month Treasury Bill rate; (b) 1 year T-Bill rate; (c) 3 year T-Bill rate; (d) LIBOR index (London Interbranch rate); (e) cost of funds index; (f) average of fixed rate mortgages; and (g) the average rate paid on jumbo CDs. Historically, the least fluctuation has occurred in the LIBOR and cost of funds indexes. However, this could change in different economic times. Lenders will also typically add a margin to the index used. Thus, if the index is 5% and the margin is 2% the interest rate would be 7%. In summary, when comparing adjustable rate mortgages you need to look not only at the starting interest rate and points, but also the adjustment period, the index used, the margin added to the index and the cap on interest rate increases.

When interest rates are low, you are typically better off with a fixed rate mortgage. If you feel that interest rates are high and will go lower in the future, you are better off with an adjustable rate mortgage. Likewise, if it is likely that you will pay off the loan in a short period of time (because you plan to refinance or sell in the near future), you may be better off with an adjustable rate mortgage. A mortgage broker who deals with many lenders and knows the marketplace is in the best position to advise you.

Another thing to keep in mind is that the longer the interest rate is fixed, the more risk the lender is taking (because of the chance that interest rates will rise during the term of the loan) and the interest rate will be higher to compensate the lender for this risk. Thus, if you want a 30 year fixed rate mortgage you will pay the highest interest rate. If you think there is a good chance that you will sell or refinance within a period of time (for instance 5 years), you could get a mortgage with a fixed rate for five years that becomes adjustable at the end of five years.

You can also lower your interest rate by paying points. A point is 1% of the loan amount. The lender will give you a lower rate the more points you pay. Many people don’t want to pay points because they have to pay more money at closing. But if you plan on keeping the loan for an extended period, you may be better off paying the points and getting the lower interest rate because of the interest savings. For example, lets assume you are applying for a $200,000 mortgage and the rate is 6.5% without points. But if you pay one point ($2,000) the interest rate is 6%. If you hold the loan for ten years, you will save $7,804 with the lower interest rate. Even factoring in the time value of money, in this case you would be better off paying the point and getting the lower interest rate.

Most mortgages are based on payments spread out over 30 years because this results in the lowest monthly payment. But you can get mortgages payable over 15 years or lesser periods. The shorter the time period, the lower the interest rate and the less interest you will

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pay. For example if you finance $200,000 at 6% interest over 30 years your total payments will be $431,676. If you finance the same amount over 15 years at a 5.5% interest rate your total payments over the 15 years will be $294,150. The savings with the 15 year mortgage is a whopping $137,526. The trade off is that your monthly payment is significantly higher. The monthly payment on the 30 year loan would be $1,199, compared with $1,634 per month on the 15 year loan. One option is to get the 30 year mortgage, with no prepayment penalty you can make additional payments to principal with your mortgage payments when you have sufficient cash flow. These extra principal payments will significantly reduce the term of your loan and substantially reduce the total amount you pay over the life of the loan.

Many first time buyers have a difficult time saving the downpayment to buy a home. If you are a first time home buyer, there are numerous programs available to assist you in buying a home. So don’t assume that you can’t afford to buy a home. Get a good mortgage broker who can provide valuable advice on the various programs available. If you don’t have a large downpayment, there are many loan programs that require only a small downpayment. Other alternatives are to:

Get a gift from a family member to help with the downpayment. There are even some government and private organizations that will give gifts or

assistance to certain qualified home buyers to help with down payments and closing costs. For example President Bush recently signed the American Dream Downpayment Act that provides 200 million dollars each year to help qualified home buyers with downpayments and closing costs. The program provides up to $10,000 or 6% of the purchase price, whichever is greater. This program is administered through the US Department of Housing and Urban Development.

Negotiate with the Seller to give you a credit at closing to provide more cash for closing costs.

Negotiate with the Seller to partially finance the sale by taking a second mortgage.

_________________________________________________________________________ VIII. THE CLOSING _________________________________________________________________________

Once your loan is approved, the lender will assign an attorney to act as the closing attorney and coordinate the closing. This closing attorney will represent the lender, even though you will pay this attorney’s fees as part of the cost of the loan. You should obtain the name and address of the closing attorney from your lender and provide this information to your attorney. Your attorney can then coordinate closing matters with the closing attorney.

Prior to the closing, you will need to obtain a hazard insurance policy for the house. Contact your insurance agent to obtain this policy. Your agent will then issue an insurance binder that reflects the coverage. The policy will have to name the lender as a loss payee, so you should ask the lender for the full name and address to be used on the insurance binder and inquire about any other requirements of the lender relating to the hazard insurance. For example, some lenders require that the first year premium be paid in full

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prior to the closing. If you live in a certain flood zone, you will also be required to obtain a flood insurance policy binder. You should give the insurance binder to the lender or the closing attorney as soon as possible, but at least prior to the closing. To help save money on your homeowner’s insurance, visit websites like www.insure.com and http://insurance.yahoo.com/home.html .

You should also do a final inspection of the house prior to the closing. This inspection should take place after the seller has moved out and is usually coordinated with the Broker and done the day before the closing. This inspection is very important because you want to make sure that the seller has removed all personal property and left the house clean. Many people accumulate various items in basements and storage spaces, and it can be a major project to clean items left behind by a seller. Make sure that the seller has not left any hazardous materials behind (for example paint cans, tires, car batteries etc..) because these can also be difficult to get rid of. Also, make sure that no damage was done to the house when the seller moved out and that the seller did not take fixtures or other items that were included in the purchase. If any issues arise as a result of this final inspection, you have the opportunity to address and resolve the issues prior to the closing.

Prior to the closing, the closing attorney will prepare the Settlement Statement that contains all of the figures and the amount that you will have to bring to the closing. You should have your attorney review the Settlement Statement with you and make sure that the numbers are accurate. The Settlement Statement will also contain the exact amount of money that you need to bring to the closing and you should obtain a certified check for this amount. Make sure the check is made payable to yourself, because you don’t want to be stuck with certified funds payable to someone else if a problem arises at closing and the deal does not close. You can then endorse the check over to the closing attorney after all of the documents are signed at closing.

The closing will normally take place in the closing attorney’s office. One decision you will need to make is whether you will bring your attorney to the closing. If it is a straight forward closing with no title issues or other issues to be negotiated, you can save some money by not having your attorney to attend the closing. Because most loans are sold on the secondary market, the closing documents are standard documents that are fairly uniform. Thus, there is typically little review of documents or negotiations at closing and it is more an administrative act of signing various documents. You must carefully review the loan terms, however, to make certain that they are consistent with your commitment letter. Even though the closing attorney represents the lender, he or she will be very familiar with the loan documents and can explain the documents to you and answer any questions that you may have at closing. Moreover, your attorney can usually review the more important closing documents (such as the Settlement Statement, Note and Deed) prior to the closing to make sure that everything appears to be in order. Some people don’t feel comfortable going to the closing without their attorney and want him or her present in the event any problems arise. If this is the case, you should have your attorney attend the closing.

After all of the documents are signed and the money is collected at closing, the closing attorney will coordinate the recording of certain closing documents at the applicable

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Registry of Deeds. The closing is not completed and funds are not released until the attorney is able to search the title to ensure that no liens have been placed on the property since the date of the prior title search and to record the Deed and other closing documents. Once the attorney puts the documents on record, you are the legal owner and you are free to move into the property. Accordingly, you should seek to have your closing scheduled as early as possible on the day of closing so that the closing attorney can go on record the same day.

________________________________________________________________________ IX. POST CLOSING MATTERS _________________________________________________________________________

You should receive a packet of closing documents from the closing attorney containing all of the documents you signed at closing and a Certificate of Title representing that you have good and marketable title to the property, subject only to certain encumbrances listed in the Certificate. It is important for you to retain these documents with your important papers.

The Settlement Statement is particularly important to keep for tax purposes. If you have an accountant, you should provide him or her with a copy of the Settlement Statement. This will provide your accountant with information about certain deductions that you may be entitled to and will establish your initial basis in the property for tax purposes. Home ownership provides a number of income tax benefits. You may be able to deduct certain closing expenses (like any points you pay to the lender). You can also deduct your mortgage interest and your real estate taxes. A good source of tax information relating to your home is Publication 530, entitled Tax Information for First-Time Homeowners, published by the Internal Revenue Service. You can obtain a copy of this Publication from the IRS website at www.irs.com. You should also be aware that if you make any capital improvements to your home, you can add the cost of the improvements to your basis in the home for income tax purposes. Therefore, you should keep records of any such improvements to provide to your accountant when the house is ultimately sold. For example, if you buy a house for $300,000 and make $100,000 of capital improvements over a number of years you would have a basis of $400,000. If you sold the house for $500,0000, your potential taxable gain would be $100,000. Keep in mind that when you sell your primary residence, you are also normally entitled to an exemption that shelters from $250,000 to $500,000 of potential taxable gain from being taxed.

You should also notify the tax collector’s office in your city or town that you are the new owner of the house. It typically takes the tax collector’s office some time to get notice of new owners and to change their records. Until the records are changed, the tax bills will go to the prior owner. Many Cities and Towns have forms you can fill out to notify them of the change of ownership. The real estate tax year runs from July 1st to June 30th. Most Cities and Towns bill and collect real estate taxes on a quarterly basis as follows:

Tax Period Due Date of Payment July 1 – September 30th August 1st.

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October 1st – December 31st November 1st.January 1st – March 30 February 1st.April 1 – June 30th May 1st.

If you don’t get your bill prior to the due date, you should contact the City or Town to request a copy.

DISCLAIMER: THIS GUIDE IS ONLY INTENDED TO GIVE GENERAL INFORMATION ABOUT BUYING A HOME. YOU SHOULD NOT RELY ON IT FOR LEGAL ADVICE AND IT DOES NOT CREATE AN ATTORNEY/CLIENT RELATIONSHIP. YOU SHOULD OBTAIN AN ATTORNEY TO REPRESENT YOU WHEN PURCHASING A HOME.Attachment A

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HOME CHECKLIST

You'll want to make several copies of this checklist and fill one out for each home you tour. Then, comparing your ratings later will be easy.

THE HOME Good Average Poor Square footage __________________________ ______ ______ _____Number of bedrooms_____________________ ______ ______ _____Number of baths_________________________ ______ ______ _____ Practicality of floor plan___________________ ______ ______ _____ Interior walls condition ___________________ ______ ______ _____Closet/ storage space _____________________ ______ ______ _____Basement_______________________________ ______ ______ _____Fireplace _______________________________ ______ ______ _____Cable TV _______________________________ ______ ______ _____Basement: dampness or odors_______________ ______ ______ _____ Exterior appearance, condition______________ ______ ______ _____ Lawn/ yard space________________________ ______ ______ _____Fence__________________________________ ______ ______ _____ Patio or deck____________________________ ______ ______ _____ Garage_________________________________ ______ ______ _____ Energy efficiency_________________________ ______ ______ _____ Screens, storm windows____________________ ______ ______ _____Roof: age and condition____________________ ______ ______ _____ Gutters and downspouts ___________________ ______ ______ _____

THE NEIGHBORHOOD Good Average Poor Appearance/ condition of nearby homes/ businesses __________________ ______ ______ _____Traffic__________________________________ ______ ______ _____ Noise Level______________________________ ______ ______ _____ Safety/ Security___________________________ ______ ______ _____ Age mix of inhabitants_____________________ ______ ______ _____ Number of children _______________________ ______ ______ _____ Pet restrictions___________________________ ______ ______ _____ Parking_________________________________ ______ ______ _____ Zoning regulations ________________________ ______ ______ _____ Neighborhood restrictions/ covenants__________ ______ ______ _____ Fire protection____________________________ ______ ______ _____ Police___________________________________ ______ ______ _____ Snow removal ____________________________ ______ ______ _____ Garbage service ___________________________ ______ ______ _____

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SCHOOLS Good Average Poor Age/ condition__________________________ ______ ______ _____ Reputation_____________________________ ______ ______ _____ Quality of teachers_______________________ ______ ______ _____ Achievement test scores___________________ ______ ______ _____ Play areas______________________________ ______ ______ _____ Curriculum_____________________________ ______ ______ _____ Class size_______________________________ ______ ______ _____ Busing distance__________________________ ______ ______ _____

CONVENIENCE TO: Good Average Poor Supermarket____________________________ ______ ______ _____ Schools________________________________ ______ ______ _____ Work _________________________________ ______ ______ _____ Shopping ______________________________ ______ ______ _____ Child care______________________________ ______ ______ _____ Hospitals ______________________________ ______ ______ _____ Doctor/ dentist__________________________ ______ ______ _____ Recreation/ parks________________________ ______ ______ _____ Restaurants/ entertainment_________________ ______ ______ _____ Church/ synagogue ______________________ ______ ______ _____ Airport ________________________________ ______ ______ _____ Highways______________________________ ______ ______ _____ Public transportation_____________________ ______ ______ _____

This form was prepared by U.S. Department of Housing and Urban Development.

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Attachment BOFFER TO PURCHASE

To: ________________________________________ (“Seller”)

Re: The property located at __________________________________________, being more particularly described in a Deed recorded at the _______________ County Registry of Deeds at Book ___________, Page ___________, (the "Premises").

I, ______________________________ (“Buyer”), of ______________________________ Massachusetts, hereby offer to buy the Premises subject to the following terms and conditions:

1. The purchase price shall be _________________________ ($______________) and shall be paid as follows:

$ to be paid with this Offer as a deposit to be held in escrow in escrow by ___________________________

$ to be paid upon the signing of the Purchase and Sale Agreement as a deposit to be held in escrow by ______________________________

$ is to be paid at the time of delivery of the Deed.

2. This Offer is good until __________________, and if a signed copy of this Offer is not returned to Buyer on or before this date, this Offer shall be void.

3. Buyer’s obligation to purchase the Premises is subject to and conditioned upon:

a. Buyer being able to obtain financing from an institutional lender at prevailing rates, terms and conditions for the purchase of the Premises of up to $________________. Buyer shall have until ________________, 2004 to obtain a loan commitment. If Buyer is unable to obtain a commitment by such date he shall be entitled to terminate the purchase and receive all deposit money back in accordance with standard mortgage commitment language to be included in the Purchase and Sale Agreement.

b. Buyer obtaining a satisfactory home inspection of the Premises, at Buyer’s expense, within ____________ days of the date of the acceptance of this Offer by Seller.

c. _______________________________________________________________

_______________________________________________________________

__________________________________________________________________

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4. The signing by Buyer and Seller of a mutually satisfactory Purchase and Sale Agreement setting forth all of the applicable terms and conditions contained herein and other standard provisions, which shall then become the agreement of the parties.

5. If any of the above conditions are not satisfied after the Acceptance of this Offer, the deposit shall be immediately refunded to Buyer and neither party shall have further recourse against the other.

6. The closing shall take place on or before ___________________, 2004, at the ______________ County Registry of Deeds or at the lender's attorney's office.

7. If Buyer does not fulfill his obligations under this Offer after it has been accepted, the deposit shall be retained by Seller as liquidated damages and neither party will have any further recourse against the other.

8. Time is of the essence of this Offer.

NOTICE: This is a legal document and both parties acknowledge that they have been offered the opportunity to seek and confer with legal counsel of their choice prior to signing this Offer.

BUYER(S)

__________________________________

__________________________________

ACCEPTANCE

This Offer is hereby accepted upon the foregoing terms and conditions and the receipt of the $___________ deposit is hereby acknowledged.

SELLER(S)

__________________________________

__________________________________

* Note: This form is similar to the Greater Boston Real Estate form that is typically used.

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