You are finally ready to write the contract. How do I do this? The standard form used in the State of Texas is the earnest money contract. There are other forms used such as a letter of intent or contract for sale, but they are very rare in Texas, especially in residential.

There are many forms to the earnest money contract depending on the type of property and the type of financing the buyer is attempting to secure. Most of us purchase the "Single Family Home" which is the type of contract that I will discuss. The condominium uses another form, although very similar. The buyer’s who want to buy using either FHA or VA financing will use a slightly different contract although the parts are nearly the same. The most common is the conventional loan earnest money contract referred to as "ONE TO FOUR FAMILY RESIDENTIAL EARNEST MONEY CONTRACT" Read the following earnest money contract. It is for a conventional loan. VA & FHA contracts require a slightly different contract. The following are explanations of the standard conventional Texas Promulgated earnest money contract.

Legal Description

This is the survey description. It goes by the lot number along the street and the block where the lot is located. It is under this description that the property is recorded. The legal description if for the land only. The sale of the property will state that it is for land and improvements. Improvements on the land may come and go, but the land will stay the same. So will the legal description.

Address

This is the street address. Note in the earnest money contract that the land is conveyed with all of the improvements. The house that you are buying is considered an improvement. Along with the house are everything that is attached to it. All of the window coverings, the air conditioner, the plants, the mini blinds, garage door openers, plumbing fixtures, stove are considered part of the house. If the seller decides to take the window coverings if it were not disclosed that he was going to do so in the seller’s disclosure or in the earnest money contract, he is in violation of the contract. Basically, anything attached to the house is considered part of the house.

Sales Price & Down Payment

The offer price is stated in the contract. The down payment is also stated and will be based on the type of financing that the buyer is trying to secure. If the buyer says that he is going to put down 5% of the sales price and does not have the cash to do so, he will not qualify for the loan. If he says that he will put down 10% of the sales price and decides later he only wants to put down 5% he can do so provided this does not cause him to fail to qualify for the loan. The buyer must be able to put down what he states in the contract. You may be held to do it even if you don’t want to or change your mind.

Type of Financing

The best type of financing should be predetermined by either your Realtor or loan officer. This is another reason to get pre-qualified or pre-approved. Certain programs are better than others depending on the situation. Some will allow for a lower down payment, some will tolerate a greater credit problem than others. This will be discussed later in the financing section.

The contract calls for the buyer to make application for credit within a certain number of days and attain the financing within another certain number of days. This is the option period for the buyer. If he does not make application within those days, he has not fulfilled his obligations and the seller could cancel the contract. Also, if the buyer does not have an approved loan within the agreed number of days, the seller may cancel the contact as well. This is another reason to be pre-approved.

Earnest Money

Once the seller has taken his house off the market he has given consideration to the buyer. The consideration that the buyer gives to the seller is cash. This cash is not paid to the seller, but to a third party, normally a title company. Since this is a conditional contract, if the conditions cannot be met (Other than default) then the money will be returned. The normal amount is around 1.0% of the sales price. This too is negotiable.

Title Policy

The title policy is issued by a reputable title company that insures that the title conveyed to you is indefensible. This means that if there is a lien on the property that was not cured or discovered before you purchased the property, the title company will cure the problem. Most lenders will require the buyer to have a title policy issued before they will fund a loan. The reason for this would be if there is a prior lien, the first mortgage that you lender placed on the property would be inferior. This also means that you owe more than you thought. The title policy guarantees the condition of your title.

The title company in the sale of a property is responsible to check for liens, taxes, encumbrances and do the actual closing of the transaction. Many think that the mortgage company closes the transaction, but this is not so. It is the title company. It could be done at an attorney’s office, but they still have to issue a title policy, so most use title companies in Texas. The title company is the disbursing agent. They pay off prior liens, get releases of those liens, pay the taxes, collect escrow accounts for the lender, pay the closing expenses per the earnest money contact, etc. Once you have gone to the title company and funded your loan, you are done. (Other than paying the mortgage for the next 30 years)

Page 1, Page 2, Page 3