You have gone through the process your Realtor has helped you prepare the best offer. It contains the list of contingencies (for example, that seller fully disclosed any problems with the house, points on the results and actions after the inspections, etc.) and it is finally accepted.
Your anticipation of the purchase is rising. You are ready to sign the documents and move into your new family home, loft, condo, or a Lakeview apartment in the city.
But wait, it may be too early to pack your things in boxes. The journey is just beginning and there are ten steps first time home buyer you can take before you officially own the property.
- Open an Escrow
The first step to closing the deal and unlocking the front door of your own house is to open an escrow.
Escrow, on average, will last approximately one day depending on the transaction. During that time, the third party (title company) is taking care of transactions on both the seller and buyer’s behalf. Your attorney will help you through this process and the paperwork needed to finish escrow.
- Lock-In the Interest Rate
You need to lock your interest rate from the time a loan application begins approval until a couple days before the closing. Most of the buyers do not lock the interest rate when they apply for their mortgage. Make sure you do this.
A lot of variables should be considered. Waiting till the last moment could get you a lower rate at the same time if you get lucky. The decision is yours to make, just do it in time.
- Have a Home Inspection
To assure your home is solid and the roof won’t fall in the first day in your new home is generally the reason to have a home inspection.
Home inspection specialists will check the HVAC system, plumbing, and electricity. Choose your home inspectors wisely, and do not fall for the cheapest option. Your realtor may have some recommendations based on their experience with other homebuyers. Remember, cheap usually proves to be a bad choice in terms of quality, experience, and technical knowledge.
Although, even the most expensive professionals cannot foresee the future. But they may save you thousands of dollars uncovering existing issues. Even new houses need to be checked duly and thoroughly. It does not matter that the house recently had all the municipal inspections by the builder. Doing your due diligence is recommended to protect yourself.
- Have a Pest Inspection
The best choice is to hire a licensed pest inspection company. They will check if your future property is contaminated by every sort of insect and all types of pests that may be living in your future home. They will also check mold growth and other possible environmental health threats caused by lead, fungus, and asbestos.
- Make sure all the Issues are fixed after the Inspections
If inspections revealed any problems, you may want the price of the home to be dropped, or ask the seller to fix the problems that came up. You may also ask for a credit to fix those issues yourself after closing. Consider all the options that work best for you.
In some cases, a home inspector may advise looking deeper into the issue. They say you should ask for a second opinion, or evaluate it further with a specialist. It is highly recommended to discuss the estimates and fix the issues as soon as possible.
- Ask for Title Search and Insurance
Title insurance is needed to eliminate the third party ownership on the property that you are buying. An attorney typically does a title search and will help you to make sure that there are no legitimate claims from relatives, collectors, and the like. Title insurance will become a legal proof that everything is clear and you are good to go further with the closing.
- Conduct a Home Appraisal
A home appraisal determines the estimated market value of your soon-to-be property.
The appraiser evaluates the home based on different factors. These include general condition, geographic location, proximity to objects of interest, the value of the near-by houses, their recent sales, neighborhood growth, and potential.
Typically, mortgage lenders need this information to make sure the amount you would like to borrow is worth the money. There is always a risk of a low appraisal. This might not be bad for you as a buyer. If the home appraises lower you as a buyer have the leverage to lower the home’s price or get credit, or even walk away from the deal.
However, this may slow down the closing process. This is due to the seller’s doubts, if the appraisal is fair, or if he really wants to sell at a price that lower than he anticipated. At the same time, you as a buyer want to save and you have a legitimate right to ask for the lower price the home appraised.
Unfortunately, some appraisers are not qualified enough or are unfamiliar with all the specifics of the particular areas. Before trusting the home appraiser with this responsibility, make sure he is from your county, has a residential appraiser certification and a professional designation.
- Set the Time and Date of the Closing
The time and date of the closing is something you decide at the beginning of your contract and negotiations. Discuss your goals with your Realtor and attorney to assure you have the right timing for closing.
There are several moments to consider when scheduling the closing for your property. One of them is to schedule at least half a day’s time for the occasion. An hour or two may not be enough if you face some unsolved issues or unexpected situations.
Closing can be held in any agreed location. For example, at the attorney’s office, or at your lender’s or title company’s offices. The closing date should be close to the end of the month, but not the last day of the month.
It is better to settle between the 20th and 25th of the month. In this case, you will have some time before the end of the month to resolve any disputes.
Why not the last day? There are a few reasons. These include wanting to renegotiate new conditions, technical issues or something going wrong. If you schedule a closing and fail to complete it on that day, there are consequences. You will be facing increased closing costs next month, in addition to the penalty for the delay. Your attorney will guide you through the process.
- Be Present at a Walk-Through
A final walk-through is the last chance to see your future house before you buy it.
Usually, it is scheduled twenty-four hours before the closing. The property should be in the condition that is specified in your sales contract. You may inspect if any changes have been made after the home or pest inspections. Check if everything is in order, all fixtures, furnace appliances etc are in the same condition when you first walked to see the house.
If there is an issue, the closing day may be shifted. Or upon mutual agreement, the repair costs will be submitted to the escrow account for credit. Do not skip it because missing the final walk-through is one of the reasons for a closing delay. Your Realtor will help you with this process.
- Get Ready for your Closing Day
It’s time, now you’ve run the escrow marathon and survived all the possible obstacles in your way. It is finally time to sign the papers and get the keys to your new home.
Make sure that you prepare all the paperwork that you have collected during the whole process. This includes the title search and insurance, inspection reports, bank statements, home appraisal, checks of down payment closing costs, prepaid interest and anything else.
There will be quite a few people present with you at the closing, your attorney, a seller (and/or his representative), the seller’s attorney, real estate agents (both yours and your seller’s), a lender’s representative, a title company’s representative, the closing agent, and a public notary. Exact number and function depend on the state and county. Also, most of the time real estate agents do not need to be present for closing discuss with your agent if you need them present.
The purpose of the closing is to sign the following documents:
- Closing Disclosure (CD). This document contains your final payments, costs, and charges upon agreed terms and periods. You are supposed to receive it three business days before the closing date and compare it with the conditions of the initial loan estimate.
- Mortgage note. Signing this document, you agree to your mortgage terms and conditions, as well as penalties, in case you are not able to pay duly and in time.
- Deed of trust or mortgage. It is a security for your lender that he will get his money, even if you are unable to obey the terms of the mortgage note.
- Certificate of occupancy (for new houses only). Such document is needed to move into a house.
Make sure that you do not sign anything that is unclear to you or is different from what you agreed to, or seems wrong. Make sure that you understand what you are signing and how your payments will be distributed over the time. Charges change differently depending on the mortgage type, and may also depend on your insurance or taxes. Don’t be afraid to ask questions along the signing process.
Risks and Delays on a Closing Day
Sometimes things may delay closing day, even when you and the seller have been very good at preparing for the day. Here are a few examples that can delay the process:
- If you or your seller’s financial circumstances change or if one of you changed your last name during marriage. Make sure to bring your ID’s to your closing with the correct spelling of your name.
- It is possible some of the repairs were not considered, or one of you simply backs out from the deal. If something in the property was discovered during inspection and it wasn’t fixed or you weren’t getting credit, you may stop the closing until the issues are resolved.
Everything is possible, and you have to prepare for every option. If either of you refuses to sign the deal because you changed your mind, or found a better option, the other party has the right to collect the damage fees. The damage fees may be the earnest money (down-payment) and other fees. Your attorney will consult you if this were to occur.
Closing a deal is a big responsibility, stress and financial risk for all parties involved. It is important to understand that, especially if you are doing it for the first time. You need to do your research and gather all the necessary documents. You must also follow your attorney’s, inspectors’ and real estate agent’s advice. Not to mention, you have to be sure that you definitely want to close this deal. Your real estate team will work with you to assure that everything is in place to help you get the keys to your new home.
After you Sign the Papers
Once all documents are signed by both you and the seller, your real estate agent or attorney will hand over the keys to your new home. You officially are now the legitimate owner of the house and a responsible person for a mortgage loan.
Closing on a first new home is mind blowing – both in a good and a bad way. Nothing can be compared to buying your first home. When you finally get through with it, you will be able to relax and enjoy your new property.
Hopefully, these basic steps will help the first-time homebuyers handle this incredible process with less stress and more energy.
BONUS: If you need more information, contact me for a FREE homebuyer’s book. It has step-by-step information to help you get through your home buying experience.