Once your offer on a house has been accepted, you have officially entered the closing process. You and the seller, or your agents or attorneys, will draw up a purchase agreement with mutually acceptable terms and conditions for the transfer of ownership and deposit them in escrow. Escrow is a neutral third party, usually an escrow company, that will hold funds and documents until each prerequisite of their release is met.
Unless you are paying with cash, closing takes between 30 to 45 days. During this time, there are important terms and conditions you should learn, and a few important steps you must take to ensure the approval of your loan. If you are just getting started on your home search, make sure you avoid common, costly mistakes homebuyers make.
Before taking the house off the market, the seller is going to want a committed buyer. A good faith deposit, also called earnest money, in escrow will give the seller that security. This deposit will eventually roll over into your down payment. If you walk away from the deal not under a contingency then your deposit is forfeit. One of these contingencies allows you to walk away from the deal within 17 days without losing your deposit. If the seller walks away, your money is returned to you and escrow is closed.
The first step in the process is to have a lender lined up, and this is a mistake some home buyers make. If you do not have a lender, make sure you find one that works with you and helps you decide on a mortgage plan that fits your needs. Whichever brokerage, bank, or mortgage company you choose, they will give you a good-faith estimate that includes a detailed list of your loan’s fees and costs, also referred to as the closing costs. The lender must provide you with this estimate within three business days of your loan application.
Then, your lender is going to do a title search on the property to unearth any claims the property may have on it. Some examples of liens, or claims on the property, are: the home left in a will to living kin, tax debts, and unpaid child support. You will need to purchase title insurance. This will protect your financial investment if a very well hidden title claim surfaces in the future. Your lender will most likely require you purchase this insurance before they approve your loan.
While you’re deciding on title insurance, also look for homeowner’s insurance. This is for your protection as well as your mortgage company’s. And, like title insurance, your lender will most likely require you have it before approving your loan.
Unless you waive them, a home inspection and pest inspection are contingencies, or conditions, included in the purchase agreement. The seller or you, depending on the terms of the agreement, must secure these inspections. If the home inspection reveals damage in the home that you are not willing to fix, and your contract is contingent on your satisfaction with these inspections, you have the opportunity to back out of the deal with your good faith deposit, request the seller solve the problem before closing escrow, or renegotiate a lower price. The same is true of a pest inspection that uncovers pests. These two inspections are very important and forgoing them introduces the possibility of coming across deal-breaker problems after purchase.
Once all inspections and insurances are finished and purchased, your lender will require that an appraiser provides the home with a home appraisal to confirm that the house is worth the final selling price.
The purchase agreement has made the sale contingent on certain conditions being met by a certain deadline. Contingencies protect the buyer from sacrificing their good faith deposit for events outside of their control.
These contingencies most commonly include:
- your loan is approved with an interest rate and mortgage payment you can afford
- the home inspection reveals no major problems or the problems are fixed
- the pest inspection reveals no infestations or they are cleared, the seller repairs everything agreed upon.
Make sure that you and your agent remove the contingencies on the deal as they are fulfilled. The most common way to do this is in writing, called active approval. However, the purchase agreement can specify that if the deadline passes then the contingencies have been removed, called constructive approval. The purchase agreement will specify which method you should follow.
Once every term and condition has been met by both parties, it’s time for you to deposit your downpayment and do the final walk-through. In the final walk through, traditionally done the day before closing day, check that all repairs have been made and everything that was included in the purchase agreement is left at the house. This is your last opportunity to ensure everything is as it should be.
Closing day’s actual date hinges on the approval of your loan. Making sure your lender has all the documents they need and that you have done everything they have asked you to do will speed up the process.
On closing day, you will receive several different documents and contracts to sign. You are legally allowed 24 hours to sign them so take your time to read every page. Remember, buying a house is a long term, financial commitment and the fine print could dictate your life. Make sure that the interest rate for your loan is the one you agreed to and don’t sign any forms with blank spaces. Once your signature is on the paper, these spaces can be filled in and change the agreement you signed.
Documents you will receive:
|HUD-1 settlement statement||A detailed list of all costs related to the sale of the home. It is similar to the good faith estimate you got weeks earlier, but the HUD-1 is not an estimate; it is a precise record of the settlement costs. Both you and the seller sign it. Compare the HUD-1 statement against the good faith estimate to see if the actual closing costs differ significantly. By law, you have the right to review the HUD-1 24 hours before closing. Do so. Clear up any mistakes and resolve problems.|
|Final TILA statement||You received the first version of this statement after applying for your mortgage. This final version outlines the cost of your loan and APR and takes into account any modifications made to your rate and points between application and closing. Make sure that everything is in order.|
|Mortgage note||This document states your promise to repay the mortgage. It indicates the amount and terms of the loan and what the lender can do if you fail to make payments.|
|Mortgage or deed of trust||This document secures the note and gives your lender a claim against the home if you fail to live up to the terms of the mortgage note.|
|Certificate of occupancy||If you are buying a newly constructed house, you need this legal document to move in.|
Once these papers are signed and your loan is approved, escrow passes the funds to the seller, the deed and keys to you, the transaction is complete and escrow is closed. As you can tell, the closing process is complex and requires more than enthusiasm to progress smoothly. Call a First Team agent to help you through escrow and to protect your interests throughout.