The closing process
For most people, finding the right home and successfully negotiating price and terms is the most difficult part of buying a home. However, the deal is not entirely done even when the sellers sign on the dotted line.
The next step is to ask your agent to provide you with a written summary of the critical contract dates that you need to be aware of, as well as the names and phone numbers of various service providers you’ll be working with.
The next thing that should happen is the buyer usually deposits money into an escrow or trust account until the closing has been finalized. This is done until contingencies are met, such as a home inspection. The contract should state how many days you have to complete inspections and other contingencies, but it’s often within 14 days. You should also plan to get estimates on any other repairs should the need to negotiate further arise based on the inspection.
At the same time, the buyer should be working on getting their finances in line as well as looking into insurance coverage. Lenders won’t issue your mortgage until you have insurance in order to protect the lender’s interest in the property. One tip is to find out who the insurer is of the property now since they’ll most likely be willing to cover the property once papers exchange hands.
To avoid delays, it’s important to get all the proper paperwork to your lender – this should include things such as the buyer’s financial documentation, copy of the purchase agreement, appraisal report and title report. Make sure you provide any needed documents promptly and that your agent is willing to meet the appraiser and show them the comparable sales information.
Examine the title carefully and make sure you understand it fully. If there are questions, make sure to ask you agent or attorney. It’s also important to consider how you will hold the title to the property, as there are some legal ramifications. Your agent or attorney should be able to help you with this.
The next step is the final walk through. This allows you to confirm that the home is in the same condition as when you saw it and also to confirm that work that was to be done by the sellers was actually completed.
The final walkthrough
Shortly before the date of final closing, you’ll need to do a final walkthrough with your agent, who will help you examine the property. The purpose of a final walkthrough is to make sure that all repairs have been made and that all property that was part of your agreement is either still in the residence or have been removed. After all, you don’t want to move into your new house only to find that some things are missing or that junk has been left behind.
As you go through the residence, pay attention to crawl spaces, attics, basements and garages. Even if the sellers have not moved yet, you may still get a clear picture that there are some items that they have no intention of removing. Tell this to your agent to avoid a confrontation on moving day. Take your time moving through the home and make sure you pay close attention to ensure you don’t miss any major issues.
Make sure to bring a copy of your sales contract so you can review any items in question. Also, make sure you pay particular attention to expensive items that are important to you, watch for areas that may have been previously covered, address any items removed or not removed, and make sure to remain calm if you discover an issue. Also, check to see if any damage has been done as a result of the move and make sure to check all appliances and other items, such as the furnace and air conditioning. Remember, this is the time to deal with any potential problems and a time to let your agent handle the details.
Homeowners insurance
Homeowners insurance provides coverage in the event of damage to the property, as well as liability for injuries and damage that might have been caused to other people. This includes damage caused by pets.
Damage caused by most disasters is covered but there are exceptions. The most significant are damage caused by floods, earthquakes and poor maintenance. You must buy two separate policies for flood and earthquake coverage. Maintenance-related problems are the homeowners' responsibility.
Your policy should cover the structure of your home, your personal belongings, liability, and will provide for living expenses in the event that you are temporarily unable to live in your home due to fire or other disasters.
When choosing coverage amounts, it’s important to buy enough to rebuild your home. Other structures on the property should also be covered for about 10%, such as garages, tool sheds, or gazebos.
Personal belongings are covered for 50-70% of your total policy. The best way to make sure your belongings are covered is to conduct a home inventory. You should be covered off-premises as well as from unauthorized use of credit cards. Jewelry is usually covered up to a certain amount as well as “accidental disappearance.” Trees, shrubs and plants are also covered in most cases.
Liability covers against lawsuits for bodily injury or property damage that you or family members cause to others and covers damage from pets. You will be covered on court costs up to the limit of your policy. No-fault medical coverage is also included, so if someone (not family) hurts themselves in your home, they can submit medical bills to your insurance company. Expenses are paid without a liability claim being filed.
Additional living expenses vary between companies, but many policies will pay hotel, food and other living expenses if you are unable to live in the home due to fire, storm or other disaster. It will also reimburse you for lost rent you would have collected.
If buying a condo or co-op, makes sure you understand what areas of the building the association covers and which areas are not. You will most likely need to purchase two different policies – one for your unit and one for the common areas of the structure.
When to consult an attorney
If you feel like you’re having a hard time understanding some of the documents, it might be a good idea to contact a real estate lawyer. Some confusing documents with extensive legalese are documents about a common interest development like condos and townhouses (conditions, etc.), any property with a covenant and/or restriction, or titles and easements.
Consulting a lawyer can save you from making a bad purchase decision if the documentation doesn’t say what you think it does. If you are looking to hire an attorney to resolve a dispute, it’s probably a better idea to try and resolve the issue yourself first. Your real estate agent may also be able to help you reach a satisfactory agreement.
Real estate attorneys usually charge by the hour for their advice, which can get pretty costly. Find out in advance how much you can expect to pay before you hire an attorney. However, if you are a first time buyer, it’s usually a good idea to consult an attorney. Ask your realtor or friends and family for a recommendation.
Closing costs and certified funds
When signing the contract, closing costs associated with it are negotiable between the buyer and seller. Sometimes, sellers will pay 100% of the closing costs leaving you with only the down payment.
When you get to your closing, the closing attorney will give you and the seller a settlement statement, also known as a HUD-1. This statement looks somewhat like a balance sheet, and will detail all the costs and payments associated with the transaction.
In the event that there will be closing costs involved for the buyer, funds must be brought to the closing as “certified funds.” The closing attorney will only accept payments that meet the criteria given them by the lender, and those criteria are usually spelled out in the loan application. Make sure to ask many questions when it comes to losing funds to avoid any delays that might result.
Usually, any fees are a result of the loan – loan origination feed, loan discount points, appraisal fee, etc. You will usually need to pay reserves up front to cover your future taxes and insurance. There may also be city and county taxes, as well as annual assessments and association fees to pay. There is also mortgage insurance, as some loans require this to cover the risks associated with lower down payments.
Other fees or “Title Charges” are a result of work done to check on and ensure a clear title. It includes title examination, attorney fees, title insurance and other associated fees, like document preparation.
Keep in mind that some fees are must-haves and others are add-ons. Evaluate your needs and comfort level for anything above and beyond what is required.
