Finalize Your Loan
Within three days of submitting your application, your lender is required to send you a "Good Faith Estimate" that lists all closing costs. This is just an estimate and the actual costs at closing may be a little higher. If this document includes charges you thought were going to be waived, let the mortgage lender know immediately. Be certain the Good Faith Estimate is correct and in your possession before you sign the letter of commitment.
Following the approval of your mortgage you can expect to receive a letter of commitment from your lender. This is a formal offer that states the loan amount, the term (20 yr., 30 yr. etc.), the origination fee, annual percentage rate, points, and monthly charges which include principal and interest.
It's a good idea to go over everything with your lender so you understand it completely. The letter may spell out conditions that must be met, such as required repairs to meet housing codes. Note what these conditions are and make sure the seller has met them before closing. If there is anything in the commitment letter you may think is a problem or mistake, be sure to address the issues before you sign. Your real estate agent will coordinate the closing date between you and the lender. Make sure the date occurs before the expiration date of the commitment letter and the rate lock-in, if there is one.
It's alright to contact your mortgage lender with questions between application and the closing. If there are any changes in your financial situation during that period (job change, etc.) they may require further documentation. Be sure your financial institution has all of the documents it needs to finalize the loan so there are no delays. In addition, if your lender hasn't already asked you for a copy of the sales agreement, make sure they get one.
Protect Yourself With a Home Inspection
It wasn't long ago when home inspections were rarely part of the home buying process. The buyer just assumed the home was in good shape and trusted the seller to disclose any problems. Well, those days are gone and now home inspections are looked upon as valuable by both the buyer and the seller. Obviously the buyer gets a better idea of the condition of the home, but the seller also benefits. If the new buyer came back after the sale and accused the seller of hiding defects, the seller can point to the fact that he/she cooperated in having the home inspected.
Having a prospective home inspected provides an informed opinion from a third party regarding the condition of the house. After the inspection, one of three things will happen:
- You'll have greater peace of mind because the inspector has given the property a clean bill of health.
- You'll learn there are problems and you head back to the negotiating table.
- You walk away completely and look for a different house.
It's not a bad idea to go through the house with the inspector. Doing this will help you learn a great deal more about the home. Remember though, the inspector can only inspect what he can see so there is no absolute guarantee he will find every little problem.
The person you hire will look at many things including: foundation, doors, windows, roof, siding, plumbing, electrical systems, heating and air-conditioning systems, ceilings, walls, and much more. The charge is usually around $300 and worth every penny. What's more, a bad score on the inspection is one of the few things that will nullify the letter of commitment.
Finding a good inspector is a lot like finding a good real estate agent. Ask friends, coworkers, and relatives who they used when they were buying their homes. Your real estate agent will also have names of inspectors he or she recommends. However, if you're using the seller's real estate agent, you may want to choose your own inspector. Remember, in this situation you aren't the agent's client - the seller is. And when selecting an inspector, make sure they have a membership in the National Association of Home Inspectors (NAHI) or the American Society of Home Inspectors (ASHI). Both organizations encourage their members to improve performance and ASHI uses guidelines for home inspections that can be particularly helpful.
What the Lender Does To Close Your Loan
While you wait for the closing date, your lender is working hard to investigate and verify many aspects of the property you are purchasing. Here is a description of what's going on behind the scenes.
- Your lender will order an appraisal of the house to make sure you are not paying (and they are not lending) more than the property is worth.
- Title Search and Insurance
- A search will be performed to make sure the seller is indeed the legal owner of the property, and determine if there are any liens against the home. If there are, these must be settled before closing. Your lender will help you buy title insurance to insure you have clear title to your property.
- This is most often ordered by the lender and paid for by the buyer. The survey will confirm that the property's boundaries are the same as those described in the sales contract. You may be able to save a few dollars by requesting an "update" from a surveyor who has surveyed the property in the past.
- Termite Inspection
- Houses in many locations must be inspected for termites before they can be sold. If everything is OK, the termite company will issue a certificate stating that the home is free from visible signs of termite infestation and termite damage. Usually the real estate agent orders this inspection and the seller pays for it.
- Septic and Well Certifications
- If your home is located in an area that does not have public utilities you will need to have the private water source and septic system certified before closing.
- The lender will create an agenda for the closing and will work with the real estate agent to set a closing date.
Just Before Closing
Most sales contracts allow you to take a final "walk-through" 24 hours before closing. In the majority of cases, your real estate agent will accompany you during the tour and you should invite the seller to be there, too. This is your last chance to make sure everything works and problems that were supposed to be fixed have been corrected. If you find any major problems or feel that agreed upon conditions have not been met, you have every right to delay the closing. If the seller is present when you take the final "walk-through," it's a great time to have them show you how to operate major appliances, the air conditioner and furnace, and find out what day the trash is picked up. Also remember to ask for any available owner's manuals and warranties.
Soon you'll be closing on your new home so it's time to nail down some last minute details:
- You may need to present identification at closing. Make sure you find out what is needed.
- Personal checks are usually not accepted when paying closing costs. Find out what method of payment (money orders or cashier's checks) is required.
- Confirm the actual date you take possession and can move in. You'll also need to make arrangements to get the keys.
- Request a copy of the appraisal. In most cases you paid for it and it's a good idea to keep this in your files for future reference.
- An escrow account will be set up to pay for things like property taxes, homeowners insurance, etc. These need to be paid at the time of closing so verify what those costs will be.
- Make one last phone call to your real estate agent and lender to determine what else, if anything, you need to bring to closing.
Remember to utilize the services of your real estate agent and lender to help take care of the items above, because that's what they get paid to do. Make sure you ask all your questions and you are satisfied with the answers. This isn't the time to keep quiet for fear of looking foolish.
This is it! The big day has arrived! It's time to close on your new home and make it official! If you've never gone to a closing before, it's quite an experience. Just take it slow, pay attention, ask questions if you need to, and everything will go well.
Don't go to the closing unless you have someone there who is looking out for your interests. That means your real estate agent or lender. There is so much going on you'll need an expert to help you keep an eye out for mistakes and they do happen occasionally. Remember, this is the last chance to make sure everything is correct. If you think something is wrong, speak up! Once you sign (and you'll do a whole lot of that), it's a done deal.
Sometime during the process you'll be given instructions regarding your mortgage payments. Your lender will let you know when your first payment is due, where the payments need to be sent, and instruct you regarding late payment penalties. Finally, you'll get the keys to your house. Believe it or not, real estate agent's say this is one item sellers most often forget to bring. When you get the keys, make sure you're getting all of them for the house, garage, or anything else that locks.
Things to Do After Closing
Congratulations! It's exciting to move into a new home, especially if it's your first! With all of the house hunting, negotiations, and closing behind you, it's time to set up housekeeping. An important part of that housekeeping should include setting up files to keep track of everything pertaining to your house.
- Setting Up Files
- Setting up a file system requires a bit of work but will pay-off big in the future. You'll have easy access to all information pertaining to the purchase (closing documents), maintenance, and improvement of your house in one handy place. Also, should you sell this house in the future, the new owner will appreciate getting this information and you will present yourself as a someone who took good care of the house.
- Track Expenses
- Begin to track all expenses that increase the value of your home. When you sell your home you may be able to deduct some of these expenses when reporting a gain from the sale on your taxes.
- Tax Exemptions
- Now is the time to file tax exemptions that may lower your tax bills. Your lender can provide specifics such as the type of exemptions, filing dates, and where you need to go to file.