You’ve finally found a house you love, and can’t wait to make it yours. You’ve signed a sales contract, but it’s probably contingent on a few things, and there are a few more crucial tasks that need to be addressed before you set the closing date.
Closing on a house should be the easiest part of buying one. It’s supposed to be mainly a formality of signing a lot of papers, then handing over a check in return for the keys. Here are 5 of the most important steps you need to complete to make sure it goes that way.
Inspection
Your realtor’s sales contract probably makes your offer contingent upon the results of a home inspection, but you should just make sure before signing it. While a professional should do a thorough job of this, you may want to check some of the most important things that you can test yourself. That includes making sure every faucet, toilet and kitchen appliance works. You don’t want to find out that there is no hot water or the oven is completely dead right after you move in. (Related: Home Buyer Tips for Real Estate Negotiation)
If there are any issues at all, make sure everyone is on the same page about how to handle them. Will the seller lower the price to allow for the repairs you will need to make, or will they say it already includes the condition of the house “as is”? Will they offer to make the repairs themselves?
If they are to make the repairs themselves, then another inspection may need to take place, depending on what they are. Things like the roof or a swimming pool should definitely get one. Hot water and the oven, you can see for yourself.
Appraisal
Appraisers can only give you – and the bank – the value of the house in the condition it is in when they see it. So an appraisal shouldn’t be scheduled until a final house inspection is completed.
The appraiser must be someone approved by the bank. In fact, it may be someone sent by the bank. They determine the value of the property based on recent sales of comparable properties, but there is always some leeway. So if you don’t like the appraisal you get, you have the option of requesting another. But you will almost certainly have to pay for it, and it will still need to be someone approved by the lender.
By the way, it’s not unheard of for an appraiser to ask whether it would be preferable for their appraisal to skew to the higher end or the lower. So you may want to make a point of being there to meet the appraiser, even if you don’t stay for the whole thing. Depending on the size of the house, it can be an extremely long process. But even on smaller houses, it’s not quick. (Related: 11 Things to Know About Home Buyer Programs)
Mortgage Approval
Your sales contract will almost certainly be contingent upon your being approved for a mortgage that is sufficient to buy the house, and it can be a long, drawn out process. Your income needs to be verified, your credit score checked and that’s just the beginning. The absolute best way to make this process go smoothly is to:
-
Find out how much you are eligible to borrow. – Before you even start looking at houses, you need to know what you can afford. Most lenders have calculators on their websites that allow you to enter your income, expenses and what you will have on hand for a down payment. You can usually play around with loan options like fixed vs adjustable, interest rates, mortgage lengths and more.
-
Find out what you need. – Go to your preferred lender’s website and look for what you will be required to provide in the way of documentation. If it’s not clear, or you have any questions, just call.
-
Get ALL of your documentation together. – When you know what you need, track it down and put it all together. Bank statements, W-2s, tax returns and whatever else you will be asked for. Some things may take a while to find or receive, so get started as soon as possible.
-
Get pre-approved. – Knowing that you are pre-approved for loans up to a certain amount takes a lot of stress out of house hunting and can significantly shorten the time between agreeing on a price and closing on the house.
You should keep your Loan Estimate document and take it to the closing to compare it with your mortgage paperwork. In fact, you should compare it the Closing Disclosure that your realtor is required to give you at least 3 business days before closing. It will have a list of what everyone is paying and why, including your down payment and closing costs.
If there is anything on there that is different from what is on your Loan Estimate paperwork, then you need to contact your loan officer immediately. Not only do you need to find out why there is a discrepancy, but you have to confirm that you can still afford the loan.
One extremely important thing to note is that no matter whether you are pre-approved for a mortgage or apply for one after your offer is accepted, one thing you absolutely MUST NOT do is to assume – or even apply for – more credit after you receive approval. Because your loan application will almost certainly have to be re-opened, and it is very possible that you will no longer qualify for the amount you received approval for.
Insurance
You will need homeowner’s insurance from the moment you close on the house, so you need to arrange for it before that. You will need both property and liability insurance, so you want to shop around for the best rates.
It’s often possible for you to roll both insurance and property taxes into a mortgage, in which case the lender will take care of paying both of them for you. This will raise your monthly payment considerably. But whether you choose to do that or not, you have to take both those costs into consideration when deciding how much you can afford for a house, because they could easily add up to hundreds of dollars a month. (Related: Visible Indicators of Hidden Property Damage)
Final Walkthrough
The very last thing you need to do before setting a closing date is walk through the house and around the property to make sure everything is as promised. If there is anything broken that wasn’t before, the sellers took something they were supposed to leave behind or any other unpleasant surprise, the issue needs to be resolved before you close on the sale.
The walkthrough doesn’t have to take long, just make sure it’s thorough and don’t rush it. This is a good time to test all of the plumbing and appliances again. It’s not a bad idea to make a list beforehand of any specific items you particularly want to inspect, and check them off as you go.
Time to Sign
The house buying experience can be a very stressful one, but closing the sale should be a happy one. Being diligent about these 5 parts of the process can help to ensure that it is. Once they have all been completed to your satisfaction, you can go ahead and schedule the closing date – and the celebration of a successful purchase. Congratulations on your new home! (Related: What is 100% Commission Real Estate?)
