How Does the Closing Process Work?
The closing process can be quite scary for first time homebuyers. New terminology and concepts notwithstanding, the purchase of a home is generally one of the largest investments most people will make. There is added stress associated with a purchase of this size due to the level of importance. Below is an outline of the closing process, and although not exhaustive, can be used as a starting point for further inquiry and exploration.
Qualify for a loan. Check with your mortgage professional to determine the amount of home you qualify for. This step should be a prerequisite to any “home hunting”. You will want to know the amount of home you are qualified to purchase and the monthly payment for that home inclusive of principal, interest, taxes, insurance and mortgage insurance (if applicable). If you are purchasing in an HOA or a Condominium, you will need to factor in the association dues as well.
Decide where you want to live and educate yourself on the area.
Select a real estate agent. Interview realtors with experience in the area you are looking to purchase. Select a realtor based on not only competence but responsiveness.
Make an offer. Upon finding a property you wish to make an offer on, understand that an offer becomes legally binding when both parties agree to all of the terms and sign the contract document.
Legally binding. The date on which you and the seller agree on terms, in writing by signing the contract and all parties are in receipt of the signed latest version of the contract is considered the Effective Date. The most critical aspect of the contract process is to make certain you adhere to the critical dates in your contract.
Update your lender. Your lender should already have all of the information necessary to underwrite your loan. You may need to update some of the information, such as recent pay stubs, however at this point your lender should only need the purchase and sale contract as well as the appraisal and the title commitment from in order to get your loan approved.
Apply for association approvals. If the property you are purchasing falls within a condominium or homeowners’ association, you must complete your application for approval into the association within the time allotted for in your contract. Note, there may be multiple associations.
Inspect. Roof, plumbing, electrical, AC, termite, pool, all should be inspected by a licensed home inspector. It is also recommended – for large ticket items such as the roof – that you obtain two separate inspections from two independent roofing contractors. In addition, a 4-point inspection should be requested for insurance purposes. You should check with your insurance agent prior to ordering your inspection in order to make sure you obtain the correct type of inspection report.
Appraisal. Your lender will need to confirm the value of the property you are purchasing is equal to or greater than the price you are paying. This is called an appraisal.
Title agent services. A search and examination of title will need to be performed. In addition if the property requires a survey, one will need to be ordered and reviewed. If the property falls within one or several associations, each association must provide written proof of the status of association dues. This is called an estoppel letter. These functions are performed by the title agent.
Insurance. You should shop for homeowner’s insurance well in advance of closing. The insurance company will request a copy of the 4-point inspection as well as the elevation certificate which is provided by the surveyor.
Loan Commitment. A loan commitment (or loan approval) is your lender’s agreement to lend – however a loan commitment could have a number of conditions. What you are really waiting on is a “CLEAR TO CLOSE”. This is your lender’s indication to you that you may close in the next several days.
Clear to close. Once your lender delivers a clear to close, the lender will provide their final figures to the title company and in return, the title company will provide the lender with a completed document with all sums due all parties. This document is called a Closing Disclosure. Once the Closing Disclosure is approved by Lender, Buyer and Seller, a closing can be scheduled. The title company will provide you with an amount you need to wire into the title company account for closing.
Walkthrough. You will perform a final walkthrough of the property you are purchasing to make sure it is in the same condition as it was during the inspection.
Closing! At this point, all the work has been done. A closing should be anticlimactic. There should be no drama at closing. The seller should have vacated the property and there should be no issues with the condition of the property. The buyer signs all of his / her loan documents and other documents if required. The seller tenders his / her deed (and other seller’s documents) to the title company in exchange for the proceeds due seller at closing.
Keys. Once the seller is in receipt of their funds, the seller should release the keys to the home.