Let me first say Congratulations to future you! You’re now one step closer to being a homeowner.
Escrow
Your escrow (good faith deposit) is due to the title company within 3 days of the accepted offer date. This check will be cashed and held by the title company until closing and will be applied to your balance due at closing.
Who is the title company and what do they do? The title company (typically selected by the seller) will handle the following items: NOTE: These duties and services vary in different parts of the country.
Escrow / Earnest Money – Also known as your good faith deposit, is held at the Title Company.
Tax Check – What taxes are owed on the property? The Title Company contacts the various assessor-collectors.
Title Search – Copies of documents are gathered from various public records: deeds, deeds of trust, various assessments and matters of probate, heirship, divorce, and bankruptcy are addressed.
Examination – Verification of the legal owner and debts owed.
Document Preparation – Appropriate forms are prepared for conveyance and settlement.
Settlement – A title company oversees the closing of the transaction: seller signs the deed, you sign a new mortgage, the old loan is paid off and the new loan is established. Seller, agents, attorneys, surveyors, Title Company, and other service providers for the parties are paid. Title insurance policies will then be issued to you and your lender.
What is Title Insurance
There are two types of title insurance:
Coverage that protects the lender for the amount of the mortgage,
Coverage that protects the equity in the property.
Both you and your lender will want the security offered by title insurance. Why?
Title agents search public records to determine who has owned any piece of property, but these records may not reflect irregularities that are almost impossible to find.
Here are some examples: an unauthorized seller forges the deed to the property; an unknown, but rightful heir to the property shows up after the sale to claim ownership; conflicts arise over a will from a deceased owner; or a land survey showing the boundaries of your property is incorrect. For a one-time charge at closing, title insurance will safeguard you against problems including those events an exhaustive search will not reveal.
Inspections
From the accepted contract date, your inspection period begins. So it’s important to get your home inspections scheduled as quickly as possible.
What are Inspections and what to expect
We’ve all heard the term “home inspection” but what does that really mean? As a buyer, you will hear me tell you nonstop how important a home inspection is. I ALWAYS recommend you get one, doesn’t matter how handy you are, how much DIY you’ve done or watched on TV, this is not where you save money during the home buying process.
Inspection Period
One of the main questions I ask a buyer when we’re talking about writing an offer is “How long do you want for inspections”? This is something you a buyer stipulates in the offer you submit. Florida As-Is contracts default to 15 days unless you request differently.
Now this timeframe will vary in every situation, sometimes you need less time and sometimes more. This can typically be signed off on earlier if you complete your inspection quicker and a request for an extension is a possibility if necessary.
During your inspection period is your time to do your due diligence and research on this potential home.
The Inspections
The type and complexity of a home inspection are really up to you. There are companies that can perform just about any test imaginable and then there is a broad overview. It’s all about what’s best for you and your situation, but overall, a home inspection is a MUST.
Some of the common inspections include (if applicable) the traditional home inspection, WDO (wood destroying organisms), septic, water quality, mold, and many more.
I know of several great local home inspection companies I can forward you at any time. They will be able to discuss with you in further detail costs, available services, any warranties, etc.
Once your offer has been accepted and you are officially under contract, it’s up to you to get your inspections scheduled, the sooner the better. A typical home inspection can range from 2-4 hours and cost approximately $350-$500. This is your expense as the buyer, the fee is typically due at the time of inspection.
I urge all buyers, if able, to attend the home inspection. This is your opportunity to learn a great deal about what could potentially be your new home with a professional. If that’s not feasible, I do suggest you stop by for the last part, report of findings, which I also attend. This is when the inspector goes over with you the possible items of concern or what they feel you should be aware of.
The Report
Your inspector should send you a full inspection report, typically with photos a day or so after inspections are completed. Review this report carefully and then proceed accordingly.
Now as you can imagine, your full inspection report could be intimidating. The inspectors will find things wrong, it’s their job to do exactly that. The purpose of the home inspection is not to scare you off, but for you to ultimately know what you’re getting yourself into, what may need to be addressed and repaired now or maybe in the near future. Everything from the roof to the flooring and everything in between. Do you have an outdated or recalled electric panel? Is your roof nearing the end of its life? Is the A/C barely blowing cold or have torn ductwork? These are all things most of us wouldn’t know, so seek professionals to help you make a smart and educated decision.
The Findings
If necessary, it’s at this time that you can or should order additional inspections or professionals. Request the seller to make specific repairs and/or adjust the price for you to make the repairs. Some repairs may be necessary for financing, if the seller is unable or unwilling to make these repairs, you can pay for them to be made or cancel the contract. Please note, if you pay for repairs and do not for some reason purchase the home, the seller will not be responsible to reimburse you.
If you are uncomfortable with what you have learned with inspections, it is within the inspection period that you request with your agent to cancel your contract. Your agent will write up a Release and Cancel for you and the seller to sign. Typically, canceling within the inspection period allows you to have your escrow (good faith deposit) returned to you from the title company. If you decide after the inspection period to cancel, you could risk forfeiting that money. You would be out the cost of the home inspection regardless.
If all looks good and you feel confident with the findings you can sign off on the inspection period and move forward with the transaction. Congratulations, you’re one step closer to making this potential home your new home.
Loan Application
Once we are officially pending, I will forward a copy of the contract to all the necessary parties, such as your lender. They will start the paperwork on their end, first of which is you completing your official loan/mortgage application if you have not already done so.
This is when they will also start asking for documentation for everything you can imagine, and I can assure you it’s not them just being complicated, it’s all necessary.
From this point until the closing table, it is SO important to be in constant contact and providing the information as thoroughly and quickly as possible to the lender as they need it. If you aren’t sure what they need, please feel free to reach out to me or them for clarification, that’s what we are here for.
The Ten Commandments When Applying for a Real Estate Loan
- Thou shalt not change jobs, become self-employed or quit your job.
- Thou shalt not buy a car, truck or van (or you may be living in it)!
- Thou shalt not use charge cards excessively or let your accounts fall behind (no
late payments). - Thou shalt not spend money you have set aside for closing.
- Thou shalt not omit debts or liabilities from your loan application.
- Thou shalt not buy furniture.
- Thou shalt not originate any inquiries into your credit.
- Thou shalt not make large deposits without first checking with your loan officer.
- Thou shalt not change bank accounts.
- Thou shalt not co-sign a loan for anyone.
Appraisal & Survey
Appraised
Your lender will order the appraisal typically after inspections are completed. This is not something you will have to be there for, in fact, nobody is there for the appraisal. They pull local comparable sales, starting in your immediate area and only expanding out as necessary. They will find similar homes in condition, size and updates to justify and substantiate the price you are paying for that home. These are a necessary evil, they can help ensure that you are not overpaying for that home.
What happens if the appraisal is low?
It happens, in fact, I’ve had it happen for both buyers and sellers. As a buyer you have a couple of different options, we, of course, ask the seller to lower the price to the appraised value.
If they cannot or will not, you as the buyer have the option to pay the difference out of pocket, which means extra money you would have to come to closing with.
You and the seller may be able to split the difference, they lower the price ½ of the amount and you bring the other ½ to closing.
If the price difference is just too much and we are unable to come to an agreement, we write up a Cancelation and Release Form, because you will not be able to get financing for more than the appraised value and no other options are available, we must cancel this contract, request your escrow be returned to you, and start the search again.
Surveyed
The survey is also ordered by the lender, typically about a week before closing, after appraisal has been completed and without issue. A surveyor will come out and mark your property lines and make sure there is no encroachment or problems that could affect the property value. These markers are useful even after you’re moved in, especially if you plan to do any landscaping or fence installation.
Homeowners Insurance
The underwriter will require proof of homeowners insurance as one of their conditions. Just as I recommended with lenders, I suggest getting at least 3 quotes from different insurance companies / brokers. Get those quotes in writing so you can compare all the different coverages equally and not just comparing based on price.
Closing
Prep
Can you believe it, we’re almost there! We are prepping for the big day! At this point, you are going to start scheduling the connection and/or transfer of services such as electric and utilities.
The title company will not give us a confirmed set closing time until we have a clear to close. As soon as we hear those 3 beautiful words, we keep following the light.
You will be provided a copy of your HUD statement 3 days prior to closing. This form shows a breakdown of your complete real estate transaction. Your confirmed monthly payment amount, interest rate, total paid over the term of the loan, etc. The title company will notify you at this time what the amount is due from you for closing and how they prefer the funds (commonly bank wire transfer).
Final Walkthrough
We will do the final walkthrough of your soon to be new home either the day before or day of closing. At this point, the property should be completely empty, clean and in the condition you are prepared to accept. This is to make sure there are no problems, nothing unexpected and you will sign off that you are accepting the home in the condition that it’s currently in.
What is a Real Estate Closing?
A “closing” is where you and I meet with some or all of the following individuals: the Seller, the Seller’s agent, your lender and a representative from the title company. The purchase agreement or contract you signed describes the property, states the purchase price and terms, sets forth the method of payment, and usually names the date and place where the closing or actual transfer of the property title and keys will occur.
If financing the property, your lender will require you to sign a document, usually a promissory note, as evidence that you are personally responsible for repaying the loan. You will also sign a mortgage or deed of trust on the property as security to the lender for the loan. The mortgage or deed of trust gives the lender the right to sell the property if you fail to make the payments.
You will sign specific documents that will be sent to the lender for funding authorization. While you finish signing your documents, the lender will wire the title company the funding for your loan, which will be disbursed accordingly to the seller, their mortgage company, etc.
Once that funding is received and documents are signed, you will receive your keys to your new home!
Congratulations!
You have closed on your new home and now you are ready to move!
Keep detailed records – some moving expenses are tax-deductible!
Keep detailed records of all moving expenses if your move is job-related. Many expenses, including house-hunting trips, are tax-deductible. If your move is 35 miles or more from your home, you can deduct your family’s travel expenses, including meals and lodging; the cost of transporting furniture, other household goods and personal belongings; food and hotel bills for up to 30 days in the new city if you have to wait to move into your new home; and the costs associated with selling your old home or leasing your new home.
Note: There is a ceiling on deductions which is outlined in detail in the IRS’s Publication 521, “Tax Information on Moving Expenses,” available free from the IRS offices.