Buying a Home - The Road to Closing
You have a contract to buy a home, but you need to make sure you’re getting what you agreed to pay for; and of course you have to come up with the old Dough-Re-Mi. Thus begins the labor that is not as dramatic as house hunting and negotiating, but just as important that it be done well. Fortunately, the work is done by experienced professionals who coolly go about their tasks to turn your dream into reality. Your agent will start by gathering all necessary information about the transaction and providing a “closing information” form along with a copy of the purchase agreement to the lender, the title company and the real estate broker.
Now that you’ve found a house and your loan officer has the purchase agreement, the wheels of finance begin to turn. The mortgage company may have already obtained financial information about you while you were house hunting, but often there are more verifications needed once the purchase agreement is in place. At this time your loan officer will provide you with a good faith estimate (GFE), a regulated form that details the costs of your mortgage. The GFE is similar to the estimate of costs sheet that you received earlier, but it doesn’t show your down payment or your monthly payment. The GFE requires lenders to stick by their stated costs, even if unforeseen circumstances necessitate higher costs (costs are allowed to be lower, but never higher). To cover this possibility, the loan officer may state higher costs on the GFE than the buyer will actually pay when the full costs are known. Some buyers are confused—and many loan officers are annoyed—by the most recent GFE form, but perhaps it’s best to consider it a work in progress, if not progress.
The mortgage company will order an appraisal on their behalf, and of course, yours. The appraiser will make an inspection of the property, looking at such things as square footage, floor plan, features and amenities, landscaping, proximity to schools, neighborhood quality, and comparing it with similar homes that have recently sold. The appraisal report establishes the value for mortgage purposes, and may include observations and recommendations for repair of some conditions.
Some types of loans such as FHA and VA may require the appraiser to check for what they consider health and safety concerns. If the exterior of the house or garage has any chipping or peeling paint the FHA requires it to be scraped, primed, and painted before the closing. This kind of “work order” will have been negotiated as part of the purchase agreement, defining the seller’s limits of obligation. Most often the seller will take care of small work orders but occasionally the new buyer takes on the obligation. Usually the work is completed and re-inspected before the closing; but in the winter when exterior work can’t be completed the seller’s agent or your agent will get bids from contractors to determine the cost, and the money needed for the repairs will be put into an escrow account at the closing. The funds are then disbursed to a contractor when the work is completed as weather permits. Your agent will be communicating with you and the listing agent so that this can all go smoothly.
The title company will be working to verify that the house you are buying has a clear title. After evaluating a plat drawing and doing names searches, they check for any judgments or liens that may be in the way, as well as any unpaid property taxes or assessments. When their attorney determines that the title is clear of encumbrances, the title company stands willing to offer a title insurance policy to both buyer and lender to protect against any claim that may arise in the future. We’ll talk more about title insurance when we get to closing.
During this period you’ll be kept informed of the loan progress as it moves from appraisal to underwriting, and you’ll probably be asked for more information during the final loan approval process.
You’ll need to provide your loan officer with a one-year fully paid up homeowner’s insurance policy that names your lender as mortgagee, so it’s best to begin getting quotes right away. Typical prices for a $250,000 property range from $500 to $700 per year. Many find the best rate from their auto insurer, benefiting from a multi-policy discount.
And of course you’ll be preparing to move: packing, ordering new checks, changing your address with businesses, and as you get certain of the exact moving day, calling utility companies to change service.
You will get a chance to tour the home with your agent before the closing to make sure the seller has moved out completely (or is on schedule), and to check the condition of the property. Try to get in early enough so that you have time to be thorough. Some suggestions:
- Make sure appliances are working properly.
- Check for leaks under sinks, or in water lines.
- Anything you identify as debris must be removed from house and garage.
- Property should be “broom clean” at a minimum.
- Make sure that any requested work has been completed.
Occasionally a seller has removed something that the buyer assumed was part of the house: perhaps a mirror hanging over a bathroom sink, or a shelf system in the kitchen that, to you, looked more architectural than decorative. This kind of misunderstanding is rare, and is generally avoided by spelling out “gray area” items in the purchase agreement. But if the walk-through uncovers a situation like this you’ll need to negotiate with the seller immediately, before the closing.
Conversely, you may get to see how “one man’s treasure is another man’s junk” when you discover the oily workbench left for you, replete with 60-lb vise, in the basement. Garage rafters are often full of old boards; in some cases, they hold millwork removed from the house in a long-ago renovation. Perhaps considered valuable to a future restoration, these old pieces may have sat up there for generations as a succession of buyers accepted them and passed them on. But if there was no disposition spelled out in the purchase agreement, and if you consider them to be debris, then the seller is obligated to remove them. We often deal with leftover debris by holding a small portion of the seller’s proceeds at closing to pay for removal, or as a guarantee that the seller (or listing agent) will be responsible for it. Agents need to be at their diplomatic best in all these walk-through discoveries and misunderstandings; obviously these aren’t deal-breakers, but a buyer and seller at loggerheads just minutes before closing can put a real damper on the party.
In most cases, however, the walk-through is a positive experience. Normally the surprises are pleasant ones: buyers appreciate something that the seller has left for them, or become aware that the seller has had the place professionally cleaned. Sometimes sellers walk through with the buyers, explaining the intricacies of lighting the water heater or changing the furnace filters. The best of these situations can be very gratifying to us as agents. And if you’re lucky, this will happen to you: you’ll get to learn firsthand about the house and neighborhood, you’ll feel the sellers’ pride and the rightness of the responsibility you’ve undertaken—while the sellers will gain a consoling sense of continuity as they say goodbye to their home.