The closing process itself is pretty involved, and may be a bit different for each home buyer, depending on their loan type or how they are purchasing the home, for example a cash buyer may have a different experience. This step-by-step look is based on a loan through a bank. We used an Alaskan based loan type for low-income buyers.
Picking up where article one left off, you’ve had an offer accepted. Hooray!, and congratulations, the battle is half over.
What happens next?
You should have the property inspected.
Some loans actually require inspections to ensure the home meets certain standards, but even if your loan type doesn’t call for inspection, it’s an excellent idea to have one. Even if you are construction savvy, you may not be up to date with current building codes, or may not know a lot about certain aspects of buildings such as electrical or plumbing. Either way a second set of certified, qualified eyes is always a good idea. Inspections are generally paid for by you, the buyer, and vary in costs by location and home size. Our inspection, done in Alaska on an 1800+ square foot home was right at $350.00. you should be present during the inspection. It can be a great way to get to know the ins and outs of your new home.
Let the re-negotiating begin.
Chances are you did a bit of negotiating during the offer process, but the inspection can bring to light new bargaining points or things that need to be addressed by the seller before closing. It’s acceptable to ask for a price change or even physical goods, such as furniture in the home, to compensate for unforeseen expenses. The worst the seller can say is no. If they say no, you can still complete the deal or back out. For example, in the yard of the home we were buying we found an abandoned outhouse pit. We requested the seller fill it before closing. There were also several items that our lender required be repaired, which we had the seller do some of. Some of the repairs we did ourselves in exchange for the generator and most of the furniture in the house.
Once the purchase price is absolutely settled three things typically happen at the same time.
Any safety tests will be performed.
Depending on the home, there may be some test results to wait on at this point, such as a well flow rate and water quality check, or a septic system analysis. What you can expect will vary with your location and loan type, as well as the home itself. If you have personal concerns that could be tested, such as a soil contamination test, this is a good time to complete them. There will also likely be an as-built survey done at this point. This produces a drawing of the property, home and any other permanent above or below ground structures.
The home will be appraised.
Your lender will order an appraisal of the home to ensure that what they are loaning you could be recouped if they had to foreclose on the house. Basically, they want to know if the house is worth what you’re paying for it. Many real estate contracts actually have a clause that opens the contract to be re-negotiated or backed out of, if the appraisal is lower than the offer price, as it’s unlikely a bank will finance a home for a price above it’s worth.
Your lender will begin to process your loan.
You’ll probably want to drop in and make sure any paperwork provided is current and up to date, such as paystubs or income proof. This can also be a good time to discuss locking in an interest rate, and ask any questions you may have at this point. Your lender will be verifying that your means of income, credit score, and funds for closing are still in good standing for the loan, as things can change between preapproval and closing.
Keep in mind, if you are reading this before closing; be careful not to alter your credit score inadvertently before closing. Our real estate agent for example had a couple that had an offer accepted and were all set. They bought a house full of furniture on credit before closing. It shifted their income to debt ratio, and they were denied the loan. Never make any big purchases on credit before your loan has closed.
You may be periodically contacted for more information, signatures, or anything else your lender may need. I had to write a few letters of explanation for instance, make sure your lender has a good contact number for you that you can respond to quickly. The faster your lender gets what they need, the faster the closing process can go.
If the appraisal and any tests performed come back good, your loan will be sent to underwriting.
The underwriter makes the final decision on your loan. They review all the documentation and information gathered for the loan and ultimately say yes, or no. They may send the loan back and request more documents or information. They may even add special requirements to the loan. Once you have the OK of your underwriter, the path is clear to closing.
On closing day you will go to a title agency and sign a book-and I do mean a book-of paperwork. You’ll need a cashier’s check to pay for any closing costs and the down payment. In case you are unaware, to get a cashier’s check you must go into the bank and request one. It is not just a regular checkbook check. I made this mistake, and had to run to the bank at closing. If the seller has also already signed, the contract goes to recording. You do not legally own your home until the deal has been recorded. Recording may be delayed if you’ve agreed to give the seller time to move. Someplace in your contract there should have been a required recording date, indicating when you should be able to take the keys and occupy the house.
Recording often occurs within a day or two of closing, and you’ll be given the keys at that point. The deed to your new home will come in the mail later.
How long did all this take?
The entire closing process can happen in a week even, but 30-45 days is more typical. If your loan is contingent on something, for example the seller finding a new home, closing may be a longer process such as 90-180 days.
At this point you’ve officially done it! You’ve bought your first home. Congratulations!