Buying a home is an exciting event that keeps most soon-to-be homeowners busy for the four to six weeks it usually takes to close the sale. A lot happens between the time the seller accepts your offer and closing day. Use your sales contract as a road map to schedule the tasks you need to finish before the sale closes.
Before You House-hunt
Get a jump on your mortgage application by gathering your financial information before you start looking at homes. Your most recent tax return and several months' worth of bank and investment statements are a good start. In the meantime, make it easy for the lender to identify the sources of deposits into your bank accounts. Deposit whole paychecks, for example, and keep records of where you received the cash that went into your account.
Earnest Money Deposit
The buyer must deliver an earnest money deposit to the seller as soon as the seller accepts the offer because a contract is valid only if there’s some sort of payment. If there's any chance that the sale might close in fewer than 30 days, the deposit should be a cashier's check.
Loan Application and Approval
The sales contract usually gives the buyer a specific number of days in which to apply for a mortgage. An additional deadline applies to the mortgage commitment, which is the bank's assurance that it will, in fact, make the loan. Unless the contract says otherwise, buyers may choose any lender they wish.
The lender hires an appraiser to determine the market value of the home. The appraisal ensures the home is worth at least as much as the loan amount. If it's not, the lender won't approve the loan unless the buyer makes up the difference by paying more cash down.
In most cases, even if buying a home as is, the buyer orders inspections to determine that the home's structure and plumbing, heating and air conditioning and electrical systems are in acceptable condition. A buyer may need additional inspections, such as wood-boring insects and air and water quality, as a condition for the loan approval. The sales contract allows a specific amount of time for the buyer to complete these inspections.
The buyer hires a title company to investigate the property's "chain of ownership" and find out whether any individuals or entities have claims on the home's title. If the company discovers such claims, it works to clear them. It then issues title insurance to guarantee clear title. The title company also prepares the new deed that transfers ownership from the seller to the buyer.
Lenders require that buyers purchase homeowners insurance as a condition for loan approval. The buyer usually pays several months' premiums, if not the whole year's worth, into an escrow account on closing day.
Clear to Close
The loan approval usually takes longer than the pre-closing tasks. The closing date isn't set in stone until the lender clears the loan to close -- that is, issues its final approval.
A closing agent from the title company or an attorney prepares a document called a HUD-1 statement. The HUD-1 accounts for all the money that will change hands on closing day. In a nutshell, the statement shows how much the seller will profit from the sale and the amount the buyer must pay at closing.
The buyer does a final walk-through immediately before closing to verify that the home's condition hasn't changed since the seller accepted the offer.
Closing day is easy for sellers -- a few signatures, and they're finished. Most buyers have far more paperwork to contend with because they're closing on their loan at the same time they're closing the sale. After everyone signs their documents, the closing agent pays the sale proceeds to the seller and gives the buyer a copy of the deed. The agent files, or records, the original deed in the county where the home is located.
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