After weeks or even months of searching through home listings and negotiating prices, a seller accepts your offer, and you’re already thinking of ways to decorate your new home.
Not so fast! You still have a few more steps to take before you can walk away with the keys to your new home. Proper preparation can help ensure the home closing process goes as smoothly as possible, especially if you’re a first-time homebuyer and are unfamiliar with how it goes.
Here’s what you need to know to ensure your closing process goes smoothly.
Note 1: What does it mean to close on a home?
Closing is the final step in the homebuying process. So, what do you need to do to make this happen? After the seller accepts your offer, you can expect to wait weeks or months before your actual closing date. Even if you and the seller immediately agree on a closing date, your agents will likely work with your lender to settle on a time that allows them to complete closing requirements on their end.
Note 2: How to prepare
Talk to the experts
To avoid any unpleasant surprises, make sure you have a good team in place to help you handle the closing process. Some team members you may want to have are:
- Real estate agent
- Home inspector
- Real estate attorney
- Escrow officer
- Insurance agent
Create a closing checklist to stay on track
Once you get your team together, you’ll need to review the finer details of your closing contract to prepare for any closing contingencies. Examples of contingencies can include:
- Home inspection
- Loan documents
- Homeowners insurance
- Title insurance agent
- Final walk-through
If any of these terms seem confusing, talk to your real estate agent and your mortgage banker. Your real estate agent will be able to assist you in finding experts, such as a home inspector or escrow agent, to help you complete your closing contingencies. A mortgage banker can help with the closing process to spell out all the financial details and steps.
Note 3: Problems that can cause closing delays
When closing a home, it’s relatively common to encounter some delay that can bring the process to a temporary halt. These delays can crop up anytime, including on your closing date. Some common issues include:
Your appraisal can end up lower than expected if the house you want to purchase contains features that aren’t typical in that particular neighborhood or community. A low appraisal can also be a warning sign that you’re paying more than the home is worth.
Either way, a lender or account agent can’t approve a loan for more than the appraised value of the home. If you have a low appraisal, some options to consider are:
- Renegotiate the asking price. You can ask the seller to lower their asking price to a value comparable with the appraisal.
- Request a new appraisal. If you think the appraisal contained incorrect or inadequate information, this may be a good option for you. Talk with your real estate agent to see if this is a good idea for your specific situation.
- Meet in the middle with the seller. If you choose this option, you may have to live in your new home for much longer before the home’s value can recover. In many cases, your best bet is to let the house go and move on.
- Cancel the contract. This is a good option if the seller refuses to negotiate and you can’t afford to pay out-of-pocket cash to meet in the middle — or you don’t want to.
Be sure to get a conditional approval letter for a mortgage loan — not just prequalification. Making an offer on a home before getting a conditional approval letter can result in ending up with a loan that doesn’t meet your financial needs. Too many buyers end up falling in love with a home they can’t afford, leaving them in debt for decades to come. Take your time when reviewing your loan options to make sure you get conditionally approved for a loan amount that works for your unique financial situation.
Home inspection problems
Be on the lookout for major issues such as water damage, foundation or electrical problems, or insect infestations. These issues can all be costly to repair. It may not be worth negotiating the contract if it means years of repairs or major renovations are ahead of you.
On closing day, you’ll have anywhere from 50-100 pages of paperwork to sign. This isn’t an exaggeration. After weeks or months of waiting, you may feel tempted to skim your paperwork, but try to stay focused. Buying a home is an important purchase, and you’ll want to make sure you understand the paperwork thoroughly.
Taking on more debt before your closing date can result in closing delays. Additionally, accruing more debt will lower your credit score, meaning your lender will have to recalculate your mortgage agreement — making it even more challenging to get approved at a good rate.
Another reason for a closing date delay is if you weren’t completely honest with your lender about all of your payments. If the debt-to-income ratio you reported isn’t accurate, your lender will have to recalculate and adjust your mortgage agreement to reflect these changes.
This means more waiting for approval on your escrow account and budgeting your monthly payments. To avoid the hassle of having your home closing delayed due to financing complications, be sure to talk with an escrow agent ahead of time to make sure you have everything covered.
Note 4: What is an escrow account?
An escrow account is when you set up an account with a lender or mortgage servicer to pay your property taxes and insurance. If you plan on creating an escrow account, finalizing your arrangements will happen during the closing process. Some benefits of having an escrow account are knowing your bills will be paid in full and on time, meaning you won’t have to worry about budgeting these large payments separately.
So, how does this work? You’ll pay a portion of your insurance premium and annual taxes each month as part of your monthly mortgage payment. When your insurance payments and taxes are due, they will be paid with the funds from your escrow account. You’ll receive an annual escrow analysis alerting you to any surpluses or shortages. If you have surpluses, you’ll get your money back — if there are any shortages, you’ll have to repay the difference.
Some reasons there could be a shortage include:
- Increase in insurance premiums and property taxes
- Insurance carrier changes
- Changing due dates
- Tax adjustments
- Fewer escrow deposits
It’s important to note that if your escrow payment changes due to any surpluses or shortages, your monthly escrow payments will vary. This means that even if you have a fixed-rate loan, your monthly payments will be subject to change.
Note 5: How much does it cost to close on a home?
To prepare for closing day, you’ll need to know how much you’ll have to pay out in closing costs. Closing costs usually include the premium for homeowners insurance, home inspection costs, appraisal fees, attorney fees and more. You can expect to pay around 3-4% of the purchase price of the home in closing fees, so be sure to budget for this.
Note 6: What happens on closing day?
On closing day, you’ll pay any outstanding fees or remaining closing costs as listed in your Closing Disclosure. The seller will sign paperwork to document the transfer of property ownership. You’ll then be required to sign a settlement statement with all listed fees relating to the home sale, a mortgage loan agreement and a deed of trust securing the mortgage loan. The title company will need to register the new deed in your name.
You should bring:
- Photo ID
- Outstanding paperwork for the mortgage loan office or title company
- Cashier’s check for the title or closing company
Note 7: Where does closing take place?
On closing day, you’ll likely meet at your escrow office. The escrow company will probably be the title company that formally secures your ownership of the new property. Typically, you’ll need the seller, escrow agent, mortgage lender and real estate agents to be present on closing day. Talk to your real estate agent to see who all needs to be present when closing your home.
Note 8: When can you move into your new home?
You may be able to get settled into your new home following your closing appointment depending on whether or not the seller has requested a delayed move-in date. Your move-in date should have been pre-determined in your closing contract, but you can always talk to the seller or your real estate agent if you have any additional questions.
Buying and ultimately closing on a new home is an exciting time that can be overwhelming if you don’t have the help of the right people. The knowledgeable team at Chase can help make the homebuying process go smoothly so you can focus on making your new house a home.