Homebuyers: What to Expect in the Closing Process
The home shows you watch on the television sure make the homebuying process seem like a breeze. But it’s not exactly as easy as picking the best house and the sellers handing over the keys. There’s a whole process called “closing” that takes time, patience, and a lot of understanding.
If you’re new to the homebuying process, don’t be intimidated. We’re here to help you be one step ahead of the game. Read on to see what the closing process entails:
1. Acceptable Offer
So you’ve found that perfect home and you’re ready to dig deep into those pockets and make an offer. That’s great! You’re headed in the right direction. The first part of the closing process is for the seller to accept the offer you’ve made. Once they have, the home is now “pending” on the market, and you can move forward with the next steps of the closing process.
2. Order Home Inspection
Although a home inspection isn’t always something buyers take advantage of, it is required in some instances, and is something we at Northern Title highly suggest you order.
A home inspector will give a thorough look through the home and the property to look for any major or minor problems. He will then provide a report of any defects including structural problems, building code violations, non working appliances, etc. A home inspection offers peace of mind for both the buyer and the lender, and can cost anywhere between $300-$500 (a small fee when you consider how much some major defects could cost you in the long haul).
3. Send Offer to Underwriter
Now that the offer has been accepted by the buyer and you didn’t back out from what the home inspection returned, you need to send the offer to a lender who will do the underwriting for the loan. This is a legal document that basically proves you will repay your home loan in full over a period of time. To help “prove” this, they likely will request copies of your taxes, pay stubs, proof of assets/income, bank stubs, and request to release your credit score. Yes, it may sound invasive giving out so much private information, but when you consider the chunk of money they’re loaning you, you understand why they want to be protected, too.
4. Lock in Your Rate
Unless you’re paying for your home in cash, you’ll need to secure a lender with a good rate. Sometimes buyers are already preapproved for a rate, which is then valid for about 30-60 days after lock-in. The better your credit score, the lower your rate of interest it likely to be.
5. Generate a Loan Estimate
Your lender will now generate a loan estimate which summarizes what you can expect to pay for your mortgage and closing, and when. This estimate includes your fixed interest rate, whether you are purchasing or refinancing, how long your loan is for (typically 15-30 years), the terms associated with it (any prepayment penalties, etc), your estimated monthly payment (including taxes, insurance, principal, and interest), and how much the closing costs will be.
6. Get an Appraisal
An appraiser determines that your home is worth at least as much as your offer on the home (or whatever amount you’re requesting for a loan). If the appraisal is too low, the lender will only agree to loan you the amount of money that the appraiser says it’s worth. If this happens, you may have to negotiate the purchase price with the seller, amend any agreements, and possibly delay the transaction altogether.
A county appraiser can charge anywhere between $400-$500. You can either pay the appraisal fee upfront, or on the closing day itself.
7. Secure Insurance
Now it’s time to start shopping around for homeowners insurance to secure the best rate. Some buyers are also required to secure title insurance, which covers the cost of resolving any defects with the property’s title (like unpaid taxes, liens, etc), and protects your equity again potential claims down the road. While not always necessary, title insurance can prove very beneficial. At Northern Title, we issue title insurance policies for buyers and perform escrow closing work.
8. Lender Approval
As mentioned earlier, the underwriting process can sometimes be lengthy. However, once your loan is officially approved, you can set a closing date.
9. Closing Day
When you officially close on your house, you officially gain ownership of the house/property. It’s a big day for multiple parties including the sellers, realtors, attorneys, brokers, lenders, etc.
When you meet to close (which is typically held at a title company or escrow agency office), you should be prepared by bringing in your photo IDs, list of places you’ve resided for the last ten years, and payment for closing costs. Some buyers prefer writing a personal check, while many prefer to wire the money electronically. Unless you’ve negotiated for the seller to pay the closing costs (or a percentage of it), you should be prepared to pay for it.
Some of the closing fees you’re paying for at this time include underwriter fees, home inspections, appraisal fees, credit reports, any HOA dues, any title/escrow services, county recording fees, broker fees, your first month’s interest, etc.
Don’t be intimidated by this sometimes lengthy and stressful process. The more you know now, the better prepared you will be for your own closing.
No need to thank us. It’s ‘on the house.’ Visit one of our Northern Title offices to see how we can help you with your closing process, and get you in the home you deserve.