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The First Time Home Buyers Information Source for Buying a Home and the Home Buying Process

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Prepare for Closing

Preparing for closing 

The final days before closing can be a stressful period for both home buyer and seller.  The buyer may have second thoughts at the prospect of taking on such a large debt.  Or, they may worry that something will happen to prevent the sale—and indeed the house is not theirs until you close on it. 

The signed sales contract and the signed loan commitment letter obligate both home buyer and seller to complete the transaction.  If failed to do so, not only will the buyer forfeit their deposit, but may also find themselves embroiled in a lawsuit.   

Setting the closing date 

The closing date is set after your mortgage loan has been approved and you accept the commitment letter.  The real estate agent will coordinate this date with you, the seller, your lender, and the closing agent.  This needs to take place before the mortgage lender’s commitment and the rate lock-in, if there is one, expires. 

Selecting a settlement agent 

Closings are conducted by lending institutions, title insurance companies, escrow companies, real estate brokers, or attorneys for the buyer or seller. Usually the real estate agents will select the settlement agent at the time of the initial offer. Use worksheet 10 to help  compare closing cost between lenders.

Meeting conditions of the loan offer 

Be sure to understand the conditions of the loan offer that are stated in the mortgage lender’s commitment letter.  If the home you are buying has been found to be in violation of a building code or zoning regulation, the commitment letter may specify that those problems must be corrected before the closing.  If the seller has agreed to make repairs required by the lender, you will want to make sure the work is finished (and done properly) before closing.

Securing title services

Before the closing, a title search on the property is required. 

Title search

Mortgage lenders require a title search to make sure the borrower receives a clean title.  This means they want to be sure that the seller is indeed the owner of the property, and that there are no liens filed against the property.  

Title insurance

As further insurance that the seller is giving the buyer a clean title, the lender will require that title insurance be bought.  There are two types of policies: 

  • a lender’s policy, and

  • an owner’s policy.

The lender’s policy protects the lender in the event a flaw in the title is detected after the property has been bought.    

The owner’s policy protects the buyer.  The buyer generally pays the cost of both, obtaining a combined lender’s/owner’s policy will save some money.  

Termite certificate 

When buying a home, many locations require the house be inspected for termites before they can be sold.  The seller usually covers the inspection.  The buyer should receive a certificate stating that the property is free of termites and termite damage.

Homeowner’s insurance 

Mortgage lenders will require that you purchase homeowner’s insurance, which protects you and the mortgage lender from loss in the event the house is damaged or destroyed.   Most home buyers purchase a homeowner’s package of insurance that includes 

  • Personal liability insurance protects the buyer in the event they are sued by someone who is injured on their property. 

  • Coverage against fire, theft and certain weather-related hazards

Get quotes from several companies as to what types of coverage your homeowner’s policy should include and how much coverage you need.  For home owners insurance quotes online click on any of the links below:

The mortgage lender will generally require only minimal coverage up to the “replacement value” of the house. 

Note that by requesting a higher deductible amount you can significantly reduce your insurance costs.  In this way, you pay for minor damage yourself but have protection against major losses. 

Many mortgage lenders will require that the first year’s premium be paid before closing.  You may add the rest of the payments to your mortgage payment, the lender then holds the money in an escrow account and pay the insurance bill when it is due.

It you obtain the insurance on your own, you will need to bring the insurance policy and paid receipt with you to the closing.

Type of ownership 

The chief options are these: 

  • Sole ownership—you’re the only owner.
  • Tenancy by the entirety—available only to married couples, both owners have to agree before the house can be sold or even refinanced; when one spouse dies, the house automatically goes to the surviving spouse without going through “probate” (the legal process by which property is distributed after someone’s death).
  • Joint tenancy—during their lifetimes, any of the owners may sell their interest to whomever they choose; when one owner dies, the surviving owner automatically gets the deceased owner’s share in the property.
  • Tenancy in common—the property is owned jointly, but if one owner dies, the deceased owner’s share goes to his or her heirs rather than the surviving owner.

Homeowner’s warranty

When buying a new home, you should receive a homeowner’s warranty, which protects against certain defects in your home.  Homeowner’s warranties have become available for older homes, covering the repair of the major systems during the first year of ownership.

Final walk-through inspection 

When buying a home, a clause should be included in the contract allowing the buyer to examine the property within 24 hours prior to closing.  This allows the buyer to make sure the seller has vacated the house, and left the appliances or property which was agreed upon. 

If the sales contract made the seller responsible for ensuring that the plumbing, heating, mechanical, and electrical systems are in working order at the time of the settlement, this is the buyers’ last chance to make sure that everything works.  During the walk-through, all remaining deficiencies should be noted.  

If they cannot be corrected before settlement, funds may be withheld from the seller by the settlement attorney for payment of the agreed-upon repairs.  If during the walk-through the buyer observes major problems or violations of the purchase contract, they have the right to hold up the settlement until they are corrected.

House tour with seller 

It is wise to make an appointment to tour the house, room by room with the seller—you can do this either before or shortly after the closing—and come prepared with questions and a notepad.  You’ll want to find out the location of the following:

  • main cutoff valves for water and gas

  • emergency switch for the furnace or burner;

  • hot water heater thermostat;

  • main electrical switch; and 

  • fuse box or circuit breaker box

Does the seller know something of the history of the house?  Are there old photographs that you might get copied?  Are there wiring diagrams, or plans for renovation that were never carried out?  What day is the garbage picked up?  

Try to get the names and phone numbers of contractors and other professionals (electricians, plumbers, roofers, carpenters) who have worked on the house and find out what they did and when.  Are there trees that require pruning or plants that require special care?  Be sure to find out where the cutoff valve is for any outside faucets. 

Final estimate of closing costs 

The mortgage lender is required to give the buyer an estimate of closing costs soon after the loan application has been filed.  

Since these estimates are subject to change, the buyer has the right to inspect the settlement form one business day before settlement.  

It is useful to do so because the buyer will probably be required to pay the remainder of the down payment (minus the amount of  deposit) and closing costs with a certified or cashier’s check.  A personal check may not be acceptable.

>Next> Closing Day

 

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