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.
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Day
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