10 Things To Know If You’re Closing A Home Deal For The First Time

#1. Open an Escrow
The first step to closing the deal and unlocking the front door of your own house is to open an escrow. An escrow is a contractual arrangement in which a third party receives and disburses money or documents for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacting parties. Escrow, on average, will last approximately one month. During that time, the third party is taking care of transactions on both the seller and buyer’s behalf.
For example, if you’re providing an inspection as a buyer, you deposit funds to the escrow account. Costs of this service are to be negotiated beforehand. Be conscious of the escrow company’s fees. Some contain unexpected fees you might only become aware of during payments because they’re hidden. Understand escrow company fees before entering into an agreement.
#2. Lock in the Interest Rate
The price for a mortgage loan is typically expressed as “points” paid to get a certain interest rate. Points are essentially prepaid interest, so the more points paid, the lower the interest rate. One point equals 1% of the loan amount.
A mortgage rate lock guarantees that a mortgage lender will give a buyer a certain interest rate, at a certain price, for a specific time.
A rate lock protects the borrower from rising interest rates in the period between sales agreement execution and closing (often a month). If the buyer locks in a rate of 4.5%, she will only have to pay 4.5% interest even if rates rise while going through the loan application process. A rate lock is commonly good for 30, 45, or 60 days, though that time period can be shorter or longer. After that period expires, the buyer is no longer guaranteed the locked-in rate unless the lender agrees to extend it. This is why arranging a prompt closing is crucial.
#3. Have a Home Inspection
Making sure roofing shingles don’t fall off on the first day in your new home or the furnace doesn’t operate under 45 degrees is generally enough reason to have a home inspection.
Engage specialists to check the conditioning system, plumbing, and electricity. This could save you thousands of dollars by uncovering existing issues. They will also check mold growth and other possible environmental health threats caused by lead, fungus, and asbestos.
Even new houses need to be checked duly and thoroughly. It doesn’t matter that the house recently had all the municipal inspections by the builder.
#4. Have a Pest Inspection
The best approach is to hire a licensed pest inspection company. They’ll check your future property for contamination by flies, mosquitoes, cockroaches, fleas, rats, mice, bedbugs, termites, beetles, carpenter bees, ants, and other types of pests.
There’s no need to explain how much harm even a small number of termites can do. These issues will lead to major repair expenses and even health issues.
Presence of any kind of contamination is a subject of renegotiation of terms, or a reason to rethink the deal completely.
#5. Fix All the Issues after the Inspections
If inspections revealed any problems, you may want to ask for a price adjustment to cover the cost of repair or ask the seller to fix the problems. Some inspectors advise to look deeper into the issue. They say you should ask for a second opinion, or evaluate it further with a specialist. It’s highly recommended to discuss the estimates and fix the issues as soon as possible.
#6. Ask for Title Search and Insurance
Title insurance is needed to eliminate the potential of loss by third-party ownership on the property that you’re buying. Title insurance protects real estate owners and lenders against loss or damage due to liens, encumbrances, or defects in the title. Each title insurance policy is subject to specific terms, conditions, and exclusions.
Auto and homeowner’s insurance protect against potential future events, and is paid for with monthly or annual premiums. A title insurance policy insures against past events for a one-time premium paid at the close of the escrow. Title defects include another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements, and other items specified in the insurance policy.
#7. Conduct a Home Appraisal
A home appraisal determines the estimated market value of your soon-to-be property. The appraiser evaluates it based on general condition, geographic location, proximity to objects of interest, value of the nearby houses, recent sales, and neighborhood growth and potential, among other factors.
Mortgage lenders use this information to make sure the amount you borrow is supported by the home’s value. There’s always a risk of a low appraisal. In that case, the lender won’t go through with the transaction at that price.
The seller might adjust the sale price accordingly but also might not. Appraisal value isn’t a binding figure — what the seller sells for and the buyer pays determines the sale price. The situation might be that you negotiated a deal with the seller for a price already lower than initially wanted. This likely is due to the home selling in a buyer’s market and its location in a declining market area. This may slow or disrupt the closing process while further negotiations are conducted.
#8. Set the Time and Date of the Closing
The closing date is a negotiable factor during the offer and acceptance phase of a home sale transaction. When making an offer, the buyer will include a closing date, and, depending on the seller’s circumstances, it might be acceptable or could be countered with other terms.
Don’t choose a date casually. The right date can ensure a smooth closing and reduce closing costs; the wrong date puts the home buyer at risk of not closing on time, needlessly complicating the move, increasing expenses, and even losing your new home.
Expenses are prorated through the closing date, so generally, there’s no better day of the month to close. However, in financing a mortgage, there are some differences in what is collected as a prepaid item and when the first mortgage payment is due.
Some advice and tips:
  • Give yourself enough time. Don’t set a short closing date unless you’re paying cash. There are many steps involved with a home purchase. It takes time for the loan process. A short closing date might predate final loan approval.
  • Avoid closing at the end of the month, if possible. This is the busiest time. Unexpected issues are better dealt with if title officers and lenders are readily available.
  • Make your closing align with the actual move from your old residence to your new house. Ideally, your move should be from one to the other without a hotel stop in between.
  • Arrange with your local utility companies to ensure they can start service on the closing date. Living without water, heat, air-conditioning, or Wi-Fi until they are activated is unnecessary — not to mention unpleasant.
  • Mortgage payments are almost always due on the first day of the month and the payment is for the preceding month. As an example, if you close in July, your first payment is due on the 1st of September. However, interest is due for the month of July from the date of closing. If you close early in the month, say on the 10th, you would have to pay for 21 days, but if you close on the 25th, you would have to pay six days of interest. If money is tight, closing toward the end of the month will reduce your immediate out-of-pocket expenses.
If you schedule a closing and fail to complete it on that day, there are consequences. You’ll face increased closing costs the next month, in addition to any penalty for the delay. Although most sellers will work with you if the transaction does not close on time, failure to close opens the door to canceling the sale. This is most likely to occur in a seller’s market, in which the seller may have taken backup offers that are potentially better than yours.
Closing can be held in any agreed-upon location. For example, at the attorney’s office, or at your lender’s or title company’s offices.
#9. Be Present at a Walkthrough
A final walkthrough is a last chance to see your future house before you buy it. Commonly, it’s scheduled 24 hours before the closure.
The property should be in the condition that’s specified in your sales contract. You may inspect for any changes made subsequent to the home or pest inspections. Check if everything is in order and if any additional replacements are necessary.
If there’s an issue, the closing day could be shifted, or, upon agreement, the repair costs will be submitted to the escrow account. Don’t skip this step because missing the final walkthrough is one of the reasons for closure delays.
#10. Get Ready for Your Closing Day
Now you have run the escrow marathon and survived all the possible obstacles in your way. It’s finally time to sign the papers and get the keys to your new home.
Prepare all the paperwork that you’ve collected during the process. This includes the title search and insurance, inspection reports, bank statements, home appraisal, checks of down payment closing costs, and prepaid interest.
Several people could be present at the closing, e.g., your attorney, a seller or seller’s representative, seller’s attorney, real estate agents (both yours and seller’s), lender’s representative, a title company’s representative, closing agent, and a public notary. The exact number and function depends on the state and county. In some states, it’s as few as the buyer(s) and the closing agent, with all documents pre-executed by the other parties.
Basically, the purpose of the meeting is to sign the following documents:
  • Closing Disclosure (CD). This document contains your final payments, costs, and charges upon agreed terms and periods. You’re supposed to receive it three business days before the closing date and compare it with the conditions of the initial loan estimate.
  • Mortgage note. In signing this document, you agree to your mortgage terms and conditions, as well as penalties, in case you’re not able to pay duly and on time.
  • Deed of trust or mortgage. In real estate, a deed of trust or trust deed is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower and lender. The equitable title remains with the borrower.
  • Certificate of Occupancy (for new houses only). The Certificate of Occupancy provides authorization from the local government for a building to be used as a public edifice or as a private residence. The purpose of the certificate is to provide verification that the building is in full compliance with current building codes and is safe for occupancy. This type of certificate is issued whenever a new building is constructed within the city limits of the local government. Inspections are conducted to ensure the basic construction, wiring, plumbing, and other elements of the building are up to code, and can be certified as being safe for occupation. Such a document is needed to move into a house.
If your home-buying team is competent enough, you won’t be seeing those documents for the first time at the closing. Don’t sign anything that’s unclear to you, different from what you agreed to, or seems wrong. Make sure that you understand what you’re signing and how your payments will be distributed over time. Charges change differently depending on the mortgage type and may also depend on your insurance or taxes.
Take the keys and start moving into your new house. Now you’re a legitimate owner and a person who is responsible for a mortgage loan. Nothing can be compared to buying your first home. When you finally get through with it, you’ll be able to relax and enjoy your new property.
Don’t worry — most of the time, you’ll reach the finish line with a smile on your face and a beautiful new home to call your own. So, get out there and start searching for the perfect home for you and your family. After all, we all know that there is no place like home. Hopefully, these basic steps will help the first-time home buyers handle this incredible process with less stress and more energy.
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